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Saturday, August 24, 2013

Upcoming key policy events to provide clearer picture

Posted on August 23, 2013, Friday

KUCHING: The upcoming updates for the Economic Transformation Programme (on August 29) and Budget 2014 (October 25) are the two key policy-related events to provide more clarity on Malaysia’s economic outlook.

According to the research team at Maybank Investment Bank Bhd (Maybank Research), the Performance Enhancement and Management Unit’s (Pemandu) update on the ETP will provide some colour on the progress and prospects of ETP-related investments.

“Meanwhile, the Budget 2014 will be the most important policy event in the second half of 2013 especially in the wake of Fitch Rating’s downgrade of the outlook on Malaysia’s sovereign credit rating to ‘negative’ from ‘stable’ on July 30, 2013, implying the risk of a lowering in the current investment-grade rating of ‘A-’ in the following 18 to 24 months,” they highlighted.

“In particular, Budget 2014 should put fiscal reforms back on track, especially in relation to the Subsidy Rationalisation Programme (SRP) that has been mothballed since mid-2011, the indefinite delay in introducing Goods and Services Tax (GST); and better control and management of government spending, procurements and projects.”

Maybank Research also said the Budget 2014 may also include possible reviews in some of the major infrastructure and investment projects to avoid the ‘bunching’ of mega projects over the next few years that could strain the government finance and the external balance, following the recent weakening of the country’s current account surplus amid the persistent fiscal deficit.

Friday, August 23, 2013

Who says we'll lose out?

Publication: NST
Date of publication: Aug 22, 2013
Section heading: Main Section
Page number: 020
Byline / Author: By Dr Irwan Shah Zainal Abidin

MUCH has been said about the Trans-Pacific Partnership (TPP) agreement. Negotiations for this plurilateral (a multi-national legal or trade agreement between countries) and multilateral agreement are ongoing where, so far, 14 of the 29 chapters of the TPP texts have been concluded, although the details are still confidential.

Both the pro- and anti-TPP camps have valid arguments. But it is imperative for the TPP to be analysed in a holistic manner, that is, to examine its costs and benefits in the context of the whole ecosystem of the economy, the global economy, and the new world order that we live in today.

It is also critical to appreciate its theoretical underpinnings.

Our national agenda is clear - to achieve a high-income and developed nation by 2020.

In fact, Prime Minister Datuk Seri Najib Razak recently said this could be achieved two years earlier, in 2018.

In other words, the need to improve quality and sustainable gross domestic product (GDP) growth towards this end is more crucial than ever.

This is where the benefits of TPP come into the picture. Since the onset of the world financial crisis in 2007, our growth model has been driven by domestic demand. This cannot be done at the expense of our external sector, as we have only a population of 29 million and we need to raise our level of competitiveness regionally. More importantly is the need to contain our household debt to GDP ratio, which is now the highest in the region.

Recently, international rating agency Fitch Ratings downgraded Malaysia's credit rating outlook. As a result, the borrowing costs have risen in the form of yields on 10-year sovereign bonds and, eventually, will lead to a depreciation of the ringgit.

All this will deter attempts to attract more capital to fund projects under the Economic Transformation Programme (ETP).

One of the main reasons for the downgrading of the credit outlook from "stable" to "negative" is the debt and deficit levels, including the government's guaranteed debt.

Although it is commendable that the government has formed a fiscal committee recently, the policy options to address them are limited. The implementation of the goods and services tax (GST) and the subsidy rationalisation appear unlikely to happen any time soon.

In addition, exports have contracted significantly recently. What is more alarming is that this downward trend in trade and current accounts is expected to continue in the near future.

The state of the global economy is no better. Chief among them is the slower growth of China.

In addition, there are still no clear signs that the eurozone economies are going to recover any time soon. The United States, the world's largest economy, is contemplating another round of quantitative easing, which, if it happens, will have serious implications for Malaysia and the rest of the world.

I have noticed that most of the arguments against TPP are similar to the views aired by detractors of globalisation.

I might buy some of their arguments if we were still living in the 1990s. But living in the 21st century, with the New Economic Model (NEM), and all the transformational programmes and policies, we are ready for TPP. Perhaps the issue of national sovereignty and rising cost of certain things, especially specialised drugs, must be looked into here.

TPP, as an initiative to establish a free trade agreement, is a form of economic integration in international trade. It is not the strongest type of regionalism, such as a common market or economic monetary union. It is, in fact, one of the weakest, together with other forms, such as the preferential trade agreement. Therefore, TPP does not involve the elimination of all forms of barriers and free movement of factors of production.

It is clear that in managing globalisation, the world has become increasingly regionalised. Many empirical studies have shown that regionalism promoted rather than impede trade.

To believe that strong countries like the US will get all the benefits under the TPP is a grave misconception. This is because under a free trade arrangement, the gains from trade are not dependent on absolute advantage, but rather on comparative advantage.

In other words, even the trading country has no advantage in terms of productivity or competitiveness, gains of trade are still possible. When it comes to exploitation under the agreement, the question that needs to be asked shall not only be in matters of how much the exploitation would be, but more essentially, the alternative available.

Dr Irwan Shah Zainal Abidin,
Senior Lecturer, School of Economics, Finance and Banking, Universiti Utara Malaysia

Thursday, August 22, 2013

Menangani salah faham sistem cukai - BERITA HARIAN 1 OGOS 2013

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GST dijangka galakkan pelancongan

20 Ogos 2013

KUCHING - Menggalakkan pelancongan merupakan antara objektif bagi cadangan untuk memperkenalkan cukai perkhidmatan dan barangan (GST) untuk menggantikan sistem cukai semasa, kata Pegawai Kastam Unit Pasukan Petugas Khas GST Mohamad Sabri Saad.

Beliau berkata pelancong akan dibenarkan menuntut GST yang dibayar bagi pembelian di bawah skim bayaran balik pelancong manakala di kawasan-kawasan tertentu termasuk Labuan, Langkawi dan Tioman, tiada GST akan dikenakan.

"Model GST Malaysia mengambil kira kebajikan rakyat, terutamanya golongan berpendapatan rendah, yang akan mendapat penilaian sifar asas bahan makanan, air dan elektrik tanpa GST ke atas perkhidmatan kerajaan," katanya pada seminar mengenai GST di sini hari ini.

Mohd Sabri berkata kumpulan juga akan mendapat manfaat daripada cadangan had, yang tidak termasuk perniagaan kecil dari GST bersih selain mengecualikan pengangkutan awam, kesihatan, pendidikan, lebuh raya bertol, hartanah kediaman dan kewangan.

