Tuesday, November 1, 2011

Malaysia could still face bankruptcy, Idris Jala warns

Malaysia could still face bankruptcy, Idris Jala warns

UPDATED @ 08:07:50 PM 01-11-2011
November 01, 2011
Malaysian Insider

KUALA LUMPUR, Nov 1 — Datuk Seri Idris Jala said today that Malaysia could still become bankrupt within a decade if it spends borrowed money on operational expenditure such as subsidies instead of investing the cash.

“If our economy grows less than four per cent... and we don’t cut our operating expenditure, if we borrow at 12.5 per cent, if our annual debt rises to 12.5 per cent and our revenue does not grow, then it will happen,” Idris (picture) said today after announcing the latest investment updates for the government’s economic transformation programme (ETP).

The performance management minister triggered alarm bells with his controversial bankruptcy forecast last year.

Malaysia’s national debt rose by 12.3 per cent to over RM407 billion last year, according to the Auditor-General’s latest report released last week.

Although the economy grew by 7.2 per cent in 2010, last year’s fiscal deficit maintained public debt at over 50 per cent of GDP for the second year running.

The Auditor-General said in the report that the government owed 53.1 per cent of GDP, slightly down from 53.7 per cent last year.

Economists have also said the country’s economic growth could slow to just 3.6 per cent next year from a projected 4.3 per cent this year due to the increasing risk of a double dip global recession.

Idris said today that Malaysia will not go through a recession but will suffer an economic slowdown as a result of the ongoing financial crisis in Europe spreading.

“It’s not as rosy as we would like,” the Sarawakian minister admitted during a public question-and-answer session.

He noted that the GDP this year was only at 4.4 per cent.

But he assured Malaysians “our government will not allow that to happen”.

He also said his forecast did not mean Putrajaya should stop borrowing.

“We should borrow money provided the money is spent as investment rather than as operating expenditure,” he said.

“We must make sure our borrowing is in proportion to investment,” he added.

Subsidies are among the government’s biggest operating expenses.

The CEO of the government’s Peformance Management and Delivery Unit (Pemandu) said bankruptcy could be avoided even if the GDP falls below the targeted six per cent a year as long as it can increase its revenue collection.

Idris said that the country’s population has grown to 28 million but highlighted that only one per cent was currently paying income tax.

He said one of the ways to raise revenue was to implement the goods and services tax (GST).

He added that the GST would also help make the country globally competitive, noting that 140 other nations have already done so.

“If we do that, it propels competition. Sooner or later, we’ve got to implement GST,” he said.

He said the government has proposed the consumption tax but was unable to carry it out due to objections from the opposition Pakatan Rakyat pact.

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