The war on terrorism is being handled badly and the world is in a worse state now than it was immediately after the Sept 11 attacks on the United States, Prime Minister Dr Mahathir Mohamad said late yesterday.

The veteran leader told the World Economic Forum's East Asia Economic Summit that fear and reactions to that fear were making the already regressing world economy shrink further.

"In the handling of modern terrorism we are not doing well," Mahathir said at a dinner at the summit, which is attended by some 800 delegates from 33 countries.

"Today, a year after Sept 11, 2001, the situation is really worse than immediately after. Not only do people fear flying and travelling, but travelling is being made deliberately more difficult by security checks."

The cost was "draining even the richest treasuries", he said.