"Kadar GST akan ditetapkan pada kadar yang rendah untuk meminimumkan kesan GST terhadap harga dan kebanyakan barangan berkadar sifar akan diturunkan dari segi harga," katanya.

Terdahulu, Timbalan Pengarah Kastam dan Eksais Sarawak Ahmad Jii kata sebanyak 160 negara telah mendapat manfaat daripada GST kerana eksport mereka akan menjadi lebih berdaya saing. - Bernama

Seminars to keep public informed about Goods and Services Tax

Published: Wednesday August 21, 2013 MYT 12:00:00 AM 
Updated: Wednesday August 21, 2013 MYT 3:57:01 PM

Informative: Participants at the GST seminar in Kuching.

KUCHING: Although the Government decided to implement the Goods and Services Tax (GST) in Budget 2005, this however had to be delayed as it was found that the business sector and the people were not ready yet to accept its implementation.

State Customs Department deputy director Ahmad Jii said this was due to lack of awareness and understanding on the taxation system of the GST implementation.

“The Customs Department has organised several public relations sessions on the GST for consumers, industries and elected representatives in the state since 2010.

“The GST awareness programme will be the main agenda for the department this year until its implementation is announ- ced by the Government,” he said when opening a two-day GST seminar here yes- terday.

Ahmad said the GST Bill 2009, which was tabled for first reading in Parliament in December 2009, was soon approaching the consumers and business community based on last year’s budget indicators and the latest economic development.

“The challenge is that many of us are not well versed with the GST implementation and what its benefits are.

“That is why it is apt that the Customs Department continue to engage the public through seminars like this. As the government department entrusted by the Government to implement the tax, publicity on its implementation is therefore important to ensure everyone, especially the business community and consumers, is ready and understand its implementation.

“It is only when it is fully understood that its implementation can be well received,” he added.

GST belum dilaksana kerana belum difahami

by Eswandy Hinri. Posted on August 21, 2013, Wednesday

KUCHING: Ketidaksediaan kerajaan melaksanakan Cukai Barang dan Perkhidmatan (GST) adalah disebabkan oleh kurangnya kesedaran serta pemahaman orang ramai mengenai sistem percukaian tersebut.

Timbalan Pengarah Kastam Negeri Ahmad Jii memberitahu bahawa pelaksanaan GST adalah penting kerana ia akan melebarkan asas cukai langsung sedia ada dan mengurangkan defisit negara.

“Publisiti mengenai GST amat penting untuk memastikan semua lapisan masyarakat terutama sektor perniagaan dan pengguna dapat bersedia serta memperolehi pengetahuan serta pemahaman GST yang betul,” ujar Ahmad ketika merasmikan Seminar GST di sebuah hotel di sini semalam.

Seramai 500 orang terdiri daripada wakil jabatan serta agensi persekutuan dan negeri, pihak berkuasa tempatan dan dewan perdagangan hadir pada seminar selama dua hari bertujuan memberi kesedaran serta pemahaman mengenai GST.

Seminar tersebut merupakan anjuran bersama Jabatan Kastam Diraja Malaysia Sarawak, Majlis Keselamatan Negara, Jabatan Perdana Menteri dan Unit Perancang Negeri Pejabat Ketua Menteri.

“Kerajaan sebelum ini bercadang untuk melaksanakan GST dalam Belanjawan 2005 tetapi terpaksa menangguhnya kerana mendapati sektor perniagaan dan rakyat belum bersedia menerimanya.

“Pada tahun ini, program kesedaran GST akan menjadi agenda utama jabatan sehingga pelaksanaannya diumumkan kerajaan nanti,” jelas Ahmad.

Beliau memberitahu, jabatannya juga telah mengadakan beberapa sesi perhubungan awam GST dengan para pengguna, industri dan wakil rakyat kerajaan negeri sejak 2010.

“Cabaran jabatan kami sekarang ialah ramai orang kurang memahami serta tidak mengetahui GST dan faedahnya.

“Rang Undang-Undang Cukai Barang dan Perkhidmatan 2009 (RUU GST) telah dibentang untuk bacaan kali pertama pada 16 Disember 2009 dan berpandukan indikator dalam Belanjawan 2012 serta perkembangan ekonomi semasa, GST kian mendekati orang ramai serta para peniaga,” tambah Ahmad.

Menurutnya, jika sesuatu perkara dapat difahami sepenuhnya, maka terbukalah ruang yang luas untuk menerima perkara yang baharu seperti GST.

“Penganjuran seminar seperti hari ini adalah tepat pada masanya dalam meneruskan usaha perhubungan awam GST bagi mengelakkan penjelasan daripada sumber yang kurang tepat,” tegas Ahmad.

Defisit, hutang kerajaan perlu diatasi secara berhemah

Publication: BH
Date of publication: Aug 17, 2013
Section heading: Main Section
Page number: 033
Byline / Author: Oleh Siti Nurazira Mohd Daud

Kejatuhan indeks kompositi FTSE Bursa Malaysia sebanyak 22.46 mata pada 31 Julai lalu memeranjatkan banyak pihak, khususnya pelabur runcit. Dalam perkembangan sama, nilai ringgit berbanding dolar Amerika ditutup pada kadar yang terendah sepanjang tiga tahun.

Ia adalah antara reaksi pasaran terhadap pengumuman yang dibuat oleh agensi penarafan Fitch Rating terhadap penarafan kredit Malaysia. Fitch mengeluarkan outlook negatif serta memberi indikasi penurunan penarafan kredit Malaysia bagi dua tahun akan datang.

Perkembangan ini adalah disebabkan oleh ketidakpastian terhadap usaha bersungguh-sungguh yang dilaksanakan oleh Kerajaan Malaysia dalam mengurangkan defisit fiskal seterusnya hutang kerajaan.

Dalam perkembangan yang berbeza, Kerajaan Malaysia optimis dengan kedudukan fundamental ekonomi yang kukuh disokong dengan kedudukan rizab antarabangsa yang kukuh iaitu mampu menampung 9.6 bulan import tertangguh dan 4.3 kali hutang luar jangka pendek. Usaha bagi mengurangkan defisit kerajaan turut akan dilaksanakan yang dijangka dibentangkan dalam Belanjawan 2014 pada Oktober depan.

Penarafan kredit

Secara umumnya penarafan kredit sesebuah negara adalah satu petunjuk penting yang diguna pakai oleh pelabur asing dalam menilai keputusan pelaburan dalam sesebuah negara. Penarafan kredit sesebuah negara adalah maklumat mengenai keupayaan sesebuah negara membayar semula pinjaman atau hutang dalam tempoh masa ditetapkan yang telah dipersetujui.

