Learn from Greek debt crisis, excessive loans no good

EXCESSIVE debt build-up is something most people, companies and countries would prefer to avoid if possible. Unsustainable debt levels have broken homes, bankrupted companies and crippled a number of countries worldwide and the latest proof of this is the crisis in Greece where the debt build-up has impacted the economy of the country.

Continued debt build-up without finding a solution to minimise and eventually reverse the piling up of debt, no matter for what reason, will extract a high price in the future.

For Malaysia, while the condition is still way off from what is happening to Greece, it is nonetheless a lesson for the Government to deal with before things get out of hand.

Slashing the budget deficit, though, is not an easy task to accomplish. Cut too much too soon and the economy will take a dip as the reduction in consumption and investment by the Government will eventually be mirrored by that of the private sector.



Public debt as a percentage of GDP is now 54%, which is much higher than Indonesia’s 28% but still off the level seen in the Philippines which is at 62%. But keep spending about RM74bil a year on subsidies - or RM2,610 per person - and the indebtedness level of the Philippines will be in our country’s rear view mirror in a matter of time.

It’s therefore not a surprise to have seen over the past months initiatives taken not only to increase the efficiency in tax collection through a goods and services tax but also through ways to minimise the massive subsidy bill that is incurred by the Government on a yearly basis.

That subsidy bill is broken down into three main categories — energy, food and social services — and the largest of which is on social services at about RM43bil.

While cutting back on social and essential services, such as healthcare and education, will be the least palatable to Malaysians from all walks of life, dealing with payments, too, has to be addressed.

Take healthcare for instance. The charge of RM1 for outpatient care was introduced in 1982 and I think a small increase in such a payment, which is less than the cost of a roti canai, is due.

The subsidy on food is around RM3bil a year and is mainly spent to keep the price of flour, sugar and cooking oil down. Here, there are ways to cushion the removal or reduction of such subsidies for the poor but it will not be a stretch for middle-income households to start paying unsubsidised prices for such goods as these items will not constitute a large chuck of their monthly income on such goods.

The real area which needs to be tackled is energy cost. The Government subsidy bill to keep the price of fuel, electricity, LPG and natural gas low, based on where the global prices of energy, is slightly below RM25bil a year.

That is a huge sum and the removal of such subsidies will have a huge impact on every strata of society.
With 40% of Malaysian wage earners having an income of less than RM1,500 a month, higher energy costs, whether at the pump or in the form of a hike in monthly electricity bills, will evoke the most volatile reaction.
But presenting a case why that has to be done needs to be made.

Sure, the poor and needy will get the most protection against any reduction in subsidies but the Government, too, has to be mindful of the middle class in the country which will be most affected by an increase in energy costs.

It’s the middle class that is the foundation to consumer demand and striking a balance between reducing such subsidies and keeping people happy will be a tricky task. Appealing to people’s season of reason and articulating the consequences of not doing so may work.

People have to know that the precious resource the country is blessed with should not be frittered away. And while conservation and efficient use of energy resources will help reduce wastage and help the environment, people also need to be shown that their efforts are helping to build something worthy for the future.

Any programme of reducing energy subsidies should be met with a similar programme that will improve the economic welfare of the people. I have said this countless times, and it bears repeating once again.

Having a world-class public transportation system will give people a viable alternative to cope with higher fuel costs. Also, the money the country makes after the price of crude oil is past a certain level should be saved in a fund for future generations.

Making a Point - By Jagdev Singh Sidhu

Deputy news editor Jagdev Singh Sidhu is watching closely the developments of his favourite football team, hoping the club’s rich history does not end up being just that.
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