Household sector emerges main debtor of local economy

  • Business
  • Thursday, 18 Oct 2012

Prof Mansur says of the total lending to households, more than 30% goes to the property market financing and car loans.

KUALA LUMPUR: The household sector is exposed to inherent risks in the local financial system as it is the main debtor of the local economy with a household debt to gross-domestic-product ratio of more than 70%, said a professor of finance and econometrics.

Prof Dr Mansor Ibrahim of the International Centre for Education in Islamic Finance said the main concern in the country's economy was household debts.

“Before the Asian crisis, more than 60% of lending went to corporations while after the crisis about 40% (of loans) went to corporations while 55% to households.

“Of the 55% to households, more than 30% (of loans) goes to (finance) the property market and car loans.

“Maybe the prices of houses will drop later on. The current situation we have today is that households (have) borrowed a lot.

“These are the concerns that can expose risks and affect the lower income group,” he added at the Santai seminar Budget 2013 forum organised by Salihin Chartered Accountants here yesterday.

He noted that past crises had showed financial policy options had became “difficult” as the government could not “increase, contract or expand” the monetary policy without having side effects.

He credited the Government for trying to reduce the budget deficits in the latest announced Budget 2013 but said more should be done to further reduce these deficits.

“These continuous budget deficits is a concern - we have had budget deficits since 1998. The government has tried to reduce these deficits but it is still there.

“The issue here is that whether we can go back to a budget surplus as had happened three to four years before the Asian crisis - can we have a balanced budget?,” he asked.

“When we have deficits and these deficits goes to consumption, we use money meant for the next generation - our kids consume today with the hope that their kids will repay the government,” he added.

He also noted that Malaysia being an open economy would be subjected to the fortunes of the main economies of the world such as as the United States and the eurozone countries.

“What happens abroad will affect us as we are a trading nation. There are factors that will affect future outlook in 2013.

“These are the present struggle in the eurozone and the United States to cope with financial crises, trade imbalances between China and the United States and future trend of commodity prices,” he noted.

Article type: metered
User Type: anonymous web
User Status:
Campaign ID: 1
Cxense type: free
User access status: 3

Did you find this article insightful?


Next In Business News

AmInvestment lowers earnings forecast on Econpile
Tenaga again underpins KLCI’s early advance
Quick take: Straits jumps 25% on emergence of new shareholder
Trading ideas: HeiTech, Sime Darby Plantation, AMMB, Advancecon, Uzma
MMC remains deeply undervalued, says MIDF
AMMB continues to show resilience, TA Research says
Biden's trade rep pick says she will fight Chinese trade barriers
US factory activity scales three-year high, price pressures building
GameStop surges more than 18%, other 'meme stocks' also rally
Oil down more than 1% on Chinese fuel demand doubts, OPEC supply concerns

Stories You'll Enjoy