Hard times ahead!

by Dr Hsu 

Petrol and diesel are going to cost more in a move to reduce subsidies and rein in budget deficits.

From the economic point of view, this might be a good move since a country’s financial health cannot survive prolonged deficits, which have to be funded by borrowings.

We have budget deficits for far too long and federal government borrowings have skyrocketed to about 54% of GDP at end of 2012.  This has resulted in Fitch Ratings’ move to downgrade Malaysia’s sovereign credit rating outlook to Negative from Stable.

So on the surface, we need to reduce deficit spending and a way of doing it is to reduce subsidy on petrol and diesel.

The question   is of course whether this is the only way to reduce subsidy.

Looking at how much big money are wasted through leakages and wastage, mainly as a result of corruption and abuses,  the government can certainly save billions if it has the will and resolve  to really tackle corrupt practices.

The problem   is that PM is not strong enough to do that. If he really pushes hard, he will antagonise most of the warlords holding the key to his re election in the coming party election. He too has too much skeletons in his closet. So with his weak position, he is really in a dilemma with regards to tackling wastage and leakages.

So he is choosing the easy way out. Just cut the petrol subsidy and save about 3 billions a year.

The billion dollar question: will this saving really go to reduce subsidy or will it be used for other big projects in order to please more warlords and gain support?  Will this be used to consolidate his position and win election? Nobody knows at this stage of course.

Another problem is the timing of the rise of petrol and diesel prices. Ringgit has depreciated against US dollars the last few months . Imported things may cost 10% more now compared to around May when exchange rate was then around 3 ringgit to a dollar. Now with the rise in petrol and diesel prices, transportation is going to cost more and this will translate to higher prices for goods and services. As a results of these, cost of living is going to go up further.

This comes at a time when economy is slowing down amidst uncertainties ahead.

With cost of living already very high, and many people unable to survive on their earnings, crime rate has gone up these few years.

So my last question is:  With another round of rise in cost of living pending, will more people find it  harder to survive?

Will crime rate go up further?