Exclusive - The government has been decisive in saving lives and livelihoods

  • Economy
  • Saturday, 26 Sep 2020

Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz — SHAARI CHEMAT /The Star

THERE was a baptism of fire when you stepped into this job, given the wreckage the pandemic has caused. How challenging has it been as a first-time minister having to deal with unprecedented challenges to the economy?

The government’s main challenge is to save lives and livelihoods. My focus is to manage the economy, ensure a soft landing for our people and businesses and economic resilience moving forward.

I was a little apprehensive at first, and it was a steep learning curve but I am thankful that my colleagues in the Finance Ministry (MoF) have been very supportive, and that was how we managed to package the RM250bil Prihatin Rakyat Economic Stimulus Package (Prihatin) measures after just 18 days.

Another challenge is execution. This is why we formed the Economic Stimulus Implementation and Coordination Unit Between National Agencies (Laksana) unit to oversee the execution of all four stimulus packages across 53 ministries and agencies, and reporting the updates over the past 23 weeks. We have to be more outcome-based. We have been transparent with our goals, which also drives us to be more accountable.

What has been the order of importance in terms of policy response combating the pandemic, and especially now as we move towards normalcy?

Firstly, we needed to save lives — hence the border closure and the movement control order (MCO) in March through April. There was clarity in the thinking process here. The Prime Minister was decisive, and the number of cases and death incidents speak for themselves.

Secondly, we needed to save livelihoods. That is where the stimulus and recovery measures come in — including the Employee Retention Programme and Wage Subsidy Programme under Prihatin; the additional Wage Subsidy Programme under Prihatin SME+; expanded Wage Subsidy Programme via Penjana and now the additional RM10bil worth of measures across three components under KitaPrihatin.

Thirdly, we understood the need to balance between deploying certain resources now, and keeping more bullets for later. The reason being the Covid-19 vaccine has yet to be found and produced commercially.

The government is also aware of the need to be agile and responsible in our responses, which is exemplified in how our measures have expanded and subsequently transformed (where necessary) throughout these trying times.

There have been periodic updates on the status of the implementation of the different economic packages to repair the economy from the Covid-19 impact and how would you categorise those achievements?

The numbers don’t lie. Execution is key. For the 40 initiatives under Penjana, over 90% of our measures have been executed. We have been transparent in tracking the measures through our Laksana reports, which are published weekly. Headline economic indicators, too, are now on the recovery path.

This has allowed Malaysia to remain open for business. A recent example can be seen in the relaxation of the travel ban for professionals. Apart from that, investments continue to come in, while market activities have stayed elevated. We also see business and manufacturing activities continuing, while domestic tourism has also improved, which means people are spending. These are positive signs, along with various other economic indicators.

What happens when the government stimulus aid stops and what will transpire next? When will the MoF start implementing plans on changing handouts to the public? Do you expect a second wave of weak economic performance once the initial stimulus-laden rebound weans off?

Finding the right balance is key. As mentioned, we need to ensure enough resources for future measures. Many that we have introduced are one-off, and were formulated to support the people during these trying times. We are already moving from a blanket to a more targeted distribution of aid and resources.

On handouts, these were meant to help those affected to address their cash flow and get back on their feet. I am confident that the upcoming medium-term measures under Budget 2021 will provide a clearer path to economic recovery.

MoF and government policies have largely been populist policies so far. When and how is the MoF going to start to pull back and strengthen the macroeconomic numbers?

I think they are responsible and responsive policies. According to the World Bank, over 150 countries around the world are expected to experience GDP contraction in 2020. Around 70 to 100 million people are going into extreme poverty.

Prihatin, Penjana and KITAPrihatin measures are about saving lives and livelihood. Once we take care of that, we should be able to contain the economic fallout from the MCO, RMCO and the new norm. If saving lives and livelihood is deemed populist, then so be it.

The measures and their updates took into account the feedback from people and businesses during our engagement sessions, as well as from implementing agencies such as the Inland Revenue Board (LHDN), the Social Security Organisation (Socso), and Bank Simpanan Nasional (BSN), among others.

Any updates on the negotiations with regard to state royalties and taxes when it comes to the oil and gas (O&G) industry and Petroliam Nasional Bhd (Petronas)? Will Petronas pay the state sales tax (SST) to Sabah?

The RM2.95bil petroleum sales tax payment from Petronas to Sarawak represents Petronas’ full and final settlement for the SST for the year 2019. It is evidence of Petronas’ commitment towards achieving an amicable resolution on the matter.

Petronas has engaged Sabah on the petroleum products sales tax. Petronas is committed to working with Sabah on strengthening the O&G sector towards creating a stable and conducive business and investment environment for future growth.

There has been a delay in the implementation of projects under Budget 2020. What will become of those planned expenditures?

There are delays due to the MCO. However, the Prime Minister has affirmed that projects that do not require additional funding will continue. The progress and timeline will be underlined in Budget 2021 and the 12th Malaysia Plan (12MP). This includes Jendela which was recently announced by the Prime Minister. Multiple countries around the world are also enhancing their digital infrastructure plan as one of the economic drivers in this period.

