Monday, September 9, 2013

Govt may delay big ticket projects

By Habhajan Singh

The government may put on hold some big ticket items, take a hard look at the way subsidies are dished out and pave the way for the possible introduction of the much-debated goods and services tax (GST) regime.

Prime Minister Datuk Seri Mohd Najib Razak is expected to make some major announcements which may come as soon as Monday when he chairs the next sitting of the administration’s recently announced fiscal policy committee made up of ministers and government’s heads of departments.

In a statement yesterday, Finance Minister II Datuk Seri Ahmad Husni Mohamad Hanadzlah said the government is exploring measures to rationalise and better target expenditure, including subsidies, to ensure value for money spending.

“Projects that have a big impact on public finances will also be reviewed and sequenced properly, to avoid excessive strain on the federal budget,” he said in the statement released yesterday.

He added that the ministry is also looking at the narrowing current account surplus. “Therefore, all future public sec tor projec t s wi l l be considered carefully, taking into consideration the current account position in the balance of payments.

“Public sector projects with low impact content and high multiplier effects will be given priority, without compromising economic growth,” he said.

It is understood that the move may not impact some of the mega projects already underway. Some of the mega projects are the RM56 billion Klang Valley Mass Rapid Transit project and the RM60 billion refinery and petrochemical integrated development project spearheaded by Petroliam Nasional Bhd. Others include the Kuala Lumpur-Singapore high-speed rail project and the West Coast highway project. However, Ahmad Husni did not name any projects, present or future, in the two-page statement.

In July, Fitch Ratings downgraded Malaysia’s sovereign credit rating outlook to negative from stable, though it retained the nation’s high investmentgrade ratings of A- on long-term foreign debt and A on longterm local debt.

In a report as far back as August 2012, Fitch had urged Malaysia to reduce its heavy dependence on petroleumlinked revenue and implement the GST due to concerns on weakening public finances, noting what it deemed as the “growing strains” on the country’s credit profile.

“Fitch Ratings is concerned that negative pressures may build and eventually offset the existing strengths of the sovereign credit profile unless structural weaknesses in the public finances are addressed,” it said in a special report on “Malaysian Public Finance”.

In the same statement, Ahmad Husni said: “There is increasing concern over property market imbalances, rising household indebtedness, rising government debt and fiscal deficit.”

However, he reiterated that the government is committed to achieving the three guiding principles of fiscal policy: That the federal government will not exceed 55% of the gross domestic product (GDP); that revenue will always exceed operating expenditure; and the fiscal deficit for 2013 will not exceed 4% of GDP.

The statement noted that the fiscal policy committee will meet next week to discuss further measures to strenghten the country’s current economic position. The meeting will table for approval various initiatives and options to ensure Malaysia’s economic and fiscal position are strong and sustainable, both in the immediate and medium term, it added.

“The key areas to be discussed are better expenditure management (subsidies rationalisation), revenue enhancement (GST implementation and real property gain tax review), as well as improving governance and work processes,” the statement said.

This is yet the most clearest signal from the authorities that the introduction of the GST is imminent.

Yesterday, The Malaysian Reserve reported that the government was expected to announce major fiscal policy changes that may include the GST in the upcoming October budget to trim widening fiscal deficit that has hit RM14.9 billion.

In an exclusive interview with The Malaysian Reserve on Tuesday, Ministry of Finance secretary general Tan Sri Mohd Irwan Serigar Abdullah said a slew of fiscal reforms were being discussed to bolster the country’s monetary position.