Who will pay for Malaysia to escape Fitch downgrade? DAP asks

OCTOBER 16, 2013

Global ratings firm Fitch’s decision to cut Malaysia’s
sovereign debt outlook from 'Stable' to 'Negative' in July,
has prompted DAP secretary-general Lim Guan Eng to ask
Prime Minister Datuk Seri Najib Razak to explain his optimism. — Picture by K.E. Ooi

KUALA LUMPUR, Oct 16 — The prime minister must clarify if Malaysians will end up shouldering the financial burden of escaping a potential ratings downgrade as authorities continue to ignore the effects of corruption on the country’s coffers, the DAP said today.

Pointing out that the country's debt levels remained at high 53 per cent as a ratio to GDP despite this being named as one of the main catalysts of global ratings firm Fitch’s decision to cut Malaysia’s sovereign debt outlook from “Stable” to “Negative” in July, DAP secretary-general Lim Guan Eng urged Prime Minister Datuk Seri Najib Razak to explain his optimism.

“Najib has a responsibility to clarify what he meant, especially when the BN Federal government has failed to fight corruption until Washington Post printed an article of Malaysia as the world champion of corruption,” Lim said in a statement today.

“Promises of managing spending prudently is meaningless when no action or punishment is meted out against those responsible for the excesses, wastage and financial wrongdoings amounting to RM6.5 billion that were highlighted in the 2012 Auditor-General Report with a negative impact on the economy.”

In an interview with business news service Bloomberg published on Monday, the prime minister expressed confidence Malaysia could escape a possible ratings downgrade and will do its “level best” to avoid breaching the legal debt ceiling of 55 per cent of GDP.

In the same interview, he noted that Malaysia was a rarity in the region by not having a goods and services tax (GST). Bloomberg also pointed out that the government has resumed its so-called subsidy rationalisation programme after a three-year lull.

Today, Lim pressed the PM to come clean on the measures needed to see the country escape the potential downgrade and whether this would come from the pockets of Malaysians.

“When Najib talks about broadening the country’s tax base, is he talking about imposing Goods & Services Tax? ... This would cost each of the 28 million Malaysians an additional cost burden of an average of RM1,000 a year.

“Is Najib talking about further increase in petrol, sugar and food prices when he talked of cutting state subsidies?” Lim asked.

In July, Fitch lowered its outlook on Malaysia's credit citing weaker appetite for reforms following a smaller Barisan Nasional win in Election 2013 and the country's weak public finances.

The moved triggered Putrajaya to resume the subsidy cuts it suspended in 2010, when it raised pump prices for RON95 petrol and diesel by 20 sen/L in September, although Fitch later insisted on more meaningful reforms such as the GST.

Putrajaya has also hinted at the possibility that the GST may be introduced in the coming Budget.

The GST is a consumption tax, meaning all Malaysians will be taxed according to their level of spending regardless of their income. This differs from income tax that is only applicable after a certain salary level is exceeded.

The GST Bill was tabled for the first reading in 2009 for implementation in late 2011, but was withdrawn during the second reading in 2010 following fierce public resistance.

Economists now expect the GST to be one of the measures implemented when Budget 2014 is tabled in Parliament on October 25.

If put into action, the GST will replace the existing sales tax of between five and 10 per cent and service tax of six per cent.

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