Malaysia could be Greek tragedy if no action taken, says don

KUALA LUMPUR, May 1 — Malaysia could find itself in the same fiscal mess currently facing several European countries such as Greece if planned economic reforms are not undertaken, says London School of Economics Professor Danny Quah.

Portugal, Ireland, Greece and Spain, the so-called PIGS, are under international scrutiny and have roiled global markets due to their level of national debt. Greece, whose government bonds were downgraded to junk status this week, has a debt to Gross Domestic Product (GDP) ratio of about 115 per cent which could hit 150 per cent by 2012.

Quah, who is also a member of the National Economic Advisory Council (NEAC), said that while Malaysia’s debt to GDP ratio is below that of the PIGS, it isn’t far off either.

“It won’t be too long before we push into PIGS type territory,” said Quah at a dinner lecture organised by LSE alumni last night where he spoke in his capacity as an LSE economist.

He said that Malaysia needs to take out its stimulus spending, implement the New Economic Model (NEM) reforms and ensure that growth takes place in order to stabilise the nation’s debt to GDP ratio.

Quah also cautioned that Malaysia is expected to become a net oil importer by 2014 and that the country is one of the most sensitive to oil price volatility.

He added however that “it is not all doom and gloom” as Malaysia’s financial sector is relatively robust and Malaysia’s debt consists largely of medium and long term instruments.

He said the NEAC, which drafted the NEM, is studying the possibility of reducing corporate and income tax by one per cent per year for several years in tandem with tightening public finances via measures such as the goods and services tax (GST).

The council is also studying a proposal of a “1 Malaysia Supply Chain” to make business promotion efforts more integrated and streamlined.

Asked by the audience if he thinks the government has the political will to see through economic reforms, Quah replied that while he acknowledged widespread scepticism, his reading of the situation is that the government is serious as it has continued to stress the importance of change.

“I have been impressed over and over again that the leadership doesn’t want to take the easy way out,” said Quah. “I feel even more optimistic, energised and enthusiastic and that we (the NEAC) are not wasting our time. We’re not paid anything at all. Some of us fly halfway around the world.”