Malaysia's fiscal debt position may be high but is not at an alarming level, thanks to the high level of government assets said a World Bank senior country economist.
Government-linked corporations like Petroliam Nasional Bhd and Malayan Banking Bhd in Malaysia have invested heavily abroad and this has strengthened the government's balance sheet in terms of assets.
"While the government has plans to address the fiscal deficit, what would be good is the subsidy rationalisation programme," said Frederico Gil Sander, in an interview.
The programme as a strategic reform initiative (SRI) could pave the way for higher private investment growth.
Bangkok-based Sander was here to launch the November edition of the Malaysia Economic Monitor.
In its latest edition, the World Bank expects the federal debt-to-GDP ratio to come in at close to 55 per cent in 2011 (compared to 53 per cent in 2010) before increasing to 56 per cent in 2012.
"These are somewhat above the government's stated targets, but committing to credible long-term strategy for fiscal consolidation is more important than keeping debt below a given pre-set level."
Over the past five years, petroleum-related revenues have averaged 38 per cent of all revenues compared with 22 per cent between 2000 and 2003.
The Goods and Services Tax is another policy measure which will ensure public finances as well reduce the dependence on oil revenue.
Meanwhile, the World Bank has revised downwards the growth outlook for Malaysia to 4.3 per cent in 2011 and 4.9 per cent 2012.
The first half's growth by 4.4 per cent, which came in below its forecasts, was due to the underperformance of net exports, mining production bottlenecks and worsening global demand conditions.
It expects external demand to be subdued for the remainder of 2011 and recover in the second half of 2012.
The World Bank feels that while Malaysia's projected growth is slowing due to external factors, improvements can be made domestically, including by investing in smarter cities.
A key challenge for Malaysia going forward will be to increase the volume and quality of skilled workers in its cities.
"This will require improving higher education and quality of life in cities to retain local talent and attract foreign skilled labour that can contribute to innovation."
In recent World Bank rankings, Malaysia moved up five notches in the annual global ranking to become one of the top five economies in Asia on the ease of doing business.
"Malaysia ranked highly, on par with advanced economies with regard to the business environment, but ranked on par with countries like Thailand and Indonesia in the area of skills. To correct that, Malaysia needs to place the education SRI on the front burner."
In the latest report, the World Bank described Malaysian cities as sprawling, which poses obstacles to reducing greenhouse gas emissions and promoting public transportation.
The demand for "green" products is growing with awareness of climate change and the competitiveness of Malaysia as an FDI destination may increasingly hinge on its ability to curb emissions.
"Managing the risks of natural hazards and climate change is also essential to secure Malaysia's quest for rapid growth."