KUALA LUMPUR, Sept 25 — Malaysia’s economic reforms could easily come to a halt if Putrajaya fails to manage the growing income gap in the country, a panel of economic experts suggested today as the country’s household debt hit record high levels.
Panellists in a discussion group on Malaysia’s economic resilience at the CEO Forum 2014 stressed that the level of “public resilience” in the face of economic upheaval is not very high, raising concerns that necessary measures would be drowned out by public discontent.
“Until you tackle this, many of the economic policies that you want to do, that you want to create for the good of the future and not only for the present, will result in more and more street protests,” said Datuk Steven CM Wong of the Institute of Strategic and International Studies (ISIS) Malaysia.
Citing a figures collected by the government’s economic planning unit (EPU), Wong said income growth has only been enjoyed by the top 20 per cent earners in the country, for the rest income has remained little changed.
As government revenue from consumption taxes and reduction of subsidies, piles the pressure on the 80 per cent whose incomes has plateaued, added the ISIS Malaysia deputy chief executive.
“Why don’t we just come clean and say we need a national social safety net? The government already commits so much money to a national social safety net except it doesn’t call it a national social safety net.
“It calls it help for farmers, for this and that, then we have BR1M, all manner of price controls, subsidies, health, universities, whatever. So why don’t we just bundle the whole thing as a national social safety net, we are paying for it anyway, and then offer it to the 70 per cent of Malaysians who don’t earn more than RM5,000 in income,” he said.
Malaysian Rating Corporation Berhad chief economist, Nor Zahidi Alias, noted that household debt in Malaysia - around 87 per cent of gross domestic product (GDP) - amounts to nearly RM900 billion, half of which he estimates comes under households that earn a monthly income of RM5,000 or less.
What this means is that over RM400 billion in household debt in the country is owed by Malaysians who have little or no savings, which he said has been partly offset by the wide array of government subsidies.
Nor Zahidi, however, raised concerns that the lack of an official safety net policy could leave the country saddled with even more subsidies than it already has,
especially with the roll out of the BR1M or Bantuan Rakyat 1Malaysia cash aid over the past few years.
“We should have a good strategy in terms of unwinding it (BR1M), or else it will become another component of subsidy. It’s good to have that when we need it the most, and I can understand that we need it the most in times when investments are not picking up and consumer standing is still wobbly because banks cutting of credit (availability).
Malaysia’s national debt, currently at 54.6 per cent of GDP, hovers just below a critical legal ceiling and is jointly ranked with Pakistan as having the second highest debt-to-GDP ration among 13 emerging Asian markets after Sri Lanka, according to data compiled by Bloomberg.
Ratings agency Fitch also maintained Malaysia’s soverign debt outlook at “Negative”, rating Malaysia’s long-term foreign currency soverign debt at A minus, which is the last rung of the upper-medium grade ratings.
Putrajaya has continued to rack up debt despite trimming the headline deficit number, saddling the nation with liabilities amassed primarily through government-linked firms.
Malaysian household borrowings have also kept apace, hitting 86.3 per cent of GDP in 2013 when it had been just 60.4 per cent less than six years ago, surpassing even the US’ 80.6 per cent registered in the first three months of this year.