Justeru, ia juga dilihat sebagai petunjuk kepada kebarangkalian sesebuah negara akan mungkir atau tidak membayar kepada komitmen pinjaman yang dibuat.

Dalam perkembangan sama, agensi Standard and Poor menetapkan pengekalan penarafan kredit Malaysia. Menurut Standard and Poor, pertumbuhan ekonomi yang kukuh disokong oleh pengurangan dalam defisit fiskal seterusnya bebanan hutang dilihat boleh memberi perkembangan positif kepada peningkatan penarafan kredit Malaysia.

Justeru, penarafan kredit negara adalah satu petunjuk penting yang mana ia berkaitan dengan pelaburan asing dan aliran masuk modal seterusnya memberi beberapa kesan kepada ekonomi negara.

Pengurangan defisit dan hutang

Isu pengumpulan hutang kerajaan melalui defisit fiskal yang dicatatkan oleh Malaysia dari setahun ke setahun mula menunjukkan perkembangan yang membimbangkan. Bagaimanapun, perkembangan ini perlu dilihat secara berhemah dan menyeluruh kerana sebarang kekhilafan dalam penilaian mampu mewujudkan keadaan panik di kalangan pelabur dan orang awam seterusnya menjejaskan kestabilan ekonomi negara.

Pada masa kini, kadar hutang yang ditetapkan sebagai optimal adalah pada kadar 50 peratus daripada KDNK oleh negara OECD manakala negara Kesatuan Eropah menetapkan pada kadar 60 peratus.

Mana-mana negara yang mempunyai bebanan hutang melebihi tahap berkenaan, ia dilihat memberi kesan negatif kepada pertumbuhan ekonomi. Bagaimanapun, dalam kalangan ahli akademik mahupun pembuat dasar tiada kesimpulan atau penetapan khusus mengenai nilai optimal berkenaan. Setiap negara adalah berbeza dan mempunyai ciri-ciri unik yang tersendiri.

Justeru, ada satu pandangan dalam kalangan pakar ekonomi menyatakan bahawa, selagi pertumbuhan ekonomi sesebuah negara berada dalam keadaan yang kukuh berserta petunjuk ekonomi lain yang mencerminkan keadaan positif, pegangan hutang yang tinggi tidak semestinya mencermin ketidakstabilan sesebuah ekonomi.

Bajet 2014

Bajet 2014 dijangka akan menyaksikan satu pelan tindakan yang akan dilaksanakan oleh kerajaan dalam usaha mengurangkan defisit seterusnya stok hutang melalui komponen fiskal yang terdiri daripada komponen perbelanjaan dan komponen pendapatan. Beberapa cukai baru dijangka akan diperkenalkan seperti cukai barangan dan perkhidmatan (GST) serta meningkatkan kadar beberapa cukai lain. Namun, peningkatan kadar cukai dan pengenalan cukai baru mungkin pada keadaan yang berjaga-jaga memandangkan kadar eksport barangan dijangka berkurangan disebabkan kelembapan beberapa ekonomi seperti Amerika Syarikat serta beberapa negara Eropah yang masih berusaha keras untuk pulih daripada krisis ekonomi dan kewangan yang dihadapinya. Oleh yang demikian, ia bukan satu langkah yang mudah yang dilaksanakan oleh kerajaan kerana ia juga boleh mengakibatkan penguncupan ekonomi Malaysia.

Justeru, usaha yang dilaksanakan oleh kerajaan ini seharusnya mendapat sokongan padu daripada rakyat dalam usaha mengurangkan beban hutang kerajaan. Pertumbuhan ekonomi negara juga bergantung kepada pelaburan modal asing yang mana keputusan pelaburan adalah berdasarkan petunjuk seperti penarafan kredit oleh agensi penarafan kredit. Seharusnya isu mengenai cukai GST ini tidak dipolitikkan, sebaliknya dilihat sebagai satu usaha bersepadu rakyat dan kerajaan dalam menjaga kestabilan ekonomi negara. Selain itu, berasaskan ke pada prinsip rakyat didahulukan, pencapaian diutamakan, komponen perbelanjaan dijangka akan mengalami perubahan yang sangat minima. Pemberian subsidi dijangka akan lebih terpilih kepada sektor yang mampu menjana pertumbuhan domestik melalui pelaburan disamping usaha mengekang peningkatan dalam kadar inflasi.

What the Budget should contain

Publication: NST
Date of publication: Aug 5, 2013
Section heading: Main Section
Page number: 018
Byline / Author: By Tan Sri Dr Sulaiman Mahbob

THE concern to address the public sector deficit is more than justified if we are to ensure long-term fiscal sustainability.

The case of Greece and Spain is still topical although, unlike them, we do not have the problem of external deficit. Nevertheless, our trade balance is narrowing fast in view of the feeble market prospects.

As we have taken several measures for many years to address the persistent deficit, perhaps in preparing for the 2014 Budget, we have to be a bit a little more adventurous.

Measures to address the deficit invariably will zero in on revenue and public expenditure management. The government's revenue position appears to have improved lately in view of better collection and rising compliance.

However, controlling expenditures may be more challenging in view of the expected public sector role in undertaking development projects, many of which are obligatory in nature, such as education and health projects. In addition, curbing the rise in operating expenditures is quite difficult because of the "locked-in" nature of these expenses.

For a start, it has to be reiterated that implementing the goods and services tax (GST) is a must in order to augment revenue. The current situation of a low inflation environment may justify its introduction.

The private sector has been given ample notice since 1987, to prepare itself for a value-added tax (VAT, then). GST is less arbitrary and is more efficient. Any increase in prices, is just a one-time change. However, we need a strong will to introduce the GST.

It is also good to reintroduce the real property gains tax or raise it if it is in place. The high property prices have been influenced partly by speculative demand of the rich.

Some operators can be practising non-competitive practices such as pre-booking so as to benefit from resale at higher prices. RPGT imposed upon sales of houses less than five years after purchase can curb this demand. It will also add revenue to the government.

We may also need new ways of looking at things. The Budget should facilitate the private sector to spend more on investments. This can be done by encouraging it to undertake social projects, on the basis of privatisation or public private partnership arrangements.

A greater sharing of financing economic growth and development by tapping into private sector liquidity can enable more projects to be carried out without increasing the deficit provided the risk is shared equitably.

