KUALA LUMPUR—Malaysia’s Finance Minister Lim Guan Eng said on Oct. 9 that maintaining earlier fiscal targets would be “foolish”, as the government struggles with liabilities of around 1 trillion ringgit ($240.67 billion).
Prime Minister Mahathir Mohamad, who unexpectedly won a general election in May, has blamed the previous administration of Najib Razak for taking the country into such heavy debt, partly as a result of 1MDB, a failed state fund which is now the focus of corruption and money laundering investigations in Malaysia and other countries.
The government is also looking for alternative sources of revenue to make up the shortfall that it is expected to face after scrapping an unpopular goods and services tax.
“The fiscal targets set by the previous administration are hence unrealistic in the short term and it would be foolish for this government to maintain these targets,” Lim said at an investor conference.
“Over the medium term, however, we will remain strictly on the path of fiscal consolidation.”
The Najib government had forecast fiscal deficit of 2.8 percent this year, lower than last year’s 3 percent.
The finance minister had told Reuters in an interview in June that Malaysia can achieve 2.8 percent this year but reducing it further would be a challenge.
The new administration will announce its 2019 budget on Nov. 2 when it is expected to spell out its fiscal targets.
Ratings agencies have said Malaysia faces challenges in further narrowing its fiscal deficit. Moody’s said in February that further fiscal consolidation is likely to be very slow in the absence of meaningful revenue-raising measures.
Introduce New Taxes and Sell Assets?
Earlier at the conference on Oct. 9, Mahathir said Malaysia may introduce new taxes and sell assets such as land to pay off debt.
“We may have to devise new taxes in order to have the money to pay our debts. The other thing we can do is to sell our assets. Land is one of them,” the prime minister said.
“Beyond that we may have to sell some of our valuable assets in order to raise funds to pay the debts.”
He did not identify or elaborate on what these assets would be.
Finance Minister Lim, however, indicated the government may reduce its stake in companies in which it owns shares through state-owned firms.
“We will reduce the government’s direct participation in the equity ownership of companies so that the private sector can take the lead,” he said. This will also lead to more liquidity in the stock market, he said.
Reuters had reported in August that sovereign wealth fund Khazanah Nasional was likely to cut stakes in companies to help reduce the country’s debt.
Lim said the government will need three years to resolve fiscal issues, adding that additional tax measures will be announced in the 2019 budget.
“While it is imperative for the government to be prudent with our expenditure, we are equally cognizant that we must not fall into the austerity trap. What we want is merely to get a bigger bang for the buck,” he said.
By Liz Lee