Malaysians will have to tighten their belt

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govt-debtMalaysian voters of Prime Minister Najib Razak, who returned to power this year with the help of a spending spree that boosted consumption, could soon feel the pinch as the time has come for the country to curb expenses.

First steps were the reduction of subsidies in fuel prices and delays in public infrastructure projects. There will also be a goods and services tax by 2014. The moves are accompanied by Fitch Ratings’ credit outlook cut of Malaysia to negative in July 2013.

Capital outflows from Malaysia have been huge in the past, the currency weakened and the debt mountain is growing higher. The country’s default risk rose above that of the Philippines for the first time this year.

At 53.3 per cent, Malaysia’s debt-to-GDP ratio is the highest among 13 emerging Asian markets after Sri Lanka, according to data compiled by Bloomberg. Fitch cited rising debt levels and a lack of budgetary reform when it cut the country’s rating outlook. Moody’s Investors Service said this month the budget deficit may exceed 4 per cent of GDP this year, warning the government’s fiscal targets will become “increasingly out of reach” without additional measures to contain it.

Malaysian consumers and businesses from builders to retailers are bracing for rising prices and slower economic growth, as the 11 per cent increase in diesel and gasoline costs this month raises inflation risks while the potential slowdown in state spending cuts construction and maintenance contracts.

Economic growth may slow to 4.3 per cent this year, the worst performance since the global recession in 2009, according to DBS Group Holdings Ltd. The banking group cut its forecast from 5 per cent, saying the government’s efforts to improve fiscal health will dent consumer spending and investment.

Najib went on a spending binge to woo voters before the May election, including smartphone rebates for youths, household electricity subsidies and higher wages for civil servants. He is now focusing government spending on more specific areas, saying public projects with low import content will continue while those requiring more imports will be “sequenced accordingly.”

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Reading Time: 2 minutes

Malaysian voters of Prime Minister Najib Razak, who returned to power this year with the help of a spending spree that boosted consumption, could soon feel the pinch as the time has come for the country to curb expenses.

Reading Time: 2 minutes

govt-debtMalaysian voters of Prime Minister Najib Razak, who returned to power this year with the help of a spending spree that boosted consumption, could soon feel the pinch as the time has come for the country to curb expenses.

First steps were the reduction of subsidies in fuel prices and delays in public infrastructure projects. There will also be a goods and services tax by 2014. The moves are accompanied by Fitch Ratings’ credit outlook cut of Malaysia to negative in July 2013.

Capital outflows from Malaysia have been huge in the past, the currency weakened and the debt mountain is growing higher. The country’s default risk rose above that of the Philippines for the first time this year.

At 53.3 per cent, Malaysia’s debt-to-GDP ratio is the highest among 13 emerging Asian markets after Sri Lanka, according to data compiled by Bloomberg. Fitch cited rising debt levels and a lack of budgetary reform when it cut the country’s rating outlook. Moody’s Investors Service said this month the budget deficit may exceed 4 per cent of GDP this year, warning the government’s fiscal targets will become “increasingly out of reach” without additional measures to contain it.

Malaysian consumers and businesses from builders to retailers are bracing for rising prices and slower economic growth, as the 11 per cent increase in diesel and gasoline costs this month raises inflation risks while the potential slowdown in state spending cuts construction and maintenance contracts.

Economic growth may slow to 4.3 per cent this year, the worst performance since the global recession in 2009, according to DBS Group Holdings Ltd. The banking group cut its forecast from 5 per cent, saying the government’s efforts to improve fiscal health will dent consumer spending and investment.

Najib went on a spending binge to woo voters before the May election, including smartphone rebates for youths, household electricity subsidies and higher wages for civil servants. He is now focusing government spending on more specific areas, saying public projects with low import content will continue while those requiring more imports will be “sequenced accordingly.”

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