Some of the government's allocations can be passed to the private sector, now that our private sector is strong. Two items can be considered immediately; they are housing and car loans. These can be sourced from the banking system, which is now flushed with liquidity.

The authorities may instead consider subsidising only the interest rate differential between government rates (four per cent) and the market rates (six to seven per cent) to ensure equality of treatment of all officials.

Public subsidies provide one avenue where judicious reduction in some areas can be tolerated. The subsidy on petrol for private vehicles and diesel can be reduced so that the retail prices approach market prices in the shortest time.

Neighbouring countries are paying higher energy prices. Our petrol subsidy does not discriminate between the rich and poor, thus the rich having more and bigger cars enjoy much more. Leakages on diesel subsidy for fishermen are also well known.

The pricing for higher education needs a review, too. Tuition fees in the public universities are much lower than in private institutions. Hence the private return exceeds social return; the latter was higher in the 1960s and 1970s. However we need to support students from low-income families through financial assistance.

On the broader front, financing health in this country needs a long-term review and some initial steps can be introduced in the 2014 Budget for health insurance so as to increase the private sector's share in healthcare cost.

We need to send a message that people have to plan for a more market-based social services pricing. The government is, however, expected to maintain its social responsibility to the low-income group even under a policy of market-based subsidies.

The idea has been mooted for some time. It would be good to revisit this matter so that work on it can be advanced and a constructive programme be implemented within a few years.

Finally, the issue of efficiency of public transfers, the 1Malaysia People's Aid included, has to be re-examined. Transfers cannot be done without equal contribution of the recipients.

Yes, transfers have increased retail activities. It would be better to insist recipients undertake simple projects to qualify for such assistance. They can be paid for self-improvement schemes, such as attending some form of training or doing social work in consideration of the transfer.

This Budget preparation has to implant the seeds of prudence among all, and greater revenue enhancement while maintaining the nation's competitiveness.

Govt to strengthen economic policies

Publication: NST
Date of publication: Aug 2, 2013
Section heading: Main Section
Page number: 002
Byline / Author: By Roziana Hamsawi

KUALA LUMPUR: THE government will unveil a number of policies in the 2014 Budget to strengthen the country's fiscal and macro-economic position, Prime Minister Datuk Seri Najib Razak said yesterday.

Responding to the downgrading of the country's sovereign credit rating from stable to negative by Fitch Ratings on Wednesday, he said the government shared the rating agency's concerns on fiscal reforms.

"We are looking at various policy options and the details will be unveiled shortly in the forthcoming budget," he said, pointing out that the government had set up a fiscal committee to look at some of the challenges.

The 2014 Budget will be tabled in Parliament on Oct 25.

Najib, who is also finance minister, said the revision by Fitch Ratings was only with regard to its outlook and the rating agency has "reaffirmed our current rating and this is something positive".

Najib said this after launching the new iconic brand identity for Malaysia as the world's Islamic Finance Marketplace here yesterday. Present were Bank Negara Malaysia governor Tan Sri Zeti Akhtar Aziz and Finance Minister II Datuk Seri Ahmad Husni Mohamad Hanadzlah.

In his speech, Najib said Bank Negara had put forward a number of proposals to strengthen Malaysia's economic resilience and accelerate the government transformation programme.

Zeti later said Malaysia had the capacity to address the fiscal concerns in a gradual manner.

She said both the central bank and government had been addressing the issues.

Zeti said Fitch was just doing its job as a rating agency and its concerns would be addressed in the coming budget.

"Malaysia still has time to do it. Of course it is now more urgent because the global environment has become more challenging as the recovery that we expected from major economies has not strengthened."

Zeti added that it was important for Malaysia to reduce its vulnerability to these challenges, including implementing fiscal reforms going forward.

Fitch, in its ratings, said Malaysia's public finances were its key rating weakness and cautioned that the situation could be mitigated if reforms and remedial measures were carried out.

Alliance Research chief economist Manokaran Mottain, when contacted by Business Times, said there was an expectation that the government would announce some reforms after the general election but these have yet to materialise.

He added that Malaysians were waiting for announcements on subsidy rationalisation and the goods and services tax (GST), the latter, he felt must not be delayed.

Manokaran said with the volatility of the external environment and likelihood that Malaysia might not achieve its gross domestic product target of five to six per cent growth this year, addressing deficit concerns would be more challenging.

"We need fiscal reforms soon, maybe via operating expenditure or expanding the revenue base. It may not be a good time to trim government expenditure but we must look at ways of trimming the operating expenditure of the government," he said.

RAM Holdings group chief economist Dr Yeah Kim Leng said a rating downgrade could be averted if the government commenced with structural reforms to rein in the fiscal deficit and government debt level by cutting back spending, rationalise subsidies and roll out GST.

"We believe the country's financial and economic conditions will make it quite easy for the government to implement the fiscal reforms over the next one to two years to avert the rating downgrade."

`Malaysia must step up fiscal, structural reforms'

Publication: NST
Date of publication: Aug 1, 2013
Section heading: Business Times
Page number: 004
Byline / Author: By Rupa Damodaran

KUALA LUMPUR: MALAYSIA'S public savings and structural reforms must be stepped up to stabilise the country's credit outlook globally without risking further downgrades, Fitch Ratings warned.

The bulging household debt to gross domestic product (GDP) is also another important feature in Malaysia's credit profile, although the Fitch's Banking System indicator of "bbb" suggests the standalone strength of Malaysian banks as a buffer.

Andrew Colquhoun, head of Asia-Pacific Sovereigns team, however, said the outlook, which spans between eight months and two years on the average, can be subject to changes and "depends on what transpires" and the government's commitment.

Fitch Ratings has revised Malaysia's outlook to "negative" from "stable".

Its long-term foreign and local currency issuer default ratings (IDRs) have been affirmed at "A-" and "A", respectively.

The revision reflects its assessment that prospects for budgetary reform and fiscal consolidation to address weaknesses in the public finances have worsened since the government's weak showing in the May 2013 general election.

Federal government debt rose to 53.3 per cent of GDP at end-2012, up from 51.6 per cent at end-2011 and 39.8 per cent at end-2008.

The general government budget deficit widened to 4.7 per cent of GDP in 2012, led by a 19 per cent rise in spending on public wages.

"If the government debt ratio rises to more than 55 per cent - which is not a magic number to us - it raises the question of the consolidation efforts (commitment)," he said in a teleconference on Malaysia's negative outlook.

Colquhoun, who is based in Hong Kong, stressed on the significance of Budget 2014 and broadening of the revenue base via the goods and services tax (GST), which will enable the rating agency to to have a more positive credit perspective of Malaysia.

