Is Malaysia cheap petrol sustainable.and where is Malaysia currently?

‘We can’t live on cheap petrol forever’ December 4, 2012
by: S Retnanathan

PETALING JAYA: The removal of petrol subsidies is an imperative as it is not only a drag on government finances but also an impediment to proper resource allocation, former finance minister Tengku Razaleigh Hamzah said today.

“We cannot live on cheap petrol forever. We can seek ways to transition into subsidy removal. In order to protect the average consumer, perhaps we can begin by applying an implicit subsidy cut on large engine capacity vehicle owners via a higher road tax.

“That means for many of us in this room, myself included, we should pay higher road taxation to proxy subsidy removal for our bigger cars. At the appropriate times, the petrol subsidies themselves should gradually be removed.

“I know it may be a small start to begin with, but the market needs to be conditioned for an outcome without social upheaval. This structural fix should ultimately give the government the much needed elbow room for its spending agenda,” he said in his keynote address at the MIER National Economic Outlook Conference here.

He said Malaysia is at an economic crossroads of sorts, facing a list of challenges, whether internal or external, and all of which need to be addressed expediently.

“We are no longer attracting Foreign Direct Investment (FDI) as freely as we did in the past. We are not investing enough to meet our aspirations. Private investment now makes up a smaller portion of Gross Domestic Product than was the case historically.

“Although we continue to maintain a relatively high national savings rate, some of those savings have gone overseas. Malaysia has become a premature exporter of capital, a characteristic that is unbecoming of a growing, high potential economy. There is also this silent issue of capital flight, whether it is in the form of over-invoicing by corporates or personal wealth leakages.

“On the domestic production front, we depend on a relatively narrow spectrum of growth drivers. The government’s revenue base is just as limited and on expenditures, we need to quickly address the issue of fuel subsidies. There is widening disparity between the haves and the have-nots, between the urban and the rural folk,” he added.

Government on the right track

Tengku Razaleigh said while the issues were serious, the government was taking constructive steps to address them.

He said the present government was “very right” to admit that execution risks are large and considering the limited financial resources, the policy-maker’s prerogative is to make sure that the prescription is executed well.

Speaking on the rural sector, he said presently about eight million Malaysians or 30 percent of the nation’s population lived in rural areas.

“Yet it has not received as much focus as it should. The rural sector can become a powerful force in driving the nation’s economy. Think of it as a potential hedge against the vagaries of globally-linked growth.

“Our government’s Rural Transformation Programme is a constructive step towards achieving this effective hedge. We should go even further because as it stands, our rural sector is exposed to the gyrations of globalisation thanks to the commodity cycle.

“What the rural sector needs is a carefully-planned programme to deliver credit to the smallest of businesses. Our financial system needs to be more involved in supporting the rural businessman when experience in other countries shows that it works for both borrower and lender,” said the former Umno vice president who is also the Gua Musang member of parliament.

He said another compelling tool to diversify Malaysia’s growth sources was housing.

He said although the government’s PR1MA is largely designed to assist in development of affordable homes for the middle-income sandwich class, the focus should also be on low-cost homes,

“(Low cost homes must be) built on a scale that is larger than what we’ve pursued in the past. Increasing home ownership among the lower income level groups via housing finance availability creates a favourable wealth effect as we’ve seen in public housing programmes in other countries.

“As we all know, it also creates considerable knock-on effects on domestic demand. We should consider launching large low-cost housing schemes supported by the availability of finance.

On sovereign wealth, he said there was an idea to set up an entity that separately, and professionally, manages proceeds from the country’s oil and gas endeavours.

“Back then, the concept of a sovereign wealth fund never really existed. Had we pursued that idea then, we would have been one of the first countries in the world to have created a sovereign wealth fund. We might even have been wealthier as a nation considering the bull market in both bonds and equities for a good part of the past 30 years.

“The idea of a sovereign wealth fund still appeals to me just as it did back in the 1980s. This sovereign wealth fund must be professionally managed and committed to performance, governance and transparency standards that would give the public greater confidence in the government’s effort to save for our future generations.

Touching on the manufacturing sector, the former finance minister said the country’s loss in manufacturing competitiveness “must somehow imply a potential gain in services jobs but there is one caveat.”

“This caveat is education. Education is perhaps the single-most important factor to rehabilitate Malaysia’s competitiveness in the longer run. Education is a key building block to making Malaysia a favourable investment destination.

“Do you know that Malaysia has 21 public and 61 private tertiary institutions that confer degrees today? Are they producing the right graduates for our future?,” he questioned.

Source: Free Malaysia Today

Posted by:

In Tune specialises in finance and accounting outsourcing, human resource (HR) outsourcing to SME business owners in Malaysia; that traditionally cannot afford professional services which they now can at a fraction of the cost less the headache; so that they have more time to focus on the business operations that matters to them.

Why hire an executive when you can now get at least one qualified professional with an executive at less than an executive pay?

Tags: , , , ,

No comments yet.

Leave your comment