May
God have mercy on Malaysians and Malaysia
By
Chua Jui Meng
THE recent Bank Negara Malaysia
(BNM) report for 3rd Quarter (Q3) 2012 (http://www.bnm.gov.my/index.php?ch=statistic_nsdp) reveals the Barisan Nasional (BN) government has
officially breached or exceeded the 55% federal debt ceiling or legal limit to
Gross Domestic Product (GDP) ratio by RM27 million.
This means, if there is a sudden
downgrade of the Malaysian Government Sovereign Credit Rating by international
rating agencies such as Standard & Poors,
Fitch Ratings and Moody’s Investors Service, the value of the Ringgit may
fall.
The international fall in the value
of our currency can happen any time, depending on our government’s immediate
fiscal controls, especially in spending and borrowings.
This is due to our BN government’s
precarious financial standing – both in the domestic and international arena.
The world economies are already
displaying volatile financial fluctuations, and Malaysia may be one of the
firsts to go down the drain with a devaluation of the Ringgit.
The next 13th General
Election must be called by June 2013. Government spending is then expected to
shoot up.
According to the last updated GDP
2011 by the Malaysian Statistic Department on page 18 of
http://www.statistics.gov.my/portal/download_Akaun/files/annual_gdp/2011/Penerbitan_KDNK_Tahunan2005-2011.pdf, our GDP is at RM 881,080 billion, placing the 55% federal debt limit at RM484,594 billion.
http://www.statistics.gov.my/portal/download_Akaun/files/annual_gdp/2011/Penerbitan_KDNK_Tahunan2005-2011.pdf, our GDP is at RM 881,080 billion, placing the 55% federal debt limit at RM484,594 billion.
The current federal government debt
now stands at RM502.4 billion, excluding federal guarantees on loans taken by
government-linked companies (GLCs).
Can you now see what will happen or
the immediate damning effects to our economy if and when the value of our
Ringgit falls in the international market?
It is nothing short of a
socio-economic disaster and nightmare for Malaysians. It will be a story of
untold misery, for all Malaysians, except the millionaires or billionaires.
All Malaysians must ask and answer
with honesty whether the BN government is making any attempts to address the
country’s growing debts? Is the Umno-led BN government capable of initiating
real and positive change?
If your answer is negative, then you
know what you must do on polling day come the next 13th General
Election.
Here’s Fitch Ratings latest report:
19 Nov 2012 7:10 AM
Guarantees, External Finances Add to
Malaysia Concerns
Fitch Ratings-London-19 November
2012: Malaysia's public finances are a weakness relative to rating peers and
offer limited scope for counter-cyclical fiscal stimulus at the current rating
level of 'A-'/Stable, Fitch Ratings believes. While this has not hindered the
public sector's capacity to contribute to GDP, which grew 5.2% yoy in the third
quarter according to Bank Negara Malaysia Friday, the growing provision of
guarantees to government-linked borrowers is concerning.
Domestic demand continued to support economic growth in the face of a weak external demand. While private consumption and investment are increasing, public-sector linked activity remains a key support. Public consumption moderated in Q312, posting a 2.3% yoy increase (down from 10.9% in Q212), while public sector gross fixed capital formation increased 22.4% yoy, following a 28.9% increase in Q2. With a general election due in the first half of 2013, government and government-linked activity is expected to remain a significant contributor to growth.
Greater drawdown of existing federal government guarantees of debt issued by public sector enterprises suggests increasing use of quasi-fiscal policy to support economic activity and may apply further pressure on the sovereign credit profile. The value of outstanding debt guaranteed by the Malaysian federal government has increased by RM23.4bn (USD7.6bn), or 20%, between December 2011 and September 2012. Such debt is now equivalent to 15% of GDP compared with 9% at end-2008, and suggests a growing contingent liability on the sovereign.
Given Malaysia's lack of fiscal headroom, the increasing reliance on off-balance sheet funding could potentially call into question the meaningfulness of the 55% of GDP federal debt ceiling (debt/GDP had risen to 52.4% at end-Q312). These concerns, coupled with the need for structural reform of the public finances and a credible plan for fiscal consolidation, suggest that Malaysia's public finances will remain a weakness versus ratings peers, as has been the case for some time.
As Fitch warned when we reviewed the ratings in August 2012, fiscal trends may eventually lead to some form of negative rating action. Other areas of the credit profile including the external finances and level of foreign reserves (USD138bn) remain strengths. However, foreign holdings of government debt have continued to increase and now represent nearly 50% of Malaysia's foreign exchange reserves, up from 36% at end-2011. Fitch looks to see how economic and fiscal policies develop following the elections.
Domestic demand continued to support economic growth in the face of a weak external demand. While private consumption and investment are increasing, public-sector linked activity remains a key support. Public consumption moderated in Q312, posting a 2.3% yoy increase (down from 10.9% in Q212), while public sector gross fixed capital formation increased 22.4% yoy, following a 28.9% increase in Q2. With a general election due in the first half of 2013, government and government-linked activity is expected to remain a significant contributor to growth.
Greater drawdown of existing federal government guarantees of debt issued by public sector enterprises suggests increasing use of quasi-fiscal policy to support economic activity and may apply further pressure on the sovereign credit profile. The value of outstanding debt guaranteed by the Malaysian federal government has increased by RM23.4bn (USD7.6bn), or 20%, between December 2011 and September 2012. Such debt is now equivalent to 15% of GDP compared with 9% at end-2008, and suggests a growing contingent liability on the sovereign.
Given Malaysia's lack of fiscal headroom, the increasing reliance on off-balance sheet funding could potentially call into question the meaningfulness of the 55% of GDP federal debt ceiling (debt/GDP had risen to 52.4% at end-Q312). These concerns, coupled with the need for structural reform of the public finances and a credible plan for fiscal consolidation, suggest that Malaysia's public finances will remain a weakness versus ratings peers, as has been the case for some time.
As Fitch warned when we reviewed the ratings in August 2012, fiscal trends may eventually lead to some form of negative rating action. Other areas of the credit profile including the external finances and level of foreign reserves (USD138bn) remain strengths. However, foreign holdings of government debt have continued to increase and now represent nearly 50% of Malaysia's foreign exchange reserves, up from 36% at end-2011. Fitch looks to see how economic and fiscal policies develop following the elections.