According to Fitch, it will be difficult for Malaysia to achieve its three per cent deficit target to the GDP for 2015 without more consolidation measures.

Another area of concern is the level of government-guaranteed debt, which rose to 15.2 per cent of GDP by the end of 2012 from nine per cent at the end of 2008 due to the participation of state-owned enterprises in government-led investment programme.

The non-financial public sector deficit soared to 10.2 per cent of GDP in 2012 from 3.5 per cent in 2011.

Private sector leverage is also of concern as credit has reached 118 per cent of GDP end of last year.

The rising role of non-resident investors points to growing exposure to global investor risk appetite, but Fitch views strengths in Malaysia's external finances as a buffer against volatility.

Credit Suisse described it as an interesting and symbolically important move that could be followed by the other two main rating agencies Standard & Poor's and Moody's.

The research houses had earlier flagged that the current account deterioration, high fiscal deficit and rising quasi-fiscal deficit could trigger a move to negative watch.

"In our view, the chance of an actual ratings downgrade over the next 12 months is 60 to 70 per cent, while we expect other agencies to follow Fitch in due course."

On Fitch's call to Malaysia to step up on its fiscal consolidation and budgetary reform, Credit Suisse commented that any moves in that direction will be unlikely before Umno's party elections on October 5.

A key test of the government's budgetary resolve will come with the government's 2014 budget announcement on October 25.

"No doubt Fitch and the other rating agencies will be looking for some credible tightening measures, including an increase in what are extremely generous fuel subsidies, as well as a clear timetable for the introduction of GST," it said.

Wednesday, August 21, 2013

Positive outlook keeps Censof at market perform

Published: Tuesday August 20, 2013 MYT 12:00:00 AM 
Updated: Tuesday August 20, 2013 MYT 6:41:56 AM

By Kenanga Research
Target price: RM0.61
Market perform (maintained)

CENSOF Holdings’ net profit of RM2.7mil for the first half of 2013 was below expectations, accounting for only 16.4% and 18.3% of our and the street’s full-year estimates of RM16.4mil and RM14.7mil, respectively.

Higher administration and finance costs were the key factors for its weak result. No dividend was announced during the quarter as expected.

Year-on-year, the revenue in the period rose to RM25.5mil (+16.9%) on higher revenue contribution from its new training solutions segment, coupled with higher recognition of maintenance revenue.

Nonetheless, despite the rising topline, the net profit dropped to RM2.69mil (-9.7%) due to higher administration expenses and financing cost as a result of recent corporate exercises for issuance of redeemable convertible notes (RCN) and private placement.

Quarter-on-quarter, financial year 2013 second-quarter revenue improved by 25.9% to RM14.2mil from RM11.3mil mainly due to the partial billing for the Social Security Organisation (Socso) project and higher revenue contribution of RM1.6mil (versus RM1mil previously) from the training solutions segment.

However, the higher cost of sales of RM9.7mil (+74%) and administration costs of RM3.2mil (versus RM2.6mil previously) lowered the group’s profit before tax margin substantially to 5.4% as compared with 20.9% in the first quarter 2013. We believe Censof’s long term outlook remains encouraging, underpinned by potential catalyst from goods and services tax (GST) development in the upcoming Budget 2014, potential growth prospect from positive merger and acquisition synergy and continued projects/contracts flow from various government agencies. Our latest meeting with Censof’s management indicated that there could be a one to two quarters delay in completing Socso projects (worth RM33.5mil), targeted to be completed by this month, due mainly to timing mismatch.

The delay may potentially cause higher operating costs in both labour and administration expenses, compelling us to lower our estimated net profit for financial years 2013 and 2014 by 14.9% to 22.0% to RM12.8mil and RM15.4mil, respectively.

We maintain “market perform”.

Despite an uninspiring set of first half 2013, our Censof’s target price is only trimmed marginally to RM0.61 (versus RM0.62 previously) as we have raised our targeted financial year 2014 price-earnings ratio to 15.5 times (+1 standard deviation) from average 12.2 times previously propelled by exciting prospects from potential GST development in the upcoming 2014 Budget, which may serve as an earnings growth catalyst.

By CIMB Investment Bank
Target price: RM7.94
Outperform (maintained)

DURING our recent meeting, we gathered that Kossan should enjoy higher margins as it expands its new manufacturing model and nitrile production.

Also, special purpose gloves (SPV) and potential technical rubber product (TRP) acquisitions would buffer competitive pressure.

Kossan remains an “outperform” and our top pick, with the catalysts being strong demand, widening margins and diversification efforts. We raise our earnings per share forecasts for financial years 2013 to 2015 by 7% to 11% for a better product mix, higher plant efficiency and an assumed 5 billion piece rise in capacity in financial year 2014.

We also apply a higher calendar year 2014 target price-earning ratio of 14 times (20% discount to Hartalega’s target instead of 30%) to reflect its higher margins and diversification moves. We met up with Kossan’s management recently and left the meeting with renewed optimism on the stock.

The company plans to expand its new manufacturing model (more focused manufacturing lines with single specification for single customer) in its new plant. To expand its technical rubber product business, it also plans to acquire companies.

We were introduced to its new product “InTouch glove” which is a grade below surgical glove and a cheaper alternative for minor surgery. While we take a positive view of its moves, they are not entirely surprising as it is the norm for manufacturing companies to continuously increase production capacity and manufacture in the most efficient way.

The use of both the new manufacturing model and the old one (shorter lines with multiple specifications for multiple customers) will reduce downtime while mitigating the risk of over-reliance on a few large customers.

Hence, it helps to increase the group’s margin at lower risk.

Being cheaper than surgical glove, InTouch gloves should provide a gateway to emerging markets.

Investors should accumulate the stock as its valuation remains attractive.

The new manufacturing model, the rising proportion of nitrile sales and continuous diversification efforts will help to expand margins and lower competitive risk.

On Aug 26, Kossan will release its second-quarter results, which should be broadly in line with our revised forecast.

GST Yang Dicadangkan Disasar Galakkan Pelancongan

KUCHING, 20 Ogos (Bernama) -- Menggalakkan pelancongan merupakan antara objektif bagi cadangan untuk memperkenalkan cukai perkhidmatan dan barangan (GST) untuk menggantikan sistem cukai semasa, kata Pegawai Kastam Unit Pasukan Petugas Khas GST Mohamad Sabri Saad.

