Date: 23 August 2012
PUTRAJAYA (Aug 24, 2012): Asli’s Centre for Public Policy Studies (CPPS) chairman Tan Sri Ramon Navaratnam has warned against taking lightly Fitch Ratings’ recent statement that Malaysia’s public finances are under sustained strain, saying the country will be adversely affected by the global slowdown in the near future.
“The extent of our economic slide is difficult to project. But we know for sure that we cannot take a ‘business as usual attitude’ against the headwinds and strong disruptive socio-economic currents whirling around us,” he said in a statement yesterday.
“Thus, we have to safeguard the economy against increasing strains on our national ‘credit profile’. This means exercising more fiscal discipline to restrain our high budget deficits and national debt from growing big and bad.”
Earlier, Ramon said the 2013 Budget, which will be tabled on Sept 28, should aim to show that the nation’s economic growth and resilience will be protected and sustained in the longer term.
He said although the latest estimates released by Bank Negara Malaysia indicated that the country’s economy grew by 5.4% in the second quarter, it should not be taken for granted.
“Worse still we should not become complacent and cavalier. This is because there are serious undercurrents and global economic threats lurking all over while we also have our own critical internal socio-economic and political concerns to contend with.
“Thus the next half of this year and further ahead can be fraught with dangers brought about by a whole range of socio-economic weaknesses that we need to overcome with a firm political (will), in order to remain strong and resilient.”
He said the budget has to strengthen the economic transformation to ensure longer-term structural growth and better income distribution that will be sustainable.
“For instance we cannot ignore the facts that it is the government’s accelerated spending in recent times that have pushed up public consumption and public investment.
“The salary increases and continuing high subsidies and cash grants and handouts have no doubt boosted the economic growth rates.
“The government’s Economic Transformation Projects and programmes have also stimulated economic growth, together with private sector partnerships and financing.
“This is all good for the economy but it begs the critical question as to how long this public sector initiatives can be realistically sustained?” he said.
Ramon also said Malaysia’s non-petroleum exports could decline due to lower demand from weakening foreign economies, which could affect the budget revenues.
He said if the government’s expenditures, especially in the operating budget, keep rising at a high rate, then the budget deficits will worsen.
Ramon said the Budget 2013 has to be more fiscally responsible to restrain any worsening of the budget deficits, adding that big projects that have lower priority can be slowed and the savings incurred from them could be diverted to finance small projects and programmes for the bottom 40% income groups and the small and medium industries.
“Both the budget deficits and public debt, including government liabilities, are still manageable. However, there is the danger that the Malaysian economy may be soon approaching the tipping point if government does not do more to restrain the deterioration in its budget deficits and debts,” he said.
“The ability of the Budget strategy to deal with its long drawn budget deficits will determine its ability to control the rising budget debt, both domestic and foreign.
Ramon added the government must also realise that there are other structural problems such as large and consistent private capital outflows, and the widening income gaps between the rich and the poor, rising inflation, “extensive corruption and the persistent fear of crime.”
“For all these adverse factors some international rating agencies have indicated their concern that our present comfortable ratings could be reviewed downwards.
“That would cause us major problems if our ratings decline. After all, the sick countries of Europe, like Greece, also got into grave trouble gradually, almost unnoticed initially.
“Hence we have to learn valuable lessons from their bad mistakes. We must take timely remedial action through Budget 2013, to protect and ensure our longer-term economic viability and sustainability,” he said.
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