IMF backs Malaysia’s decision to impose subsidy cuts, GST

(CNA) – The International Monetary Fund (IMF) has backed the Malaysian government’s decision to cut subsidies this year and eventually introduce a goods and services tax (GST) in the country.

But while the global body lauds what it calls Malaysia’s “timely and comprehensive fiscal reform package”, the public is not necessarily celebrating.

First, fuel subsidies were slashed; next, it was sugar. And then came the announcement that a GST would be introduced in Malaysia in 2015.

Some may call these measures harsh, but to the IMF at least, they are necessary evils.

Speaking at Putrajaya on Monday, IMF Mission Chief for Malaysia Alex Mourmouras said steps like those have kept the nation on track toward its goal of reducing its fiscal deficit to 4 per cent this year.

Mr Mourmouras said: “So the GST, the subsidy rationalisation, the establishment of the fiscal policy committee — these are all elements of a fiscal management and a fiscal policy that we see as timely and welcomed.”

“There is no sense of urgency or crisis but that’s exactly when structural reforms to enhance the efficiency or effectiveness of the fiscal system are needed.”

But to many members of the public, the timing could not have been worse.

The past four months have been packed with price hike announcements — from the subsidy cuts to electricity tariffs going up by up to 17 per cent next year.

Even commuters will not be spared — public transport fares and toll prices are also expected to go up in 2014.

One resident said: “I think it shouldn’t be done simultaneously. It should be done slowly and in tandem with the standard of living.”

The price hikes and the subsidy cuts have not made the Malaysian government very popular in the eyes of the public.

Some citizens have even taken to the social media, challenging the Barisan Nasional government to hold an election now and see if they would still win.

However, the IMF’s message has been clear — that the government should not delay or compromise on their reforms. And for now at least, Malaysia is taking that advice.

Dr Mohd Irwan Serigar Abdullah, Treasury Secretary-General, said: “Of course, in the short run you’ll feel some pain but in the long run, you know it’ll be a healthy situation for the country and for the economy.”