Beliau berkata pelancong akan dibenarkan menuntut GST yang dibayar bagi pembelian di bawah skim bayaran balik pelancong manakala di kawasan-kawasan tertentu termasuk Labuan, Langkawi dan Tioman, tiada GST akan dikenakan.

"Model GST Malaysia mengambil kira kebajikan rakyat, terutamanya golongan berpendapatan rendah, yang akan mendapat penilaian sifar asas bahan makanan, air dan elektrik tanpa GST ke atas perkhidmatan kerajaan," katanya pada seminar mengenai GST di sini Selasa.

Mohd Sabri berkata kumpulan juga akan mendapat manfaat daripada cadangan had, yang tidak termasuk perniagaan kecil dari GST bersih selain mengecualikan pengangkutan awam, kesihatan, pendidikan, lebuh raya bertol, hartanah kediaman dan kewangan.

"Kadar GST akan ditetapkan pada kadar yang rendah untuk meminimumkan kesan GST terhadap harga dan kebanyakan barangan berkadar sifar akan diturunkan dari segi harga," katanya.

Terdahulu, Timbalan Pengarah Kastam dan Eksais Sarawak Ahmad Jii kata sebanyak 160 negara telah mendapat manfaat daripada GST kerana eksport mereka akan menjadi lebih berdaya saing.


Public understanding of GST still low – Deputy director

by Karen Bong, Posted on August 21, 2013, Wednesday

INTERESTING: Ahmad Jil (right) attending the GST Seminar that aims at enhancing awareness and education about GST among all consumers.
GOOD RESPONSE: Some of the 500 participants at the GST Seminar.

KUCHING: Low level of awareness and understanding about the Goods and Services Tax (GST) remains the biggest barrier to successfully implementing the consumption-based tax in Malaysia.

Royal Malaysian Customs deputy state director (Customs and Tax) Ahmad Jil pointed out yesterday that enhancing awareness and education on GST has become a major agenda of the department this year.

“Our responsibility is to prepare the general public, businesses, companies and industries to be GST-ready until the government announces its full implementation,” he said at the GST Seminar held at a leading hotel here.

The two-day seminar was organised by Royal Malaysian Customs Department in collaboration with the State Planning Unit and State Security Council in the Chief Minister’s Department.

The first day of the seminar for consumers sector was attended by some 500 participants comprising heads of departments and agencies from both state and federal governments as well as representatives from the private sector, chambers of commerce, community leaders and non-governmental organisations (NGOs).

“In fact, the government has already decided to implement the GST which was revealed in the 2005 Budget but had to postpone implementation as consumers including the businesses are not ready to accept the GST,” he said.

“This is because many of us know little or nothing about GST – its mechanism and concept including benefits,” he stressed.

As such, Ahmad said it is important for the department to continue public engagement and publicity through seminars such as this to expose, inform and educate all consumers about GST.

“The GST Bill was tabled in Parliament for its first reading on Dec 16, 2009 and with indications in the 2012 Budget and current economic development, its implementation is fast approaching,” he said.

Therefore, Ahmad reiterated that it is the department’s responsibility to disseminate accurate information on GST to ensure all segments of society, particularly the business sector, get full understanding about the tax system and its benefits to fully accept it.

Since 2010, the Sarawak Customs Department has carried out numerous GST awareness and education programmes with consumers and industries.

The seminar will continue today for the industrial sector which is expected to be attended by some 300 participants.

GST is a multi-stage consumption tax levied on goods and services at all levels of business transactions.

More effective, transparent and business friendly, GST will replace the current Sales and Services Tax (SST), not a new tax and consumers will not be paying extra taxes.

It replaces the five per cent to 15 per cent government and service tax.

GST is meant to generate more competition between businesses and increase Malaysia’s economic strength.

In the long run, consumers will benefit from more affordable higher quality goods and services as well as more development and progress within the nation including infrastructure, education, welfare, healthcare, national security and so on.

Benefits for consumers include the possibility of paying less for some goods and services as GST eliminates double taxation under SST.

As for businesses, they can benefit from recovering input tax on raw materials and incurred expenses, thus reducing business costs.

Under the current tax system, some businesses pay multiple taxes and higher levels of tax-on-tax (cascading tax).

Certain basic food and services are not subject to GST for socio-economic objectives.

These include basic food, public transportation, residential accommodation, education, health services and domestic consumption of water supply and electricity up to a certain limit.

The current SST has many inherent weaknesses, making administration difficult while the GST system has in-built mechanism to make the tax administration self-policing and therefore will enhance compliance.

Sunday, August 18, 2013

Fiscal reforms for sustainable growth

Published: Saturday August 17, 2013 MYT 12:00:00 AM 
Updated: Saturday August 17, 2013 MYT 12:32:47 PM

Economists believe the existing subsidy scheme, especially that for petrol,
create economic distortion s, con tribute to excess consumption
and levy an unaccounted for and unacknowledged bur den on society.

THE call for Malaysia to expedite structural reforms to rebalance its economy and strengthen its public finances has grown increasingly louder in recent weeks following Fitch Ratings’ downgrade of the country’s credit outlook from “stable” to “negative”.

According to economists, addressing the country’s long-running deficit and high public debt is not a rocket science. The right approach, they point out, has to be two-pronged: one is by cutting down on expenditure through subsidy rationalisation and stemming of wastage and inefficiencies, while the other is by expanding revenue base through tax reforms to reduce the nation’s reliance on petroleum-derived revenue.

Still, such fiscal consolidation measures require strong political will on the part of policymakers to execute in order to bring about positive change for the country’s economy over the long term.

As Euben Paracuelles, a Singapore-based economist at Nomura Holdings Inc, points out, there are near-term political hurdles, especially in view of the upcoming Umno party elections, to overcome in order to implement the necessary fiscal consolidation measures to rein in deficits and burgeoning public debt.

Nomura is one of the few investment bankers that expect Malaysia to miss its fiscal deficit target for 2013. In its recent report, Nomura says it expects Malaysia’s fiscal deficit this year to remain unchanged from last year at 4.5% of gross domestic product (GDP) vis-à-vis the Government’s target to cut the deficit to 4% of GDP in 2013.

“For the first half of the year, Malaysia’s fiscal deficit is already tracking above 5% of GDP. While I believe the Government would likely pursue fiscal consolidation measures (particularly in light of Fitch’s outlook downgrade) for the remaining part of the year, I think those measures will be only implemented at a managed pace as opposed to doing it aggressively to achieve the full-year target,” Paracuelles explains to StarBizWeek.