How important is it to get a long-term economic recovery plan correct after the Penjana and Prihatin packages?

The structural issues are going to be addressed in 12MP and Budget 2021 will lay the foundation for that purpose. At the same time, we need to be willing to adapt to any possibilities especially in the current situation.

In our attempt to get things right, Laksana relies heavily on data. Collecting and making sense of the right data is the key to better, more targeted policies. In June, the Prime Minister launched the Laksana digital dashboard to link data from 53 ministries and agencies that are involved with the implementation of the RM295bil economic stimulus packages. We are serious about data. Data is the foundation on which current and future measures will be crafted, implemented and tracked.

What will the government do to reset and restrategise long-term growth objectives following the pandemic damage and the changes to economic development?

In a crisis, there are opportunities we need to be smart about. We will also calibrate Budget 2021 with the 12MP, and the Shared Prosperity Vision 2030. Among the things to address include:

a. Education - It is important to address the mismatch in the job market. For now, our Penjana Reskilling and Upskilling Programme is helping to equip Malaysians with the right vocational and technical skills to match the job market demand. Moving forward, efforts like these could be expanded to support youths who are vocationally inclined.

b. Sustainability and Sustainable Investments - There is currently a US$2.5 trillion funding gap for sustainable investments. Bridging that gap requires facilitating capital. Can our banks provide the financing to take advantage of these new sources of growth? Sustainability, as a pillar in Budget 2021, will examine this potential, and more.

What can we expect from Budget 2021 and what will its thrusts be?

One of the focuses of Budget 2021 is to ensure the green shoots of economic recovery are properly nurtured. Let’s talk about the Wage Subsidy Programme, for example. It is not just about addressing unemployment, but also to help companies maintain at least 50% business capacity. With capacity partially intact, it will be easier for businesses to scale up and ride on the economic recovery.

The four cornerstones for Budget 2021 are:

a. Caring for the people - This includes addressing the income disparity as well as the digital divide.

b. Steering the economy - This includes supporting human asset development, emphasising the importance of TVET and Reskilling & Upskilling, as well as Public-Private Partnerships to boost knowledge transfer and innovation

c. Sustainable Living - This includes pursuing the SDGs through sustainable production and consumption; managing and conserving natural resources and continuing to push the economy towards sustainable goals

d. Enhancing public service delivery - Particularly through digitalisation and enhancing the role of NGOs

What will the budget deficit be for 2021 and the government debt-to-GDP ratio? What will the shape of Malaysia’s economic recovery be in the second half of this year and next year?

As of now, the budget deficit is expected to be 5%-6% of GDP in 2021. We plan to bring this down to 3%-4% in the medium term, while debt-to-GDP is expected to remain under 60% of GDP by end-2021.

We expect a V-shaped recovery based on current economic numbers. However, for as long as a vaccine hasn’t been found, we are cautiously optimistic and must learn to adapt to new norms of standard operating procedures. The government’s priority is to save lives and livelihoods, and support businesses affected by the Covid-19 pandemic, even if this means increasing our debt level temporarily. The government is confident that this is the right course of action which balances the need to support the economy and manage our sovereign ratings.

How is the government going to increase its tax base given the hit to GDP and the subsequent fall in tax collection? Is the goods and services tax (GST) or any form of value-added tax being planned for implementation? How is the government going to reduce its dependence on oil revenue?

We are examining various options to expand and diversify our economy, and in turn, the government’s revenue base. Options must take into account the impact on the people, the economy, the cost of living, the price of goods, etc. Diversification is also occurring in various industries in this new norm. Petronas, for example, is looking seriously into renewable energy. That is one example. We are also considering measures to de-incentivise the shadow economy.

Will Budget 2021 see the introduction of more projects and can the government afford that, given the tax collection situation and debt ceiling? Is the threat of a sovereign rating review hindering spending plans?

Projects that do not require more funds will continue. In fact, projects like the LRT3 and MRT2 are continuing.

The highest our deficit has been was 6.7% during the 2008-2009 crisis. Based on our assumption on deficit and debt-to-GDP ratio for now, I believe we still have room to maneuver.

Again, one of the focuses under Budget 2021 is to ensure the green shoots of economic recovery are properly nurtured. Malaysia’s GDP is expected to grow healthily in 2021.

In terms of spending, rating agencies are aware that the current pandemic has affected most countries to varying degrees. In terms of spending, we need not be overly concerned about credit ratings at present, because our people need to put food on the table, and businesses need to survive. We will do what we must to ensure we continue to protect lives, empower people and support livelihoods, businesses and the economy towards recovery.

Will the government introduce private sector-led growth and how will this be done, given the damage to private-sector revenues and confidence?

The government has always encouraged domestic direct investment (DDI) alongside foreign direct investment (FDI). The slew of tax incentives introduced through Penjana are for both local and international companies. Malaysia is open for business, whether for domestic or foreign investors.

