However, Ramon Navaratnam urges better debt reporting according to methods used by international rating agencies.
Former Treasury deputy secretary-general Ramon Navaratnam says honesty is the best policy in economics. (Bernama pic)
GEORGE TOWN: An eminent economist has welcomed Finance Minister Lim Guan Eng’s “tell-all” policy on the country’s finances, saying it will only boost the confidence of investors and credit rating agencies.
Former Treasury deputy secretary-general Ramon Navaratnam said economists did not rely on good news to raise their ratings but rather truthful financial reporting by the government.
He was responding to analyst Hoo Ke Ping, who had urged the government to cut down on the “bad news” about the country’s finances to avoid further spooking investors.
“Investors and rating agencies are smart. We don’t have to hide the bad news and play up good economic and financial developments. They can see through any economy.
“It is only when we play down bad news that investors can sense something is amiss. When we mix politics with economics, they can also get very concerned and jittery.
“So the best way is to tell the truth and be more open, transparent and accountable. You can’t hide the truth for long,” Ramon told FMT.
Ramon, who served 27 years at the Treasury and was once World Bank alternate executive director in Washington, commended Lim for giving a true picture of the economy.
“Lim is right. Honesty is the best policy, especially in government economics and finance. You hide the truth and corruption follows.
“Tell the truth and you shame the devil in economics – doubts, uncertainty, low trust and low confidence.
“Lim is right and his detractors are quite wrong. They are politicking and not accurate in their assessment,” he said.
Ramon said the national debt, on the other hand, should be reported as defined by the World Bank, International Monetary Fund (IMF) and credit rating agencies, rather than an amalgamation of all debts.
“The debt issue should be reviewed carefully.
“I believe it is now wrongly defined and overplayed as ‘very bad’ with the total coming up to RM1 trillion.”
He said if current debts were compared to the GDP, according to the World Bank and IMF, it would hover at about 53%.
“That is fair and reasonable. But we should be cautious about it and not allow it to increase too quickly by spending money on projects that are not viable.
“So this 53% (debt-to-GDP ratio) is quite safe and acceptable.”
He said the “hype” of presenting the debt as dangerous could frighten small and unsophisticated investors who did not have the benefit of a good analysis of the debt issues.
“It might be good politics but bad economics to mix politics in economics.”
Lim had said the country’s debts, including payment for government guarantees and lease payments for projects, were at RM1,087.3 billion or 80.3% of the GDP as of Dec 31, 2017.
The Moody’s Investor Service rating agency maintained Malaysia’s direct government debt at 50.8% of the GDP in 2017.
“Its assessment of contingent liability risks posed by non-financial sector public institutions has also not changed following some statements by the new government,” a statement released on June 13 read.
Internationally, a debt-to-GDP ratio of 55% and below is regarded as acceptable.
The previous government’s reported ratio was 50.4%. -FMT
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