Are the economic planners taking heed or this warning or are we still on that Cloud 9 euphoria of Malaysia Boleh?
In a Reuters report today (19th April), the World Bank has froecast in a report presented in Kuala Lumpur that Malaysia could grow by as much as 5.7 per cent this year but said that rate could fall back to as little as 4.2 per cent annually if reforms were not implemented.
PM Najib has pledged to restructure subsidies, introduce new taxes and tackle the country’s race-based system of economic preferences, but he continues to back-pedal i n the face of immediate political consideration; backing off some key tax and subsidy reforms recently.
“A stalling of the reform momentum would however cause an incremental loss in competitiveness, translating into slower growth of 4.2 per cent in the medium term and adding upward pressure on the government debt-to-GDP ratio,” the bank said.
Although Malaysia’s ability to finance its public sector deficit is not in doubt due to the country’s strong domestic bond market, the bank warned that government debt would continue to rise.
The World Bank’s baseline forecast shows that government debt will rise to close to 60 percent of gross domestic product, but warned that it could go higher without strong economic growth and the implementation of reforms such as cuts to subsidies and a new goods and services tax.
Subsidies cost Malaysia RM24.5 billion in 2009 out of total operating spending of RM160.2 billion.
Plans to cut subsidies on fuel have recently been deferred, causing investors to fret that Najib, whose government is politically weak, will not follow through on reforms.
“Malaysia’s competitive position in the global market place is expected to slip and growth could fall to levels averaging at 4.2 per cent over the projection horizon. As a result, the debt level would accelerate to close to 70 per cent of GDP in 2015,” the bank said.
Do we have the will and courage to save the economy?
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