The loan moratorium comes to an end at the end of September.

Has the moratorium achieved its aim and how do you see the economy performing once the extra money starts going back towards the banks? How are you going to deal with the blowback once the moratorium and other aid packages end?

On the switch to the targeted moratorium, we are keeping our focus on those who really need this assistance. The banks have committed that those who have not found new jobs after losing theirs during Covid-19 will be automatically allowed to extend the moratorium.

So far, 98% of applicants have been approved. Bank Negara will also ensure that those who get the extension moratorium will not be registered in the Central Credit Reference Information System or CCRIS. The targeted measure also ensures that the banking sector maintains its capacity to continue supporting the wider economy.

But borrowers need to approach the bank if they need help. Individuals and businesses with multiple loans can speak to the Credit Management and Counselling Agency (AKPK) on various restructuring options.

We should also not look at the loan moratorium in isolation. There are many other measures, like the wage subsidy, to save jobs. This also helps improve companies’ ability to repay loans, which frees up liquidity for future loans.

Bantuan KITAPrihatin can also assist those who are adjusting to the post-moratorium environment. The government’s hiring and training, as well as reskilling and upskilling incentives are also meant to support workers in getting new jobs and enhancing their skills to enable them to pivot to other jobs.

Does the MoF have any plans to restructure and maybe list the companies it owns?

A portfolio review is always on the cards, but we must balance our long-term goals and short-term needs. As of now, we are not looking to sell any major assets. We will look into all options but if we can use other resources such as borrowings, then we will do that.

The government still maintains equity holdings in government-owned companies through MoF (Inc) based on the following objectives:

a. To maintain the government’s interest in strategic sectors, eg, the defence sector;

b. To provide public infrastructure and social services to the people such as public transport services (buses, rails, etc) and utilities (water supply, electricity and sewerage services);

c. To encourage economic development by providing support for new start-ups and new industries;

d. To encourage technology development through research and development (R&D) activities; and

e. To fill any market gap.

How important it is to maintain the independence of Bank Negara and other regulatory bodies?

Bank Negara’s role as an independent and professional central bank is provided for by the Central Bank of Malaysia Act to ensure that it guarantees monetary stability and be conducive to the sustainable growth of the Malaysian economy. Its independence is crucial to allow it to focus on the long-term economic perspective and financial system.

The overnight policy rate (OPR), for example, is decided by the Monetary Policy Committee, without any input or interference from the government.

What can the banks do more to help with rebuilding the economy?

The value of the moratorium by the banking sector is around RM100bil. They have played a good role in addressing the Covid-19 pandemic. People tend to think of only government and Bank Negara funding. Banks, too, have their own funding to support companies and SMEs.

The banking sector has entered into this pandemic from a position of strength, unlike in 2008. They can tap into their excess capital buffers. The cut in the statutory reserve ratio and the inclusion of the Malaysian Government Securities (MGS) and the Malaysian Government Investment Issues (MGII) into the Statutory Reserve Requirement (SRR) have also added liquidity to the market.

After the three OPR cuts to 1.75% this year, the current breather is one sign that the economy is improving. Again, we have to keep an eye on how things unfold.

Has the robust stock market helped with the economic recovery and what are your thoughts of the rebound and evolution of market trading and foreign participation in the stock market?

The stock market has been active, partly thanks to the increase in retail participation to levels not seen in a long time. While there is foreign outflow in the equities market, the situation is not unique to Malaysia but similar in other Asean countries that were overshadowed by bigger Asian economies like China and India.

On the other hand, our bond market has seen net foreign inflow for four consecutive months in April through August. The country also recorded positive FDI in the first quarter of 2020 (1Q20), and even 2Q20 despite the pandemic.

You entered the crosshairs of politics with the Goldman Sachs settlement and also the direct negotiations revelation. What did you learn from those episodes and how do they influence what you will do next?

My focus is on the economy and the government’s finances. We are working hard to recover what rightfully belongs to the Malaysian people. Whatever decision made by the ministry has been, and will continue to be, guided by this overarching objective.

On direct negotiations, there are specific conditions that warrant direct negotiations. It is allowed by Act. The conditions include when there is a single source of supply or services; when there is a need for standardisation to ensure compatibility; when it is for national security or strategic interests; or when it is a contract with a bumiputra company that meets all requirements. The question about direct negotiations was asked to me in Parliament. All I did was to share the list of contracts in the interest of transparency. If a situation fulfils the conditions, yes direct negotiations are allowed.

How do you see the political landscape evolving, given the louder calls and expectations of an impending general election? Will you stand as an MP?

I have no plan to contest as an MP at this point in time. My focus is clear, which is to manage the economy and the government’s finances.

How important is it that the government gets a new mandate to carry out its plans and objectives for the country?

Elections are part of the process of any democratic country. Again, my focus is clear. We are carrying out the plans and objectives for the country’s economy right now.
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