While Paracuelles concedes that fiscal consolidation measures might present headwinds to Malaysia’s economic growth in the short term, he says they will eventually give the Government more fiscal flexibility to support implementation of more reforms.

Ratings under pressure

Over the week, a statement circulated from Moody’s Investors Services showed that its credit opinion on Malaysia for the time being was still with a “stable” outlook for the country’s A3 sovereign rating.

This is in contrast to Fitch’s recent downgrade of Malaysia’s sovereign credit rating outlook from “stable” to “negative”. The latter’s move was prompted by what it saw as deteriorating prospects for budgetary reform and fiscal consolidation to address weaknesses in public finances in view of the Government’s poor performance in the 13th general election in May.

Fitch, however, had reaffirmed the actual ratings for Malaysia’s long-term foreign and local currency at A- and A, respectively. The average lifespan for a rating outlook is about 18 to 24 months before a change in actual rating is enforced.

According to the international rating agency, Malaysia’s public finances are its key rating weakness.

For a start, the country’s national debt had grown significantly from 39.8% of GDP in 2008 to 53.3% of GDP as at the end of last year. This put it just slightly below the Government’s self-imposed debt ceiling of 55% of GDP.

While Malaysia’s budget deficit has notably improved from a high of 6.7% of GDP in 2009 to 4.5% of GDP last year, some analysts remain concerned over the Government’s ability to achieve the ultimate fiscal deficit target of 3% of GDP by 2015 without aggressive fiscal consolidation taking place.

Moody’s says Malaysia’s credit rating could move up the ranks if the Government undertook structural reforms to rebalance its economy so that the private sector could play a bigger role in driving growth. Needless to say, improving the debt dynamics would also be credit positive for the country, while deterioration in the Government’s financial strength, possibly arising from ineffective policies or the lack of fiscal reforms, will put the country’s credit rating under pressure.

In a recent note, Affin Investment Bank Bhd chief economist Alan Tan points out: “The risk of a downgrade in the country’s credit ratings will make it expensive for Malaysia to borrow money from abroad. A lower rating will also dampen investment flows into Malaysia’s equity and bond markets, as there will be negative perceptions of the country’s deteriorating credit quality.”

Government’s commitment

Prime Minister Datuk Seri Najib Tun Razak had early this month said the Government would unveil a detailed strategy on how to address growing concerns over the health of Malaysia’s public finances in Budget 2014, which would be tabled on Oct 25.

In stressing that the Government remained committed to strengthening the country’s macroeconomic and fiscal position, Najib pointed out that a fiscal policy committee (FPC) had been formed to address the challenges that the country faced.

“A key test of the Government’s budgetary resolve will come with its 2014 Budget announcement on Oct 25. No doubt, Fitch and the other rating agencies (Moody’s and Standard & Poor’s) will be looking for some credible tightening measures, including an increase in what seem to be extremely generous fuel subsidies, as well as a clear timetable for the introduction of the goods and services tax (GST),” Credit Suisse’s economists, led by Robert Prior-Wandesforde, argues.

According to economists who attended a pre-Budget 2014 dialogue held in June this year, Najib did display a strong resolve to cut Malaysia’s fiscal deficit to the official target level of 4% of GDP this year and to around 3% of GDP by 2015. Fiscal consolidation apparently would be achieved through prudent and productive spending and revenue enhancement through tax enforcement and compliance.

“It appears subsidy rationalisation will resume under Budget 2014 as the Prime Minister reinforced the Government’s desire to move towards targeted subsidies and direct financial aid to the poor and lower-income groups from the existing blanket subsidies,” Maybank Investment Bank Bhd economists, led by Suhaimi Ilias, highlights in their recent report.

They, however, think that GST would not be featured in Budget 2014, as the long-delayed tax reform was not specifically mentioned during the pre-Budget dialogue.

CIMB Investment Bank chief economist Lee Heng Guie, in an e-mail, explains toStarBizWeek: “Improving the nation’s fiscal position will be challenging without significant reforms to address the cost of fuel subsidies, broaden the fiscal revenue base or reduce dependence on oil-related revenues.

“We think reforms are more of a continuous process and the rakyat must be assured that populism will not come at the expense of fiscal sustainability. A clear and credible fiscal consolidation plan to return to fiscal sustainability over the medium term must be enacted to bolster investor confidence.”

Economist Tan Sri Ramon Navaratnam, also chairman of Asli Centre for Public Policy Studies, concurs, saying, “Greater reduction of the country’s fiscal deficit and debt should be a priority that goes alongside with efforts to build sustainable economic growth.”

“If we do not address the deficit and debt situation systematically, we may well set our economy on a slippery path,” Navaratnam argues.

Subsidy rationalisation

Economists believe resuming the subsidy rationalisation programme is an important measure to put Malaysia’s fiscal health back on track, as it could yield substantial savings into the national coffers. The measure, which has been shelved since mid-2011, was one of the key reforms highlighted under the country’s Economic Transformation Programme when it was launched in 2010.

“The existing subsidy scheme, especially that for petrol, create economic distortions, contribute to excess consumption and levy an unaccounted for and unacknowledged burden on society,” Malaysian Rating Corp Bhd chief economist Nor Zahidi Aliasexplains.

To put that into perspective, Zahidi argues that every litre of petrol consumed would cost the economy circa 50 sen in environmental damage, health costs and lost of productivity through traffic congestion.

“Subsidising petrol use encourages greater consumption. And the blanket approach under the current subsidy scheme should be reviewed as those who can afford higher prices often benefit more than those who can’t,” Zahidi explains.

Alliance Research Sdn Bhd chief economist Manokaran Mottain concurs, adding that it is high time that Malaysia revamp its existing subsidy scheme, which form a bulk of the country’s operational expenditure.

“We should have a targeted-approach scheme to ensure that the benefits are really going to the poor and low-income households, and not just to anybody, including the rich,” he explains.

Prudent spending

Besides resuming the subsidy rationalisation programme, economists say there are also other initiatives that should be implemented to promote efficiency and effectiveness in Government spending.

“In the immediate term, the Government could exercise more restraint in its supplementary budget expenditure, which has often resulted in Government spending exceeding the original budget estimates,” MARC’s Zahidi says.

According to Zahidi, MARC expects the Government’s revenue collection this year to be on track to come in at about 5% (or about RM10bil) higher than budget estimates.

“If the Government could cap over-budget expenditure, the excess revenue expected from this year’s collection could be used to pare down the fiscal deficit,” he points out.

