Malaysia Economy Heading Into Safe Zone: PEMANDU

Malaysia's economy is doing quite well as the current debt service ratio continues to be moderate and sustainable at 10.7 percent and it is also heading into a safe zone, Minister in the Prime Minister's Department Datuk Seri Idris Jala said.

He was responding to William Pesek's June 5 article titled 'Is Malaysia Asia's Weakest Link' in Bloomberg View, an editorial division of Bloomberg, in which the columnist wondered whether Malaysia's economy will crumble after Oxford Economics ranked Malaysia as the riskiest country in Asia in a survey.

"Over the last four years, with our public debt as a percentage of the GDP maintained below the legislated debt ceiling of 55 percent and having met with fiscal deficit reduction targets, in 2013 Malaysia took its first step into the Safe Zone," he said.

The Minister pointed out that the Boston Consulting Group has developed a matrix to determine a fiscal 'Safe Zone' for countries, with one axis featuring public debt as a percentage of gross domestic product (GDP) and another featuring fiscal surplus or deficit as a percentage of GDP. The safe zone is achieved if as a percentage of GDP, public debt is below 75 percent and deficit is at four percent or below, with the danger zone characterised by public debt equalling or exceeding the GDP and deficit of eight percent and above.

Many other countries have much higher debt profiles as a percentage of GDP such as Singapore (115.1 percent), Japan (195.8 percent), the UK (102.6 percent) and the United States (93.8 percent), Idris said, pointing out that what is more important is whether countries are able to service their loans.

Idris said: "Malaysia is well on track to meet the 3.5 percent target this year after surpassing the 4.0 percent target to achieve a 3.9 percent deficit in 2013."

"In the last four years we have systematically reduced our deficit in 2010 by 5.6 percent, followed by 4.8 percent in 2001 and 4.5 percent in 2012," he said. Malaysia's fiscal deficit was at 6.6 percent in 2009 and Prime Minister Datuk Seri Najib Tun Razak is determined for the country to be budget neutral by 2020.

Idris said: "The government will broaden its tax base and diversify revenue streams by announcing the planned implementation of the Goods and Services Tax (GST) at six percent from April 2015."

"Just imagine the positive impact the GST will have on the fiscal position eventually, when we increase the rates to the international benchmark."

"Moving on, at RM40 billion a year, Malaysia's subsidy bill is simply untenable," Idris said.

 The government has rationalised subsidies on fuel and sugar as well as put in place the reforms necessary for a targeted subsidy system to benefit the deserving via social safety nets, he noted.

"More must be done certainly. We are not shying away from the difficult policy decisions, we are pushing ahead full steam."

"We have also gradually reduced dependence on oil and gas revenue from 35.8 percent in 2011 to 33.7 percent in 2012. In 2013, we expect a further reduction to 30.6 percent," he said.

Idris said "Approved pipeline investment has been increasing year-on-year since 2010, surpassing the government's annual investment target of RM148 billion under the 10th Malaysia Plan." In 2011, approved investment stood at RM154.6 billion; in 2012, RM167.8 billion; and in 2013, RM216.5 billion.

He said "Offshore borrowing stands at RM324 billion making up 32.9 percent of GDP with only 46.7 percent of external debt stock in Malaysia coming from offshore borrowings."

"Of this amount, almost all were borrowed by profit-driven and revenue maximising institutions including private sector and public enterprises and only five percent is attributed to the Federal Government," he said.

On the Federal Government's borrowings, Idris said: "The external debt is at RM158.4 billion of which only RM16.8 billion are in foreign currencies. This simply means that we are less susceptible to fluctuations in the global economy," he said.

Meanwhile, Malaysia has climbed steadily from 23rd in 2010 and 18th in 2012 to 6th in 2014, and has been in the top 10 in the world for the last two years under the World Bank's Doing Business survey.

The country climbed three notches from last year to capture 12th spot in the recent IMD World Competitiveness Yearbook 2014, and placed 15th compared to 25th in 2013 under AT Kearney's FDI Confidence Index 2014.

"So, if we are being told that our economy is in trouble, the writer and Oxford Economics should, at the very least, present a more factually compelling story," Idris said.

/Bernama 23-06-2014

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