WHOEVER forms the new government after the 15th General Election (GE15) will face many developmental constraints, economic challenges and business issues.
The new government can ill afford a new honeymoon period, but will have to hit the ground running.
The deceleration in global economic growth will continue in 2023, as it continues to be buffeted by a prolonged period of shocks, disruptions and uncertainties: continued military conflicts in Ukraine; still high global inflation; tighter monetary policy; and the induced negative external spillover effects on the emerging markets via financial and trade channels.
The global economic trend growth rate is weakening rapidly, with the US economy and Europe anticipated to experience recessions and China’s economic growth to strengthen in 2023, assuming the government relaxes its “dynamic zero-Covid” strategy amid containing the property stress.
Businesses should prepare for continued volatility in the years ahead.
The Merdeka Centre had conducted a survey from Oct 19 to Oct 28 which indicated that among the top concerns for Malaysian voters was inflation (31%), followed by political instability (13%), corruption (12%) and enhancing economic growth (12%).
Five key areas
The new government should focus on five overlapping priority areas:
> Restoring governance effectiveness and accountability as well as fighting corruption;
> Sustaining the economy;
> Creating jobs and enhancing people’s income;
> Enhancing the nation’s competitive investment climate; and
> Promoting foreign and domestic investment.
To achieve this, the new administration must regain credibility and trust of our people, businesses and investors when it comes to the things that matter to Malaysians like building a sustainable and resilient economy, fixing the middle-income trap, dealing with inflation and rising cost-of-living burden, improving core services (housing, health, education, skill set training), making our community safer, and being inclusive and equitable for all regardless of race, religion and geographical location.
The immediate priority is to quickly approve the 2023 budget to ensure the smooth operation of the government administration.
Good execution of positive economic multiplier projects and programmes and credible policies to sustain Malaysia’s economic momentum is crucial.
This is vital as the risk of a global recession is mounting in 2023, especially in the US economy and Europe triggered by strong inflation and more aggressive interest rate hikes.
All these external headwinds, including the prolonged military conflict in Ukraine, would temper Malaysia’s exports and the ensuing negative spillover effects on the domestic economy via both the trade and financial channels.
Mitigating rising prices
In managing inflation and the high cost of living, measures to mitigate the impact of rising prices and high cost of living on the vulnerable households are vital.
These include reviewing the effectiveness of the current price controls and subsidies on producers to balance as well as protect the interest of consumers and businesses.
The rationalisation of subsidies in stages to preserve fiscal sustainability is vital.
Moving away from a blanket subsidy towards targeted subsidies is more fiscal sustainable, as subsidies come with a huge “opportunity cost” to society.
It reduces the fiscal capacity as the huge financial resources spent on subsidies have diverted the budget’s allocation from other sectors such as education, healthcare, infrastructure and housing.
The implementation of subsidy reform will follow the principles of 3 “Cs” – credible, compensation and communication.
> Credible – Shifting from a universal-access subsidy programme to a targeted programme requires a comprehensive and transparent mechanism with clear objectives to identify poor households and deliver benefits.
The introduction of automatic pricing mechanisms and phased in price increases to smoothen adjustment are crucial.
> Compensation – Targeting by social category through targeted cash or near-cash transfers such as limiting benefits to the poor; children or pensioners, or to households in certain geographical regions is ideal.
Coupons can be allocated to allow targeted households to consume a certain “lifeline” amount of subsidised food or fuel products.
Social safety nets are more cost-effective and have a much more profound impact than generalised price subsidies.
> Communication – Transparent and extensive communication to explain why we have to shift from product subsidy to targeted households will benefit the vulnerable households more.
This will cover how the resources saved from a universal subsidy programme will be redeployed for other priority spending such as investment in infrastructure, funding pensions for an ageing population, providing better healthcare and education for future generations, or helping combat climate change.
Clear information
In addition, regularly publishing information on the size of the targeted social assistance programmes and how they affect the government’s budget would be a positive.
A well-handled removal of subsidies replaced by better targeted social spending for the poor and vulnerable households, plugging leakages and wastage, and productive investments can promote sustainable fiscal management and equitable outcomes.
Where enhancing a competitive investment climate is concerned, reviving as well as sustaining both domestic and foreign investment is crucial to drive high levels of private investment to boost economic growth and create better paying jobs.
Domestic SMEs have to be facilitated and be given sufficient financial assistance to transform into competitive business enterprises in domestic and international markets.
Enhancing the investment climate
The government must continue to enhance the country’s investment climate through ensuring political stability, macroeconomic resilience, policy certainty and clarity, as well as enhancing an effective and productive business-federal government-local authorities’ relations.
These will send positive signals to win over both domestic and foreign investors’ confidence.
The government has to enhance public delivery services and efficiency; reduce regulatory and compliance costs; and enhance a competitive tax regime and the cost of doing business.
With the geopolitical fragmentation and the strained US-China relations in trade and technology, Malaysia has to enhance its investment climate backed by favourable incentives and policies to attract the reshoring of production bases.
The government has to provide clear strategies for all key economic segments and industries (vertical and horizontal).
Where the shortage of workers, jobs and skill set is concerned, the recruitment process and arrival of foreign workers must be expedited to ease the shortage being faced by the industries.
The quality of reskilling and upskilling as well as training programmes should be prioritised to narrow the skills mismatch.
The development programmes must focus on job creation and skills for youth, promoting an entrepreneurial culture; productivity-linked wages for employees; enhancing technical and vocational education and training or TVET for future work; supporting investment in skills, lifelong learning and reforming the apprenticeship; more flexible training; and greater investment and innovation in key areas of lifelong learning.
Lee Heng Guie is Socio-Economic Research Centre executive director. The views expressed here are the writer’s own.