The efficiency and effectiveness of expenditure is vital, CIMB’s Lee stresses, adding that the actual outcomes from fiscal monitoring and management tool have to be examined in depth to ensure that output/outcome budgeting could help weed out unnecessary and irrelevant concessions, and cut down on non-performing programmes, projects or entities.

“An ad-hoc cut in expenditure will not do. What is needed is optimum utilisation of scarce resources that have alternative uses,” Lee argues.

“This requires a fundamental review so as to weed out all non-developmental, non-priority and unproductive expenditures, while focusing on growth-oriented spending. The problem of overlapping spending schemes also has to be avoided,” he explains.

According to Lee, Malaysia should also include, among others, an effective monitoring system to track public-private partnership projects for cost control and outcomes, as well as a critical review and reform of the Government’s procurement system to combat wastage, leakages and corruption, in its fiscal roadmap.

“As supplies and services make up 15.6% of total operating expenditure, more cost-saving initiatives must be implemented (in this area) to control the bloat,” Lee explains.

On that note, Navaratnam argues that there should be stronger resolve to eliminate corruption to promote efficient spending. He points out that all project tenders should be conducted in an open, transparent and competitive manner to ensure minimum cost to the system.

“There is no point in cutting down on subsidies and raising some taxes if the savings thus incurred are frittered away in higher cost of tenders and contracts (and other form of leakages),” Navaratnam says.

Revenue enhancement

According to economists, Malaysia’s fiscal consolidation will not be complete without a proper plan to enhance the Government’s revenue base. They believe the Government should push ahead with tax reforms to strengthen its finances. These initiatives should include improving the tax administration and implementing GST to replace the existing Sales and Service Tax (SST).

“I don’t know why we are dragging our feet on GST. We are one of the few countries in South-East Asia still without GST,” Manokaran argues, adding that experiences of other countries have shown that there are merits to incorporating GST in the economy, as it is a more efficient and effective tax system.

While it is undeniable that implementing GST could result in slightly higher inflation over the short term, the system could be a positive factor in the long run.

Zahidi points out that the present SST system is both inefficient and distortionary; but the GST system could help ensure greater compliance, a bigger tax base and improved tax revenue.

Widening the tax base via GST, Navaratnam argues, can also help minimise the effects of tax evasion and avoidance by some segments of society who actually earn enough to be paying tax.

According to economists, GST implementation is expected to be compensated by a reduction in personal income tax and corporate tax rates, which should have positive effects on the country’s economy.

For one thing, a reduction in personal income tax will result in higher disposable income for households to spend, while lower corporate tax could help boost private investment. “But most importantly, the Government should get rid of the ‘having more funds means able to spend more’ mentality,” says an economist, who does not want to be quoted.

On concerns that GST could hurt the poor, Navaratnam argues there are ways and means to ensure that the underprivileged would not be negatively impacted. For instance, direct handouts such as stamps, vouchers and grants can be provided to assist the poor and low-income group. In addition, there is already a commitment that basic and essential goods and services will be exempted from GST.

“There are precedents all over the world, there’s no need to reinvent the wheel,” Navaratnam says.

With investors now eyeing Malaysia’s roadmap for fiscal reform, there should be no more delay in implementing bold measures to ensure that the health of the country’s public finances remain sound.

As CIMB’s Lee puts it: “We should not wait till the market pressure us to reform ... we should reform before the market tells us to do so; otherwise, it will be too late, and the country will have to suffer the wider negative consequences (of higher borrowing cost and the effects of poor investor sentiment, among others).”

Lee, however, stresses that the pace of fiscal adjustment should not be frontloaded as it could undermine economic momentum.

“The pacing of fiscal reforms will allow the economy to adjust without creating significant distortions for businesses and households,” he explains.

Govt needs to juggle fiscal balance for budget

Published: Saturday August 17, 2013 MYT 12:00:00 AM 
Updated: Saturday August 17, 2013 MYT 7:16:45 AM

THE big three rating agencies recently cast their verdict on Malaysia’s credit rating and it was the opinion of Fitch Ratings that shook the markets.

Fitch basically downgraded its outlook for Malaysia, casting doubt over the Government’s ability to be fiscally responsible at a time when the fiscal debt to GDP ratio seems to be going up. It also seems worried over the ability of the Government to rein in the fiscal deficit.

Both Standard and Poor’s (S&P) and Moody’s kept their outlook on Malaysia.

While all three did not downgrade the country’s credit rating, they each voiced a similar concern.

While they exposed the positives about the Malaysian economy, they are all keeping on eye on the fiscal situation.

“We may lower the ratings if the government fails to deliver reform measures to reduce its fiscal deficits and increase the country’s growth prospects. These reforms may include implementing the GST, reducing subsidies, boosting private investments, and diversifying the economy,” says S&P in its note on July 26.

Moody’s warning of a reason for a downgrade seems eerily similar.

“The rating could come under pressure from a deterioration in government financial strength, possibly arising from ineffective policies or the lack of fiscal reform,” says Moody’s in its assessment of Malaysia’s credit position on Wednesday.

Moody’s in its note says that fiscal transfers ahead of the May elections contributed to the Government’s expenditure growth, while revenues were constrained by the relatively weak performance of the commodities sector.

“Consequently, the federal government registered a fiscal deficit of RM14.9bil in the first quarter, up from RM5.8bil in the same period in 2012. The current (or operating) budget deficit in the first quarter was RM6.1bil, the second largest quarterly deficit ever recorded for this account. The size of this deficit this early in the year places at risk the government’s stated goal of achieving a full-year balance or surplus for the current budget. The federal government has achieved this goal every year since 1987,” says Moody’s.

The Government has said it will unveil fiscal reforms during the upcoming budget in October. It will be interesting to see just what it has in store and the possibility of introducing a Goods and Services Tax (GST) appears to be growing following what the rating agencies have said.

I have commented before that the way expenses have ballooned is disconcerting. The problem is that revenue seems not be growing as fast.

Should the Government clamp down on its expenditure and introduce new taxes to beef up revenue, it will hit domestic demand.

The problem is made worse by recent measures to curb the growth in household debt. With household debt at a terrifying level for a country like Malaysia, the move to throttle the rise in such debt was welcome.

But like a curb in expenditure, lowering household debt will affect consumption and directly domestic demand.

With exports already hit so far this year, things are not looking all too good for the economy.

The hope is that the control on expenditure will be gradual and not affect the economy in a bad way. The reality is that there is a price to pay for years of excesses and the consequence is that something will have to give as the spending eases.

Business Editor (Features) Jagdev Singh Sidhu feels that any end to the spending spree will be justified. Focus should be on investments and productivity as a means to drive the economy.