Nomura: Subsidy cuts, GST will weigh on Malaysia’s economy for two years
KUALA LUMPUR, Dec 12 - Source
Extract:
1... forecast gross domestic product (GDP) growth rates of 4.5 and 4.0 per cent in 2014 and 2015 respectively...
2... more optimistic about Malaysia’s economy than others, claiming Putrajaya is on the right track to restore foreign investor’s confidence in the long run...
3... Malaysia is among the nations which appear most vulnerable against the US Federal Reserve’s scaling back of its investment in the region, or quantitative easing
4... increase Malaysia’s inflation rate up to 3.5 per cent in 2014, and a whopping 5.2 per cent in 2015 due to the start of Goods and Services tax (GST) in April that year.
5... assumption that fuel prices will go up by another 10 per cent in the second quarter of 2014
6... prediction today that BNM will increase its overnight policy rate (OPR), a benchmark rate set by the central bank, from 3.0 per cent to 3.5 per cent in the second half of 2014...
7... stop subsidising sugar by the current 34 sen per kg...
8... electricity tariff in the peninsula will also increase by 14.9 per cent or 4.99 sen to 38.53 sen for every kilowatt per hour (kWh), and 5 sen for Sabah and Labuan.
Basically, it's time to be prudent with spending. The days of carefree consumption & easy credit are over. Through the years, subsidies have enabled Malaysians to enjoy a relatively comfortable life. Subsidies have also made us complacent. Is Malaysia ready to do without subsidies today? My opinion is no. But unfortunately, it can't go on forever either. But the savings should be used wisely, for education, medical care, social security, infrastructure, etc. But instead, the savings will be used to reduce government debts. It's payback time for the years of spending.
What is the ROI for all the spending? the hundreds of billions that we have to repay?
Realistically, I would put the inflation rate at double of those estimate, at 7% in 2014 and 10% in 2015.
Subsidies should have been gradually reduced during the economic boom in the 90s. But it was not done because the government could afford it. Besides, it would be a politically suicidal thing to do. The population was also smaller then. In 2013, Malaysia's population has grown to 29 Million, from 21 Million in 1998. That's 8 Million extra citizens to subsidise. That works out to an average increase of about 530,000 every year for the past 14 years. It is predicted that Malaysia's population will reach 35 Million by 2020, which is merely another 7 years from now.
If you think that resources are stretched today, with 29 Million people, imagine what it will be like with 35 Million.
You'd better pray hard that the economy grows at a faster rate than the population.
Will there be enough jobs for the people? Will the people have the necessary skills for those jobs? Will their income be sufficient to survive on? Does Malaysia have a favourable environment for businesses and to attract foreign investments in terms of stability, safety, infrastructure, human resources, costs, etc?
What we do today will determine our future.
What is certain is that the coming years will definitely not be easy. Best that we are prepared for it.
Always spend less than you earn.
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