Our apparently strong economic fundamentals are weakening further. This is why Moody’s Investors Service has just revised Malaysia’s economic outlook from “positive” to “Stable”, although thankfully Malaysia still enjoys A3 status.
No doubt the whole international economic environment is facing serious headwinds from declining oil prices to an overall economic slowdown, especially among our major trading partners like China.
As our Prime Minister Najib Abdul Razak has rightly stated, we can’t do anything about the adverse external developments. But at the same time I believe we should not play down the internal factors that are restraining our full potential for growth and price stability and better income distribution.
The question in the public mind is whether we are doing enough to protect and even prevent our economic fundamentals from weakening further. I think we can and should do much more.
The Budget 2016 deficit target to achieve a 3.1% of gross domestic product (GDP) need not be cast in stone. This is what Moody’s and other international rating agencies will want. But does this target serve our national socio-economic goals at this time? After all, we can always revert to these strict guidelines later, if we have the discipline to do so.
It has to be recognised that managing an economy in a multiracial society requires special skills and considerations that need not be rigidly defined and constrained by international financial criteria alone. The government has its main obligations to serve the best interests of the people, especially the bottom 40%. Hence, budget cuts cannot and should not get too close to the bone, where it hurts the rakyat most. There has to be some flexibility in economic management.
We have to be realistic and design any new budget revisions, according to our own national priorities. Our dilemma is to balance these basic domestic socio-economic needs with the international norms of sound fiscal management. But our national policy preferences should weigh in favour of our own national interests and not mostly on global financial norms, which may not fully appreciate our local prerequisites for social stability and progress.
Recommended budget policy revisions
Indeed the current world and Malaysian economic slowdown could be seen as a blessing in disguise. We should seize this opportunity to think more out of the box and to introduce revisions and further transformations in our economy as follows:
1. The budget deficit – At this time of economic stress we should relax slightly from the aim to maintain a rigid adherence to the budget deficit target of 3.1%, at least for the time being. We could hopefully still maintain our “stable” A3 status when the tide turns.
2. Debt – We should also not be trapped by our own imposition to fix a debt ceiling of 55% of GDP. Under the present economic circumstances, there could be some leeway. But we must only borrow to finance viable projects that benefit the rakyat and not mainly for prestige purposes or to serve big business interests. But borrowing to finance operating expenditures should certainly not be allowed as in the past.
3. Operating budget – We have to accept that there are severe constraints to raising revenues at this time. After all the uproar over the goods and services tax, which has nevertheless helped us, it will be ill advised to introduce any new tax. Still, in the longer term, we should think of new taxes at the higher-income levels to narrow the budget deficits and also the widening income disparities.
However, much more need to be cut from the excesses in the operating expenditure. For instance, unnecessary travelling, study tours and foreign travel, wasteful and elaborate opening and closing ceremonies, special uniforms for all kinds of occasions, and big lunches and dinners should be curtailed.
4. Development projects – These can be delayed or phased out over a longer period to slow down budget expenditures and to reduce the strains on the budget deficit. Some delay will not hurt the rakyat too much, especially for projects with long gestation periods for completion.
5. What should be the private sector’s role – There should be a full review of the role of the government and the private sector in economic development, as part of our socio-economic structural reforms. The question is: will the government allow the private sector to participate more actively in the provision of public goods and services?
For example, in education, health, transport and housing, and a whole range of services, should not the private sector and business compete to provide better public services? Of course these “privatised” services should be subject to reasonable rules and regulations. This would ensure fair treatment to the investors and safeguard the welfare and interests of the bottom 40% of the population.
6. The New Economic Model – It has to reviewed more thoroughly and the old New Economic Policy (NEP), which the late Prime Minister Tun Abdul Razak envisaged to last for only 20 years, should be phased out. There should be more meritocracy and competition, and on the 40th Anniversary of his sad demise, this may be the opportune time to review the NEP.
7. Good governance – This should be stepped up to strengthen international and domestic confidence. The trust deficit should be examined by the cabinet to narrow the public credibility gap. As the Sultan of Perak Raja Nazrin has repeatedly stressed, the institutions of state have to be more independent. They need to be seen as fair and firm and not selective in the quality of administration and justice. Otherwise the concept of “state capture” can gain ground and dominate our country.
8. National unity – This is paramount. The recent strong erosion in racial and religious understanding has to be countered strenuously and with much higher priority to promote peace and stability and a better sense of wellbeing for all Malaysians.
Presently, there is a feeling of frustration and foreboding, which can cause further loss in confidence, which is so necessary for economic growth and progress.
Extremism from all quarters, and especially now coming from the Islamic State, should be more firmly dealt with before it’s too late!
Finally, I believe that the economic dilemma that we all face, between curtailing the budget deficits on the one hand and protecting the welfare of the rakyat on the other, can be overcome easily, if there is a stronger political will to deliver what is right and just and fair to the rakyat in the larger, long-term national and public interest.
Then the international rating agencies like Moody’s will look upon us more favourably too.
I sincerely hope that the government will seriously consider some of these views in the spirit of open dialogue and public consultations for a better Malaysia.