By Shannon Teoh
The Malaysian Insider
Oct 11, 2011
KUALA LUMPUR, Oct 11 — Global banking giant Goldman Sachs believes Malaysia must push through tougher reforms such as a goods and services tax (GST) and slashing subsidies if it wants to transform into a high-income nation.
Its review of Budget 2012 proposals said the recovery in private investment since the 1997 Asian financial crisis has been held back “by scepticism over the government’s transformation efforts over the years.”
“Pushing through tougher reforms is ultimately what is needed to catalyse the economic transformation process.
“Reforms such as the goods and service tax (GST) and fuel subsidies reforms (likely only post-elections) would be the clearest way to signal to investors the commitment to change,” the bank said in its review dated yesterday.
Datuk Seri Najib Razak’s Economic Transformation Programme (ETP) aims to more than double per capita income by 2020 to RM48,000 a year.
The prime minister wants the private sector to contribute 92 per cent of the RM1.4 trillion investments targeted under the 10-year plan.
But with an election expected soon, he has delayed GST and raised allocations for subsidies to RM33.2 billion.
“The timing and extent to which the government is able to deliver on these key reforms will partly depend on the performance at the upcoming general election, which we think could potentially occur early next year,” said the US bank.
Its Global Economics, Commodities and Strategy Research report also dismissed the “inflationary impact” of the fiscal stimulus in the RM230 billion budget, saying it was “arguably appropriate given the rising threats to external growth.”
But it forecast a 4.2 per cent growth for 2012, “markedly short” of Putrajaya’s target of between 5 and 6 per cent.
“We had recently revised our GDP forecasts for Malaysia mainly on the back of slowing global demand,” the bank said.
It listed some of Malaysia’s main trade partners such as the United States, China and Europe as markets which will see reductions in economic growth.
This would result in potential revenue shortfalls which will make Putrajaya’s plan to trim the budget deficit from 5.4 to 4.7 per cent target tough to achieve, the report said.
“A potentially wider-than-projected fiscal deficit is also plausible… with the external slowdown and upcoming elections, there will be more pressure to deliver on expenditures,” said the bank.