Malaysia risks becoming next Greece

Malaysia risks becoming the next Greece unless voters swallow subsidy cuts that will see the price of petrol, food, electricity and other staples rise, a government minister warned today.

A government think-tank charged with producing plans to cut the country’s subsidy bill presented its plans to the public in a bid to win acceptance for painful cuts, which have yet to be voted on by the government.

Datuk Idris Jala, a minister in the prime minister’s department who heads the body advising the government, said that Malaysia’s debt would rise to 100 per cent of gross domestic product by 2019 from 54 per cent of GDP at present without the cuts.

“We don’t want to end up as another Greece,” he told a roadshow, referring to the European Union member whose debt woes have unsettled global markets.
Malaysia spent 15.3 per cent of total federal government operating spending on subsidies in its 2009 budget when its deficit surged to a 20-year high of 7 per cent of GDP.

The cabinet discussed the subsidy proposals on Wednesday, but any decision on cuts could be months away, a government source said.

Political analysts and economists say the failure of the government to push through previous subsidy cuts casts doubt on whether it can do it this time, especially with state elections looming in Sarawak, a government stronghold that is under threat from the opposition.

The proposals presented would see petrol prices for the benchmark RON95 blend rise by an initial 15 sen per litre from their current price at some stage this year.

The benchmark RON 95 grade now costs RM1.80 (US$0.543) per litre.

Under the proposals presented by the advisory body, the price of petrol would be hiked some time this year followed by two price hikes totalling 20 sen per litre in 2011 and two more totalling 20 sen per litre in 2012.

In 2013-2015, the price hikes would slow and by the end of 2015, the price of RON95 would stand at RM2.60 per litre, according to the plans that have yet to be approved by the government.

The forecasts were based on a crude oil price forecast of US$73.06 per barrel for 2011 and US$79.41-US$94.52 for 2013-2015. -- Reuters