Bank Muamalat Malaysia Bhd chief economist and social finance head Mohd Afzanizam Abdul Rashid
PETALING JAYA: At a time when the country is besieged with economic and structural issues, economists are calling for more appropriate policies to be implemented for the economy to be on a stronger footing amid the challenging global economic landscape.
The sliding ringgit, the higher cost of living, falling exports, sticky core inflation and a weak equity market are some of the economic dampeners, which may put a strain on the local economy moving forward.
To minimise these challenges, economists contacted by StarBiz are calling for more relevant and appropriate policies to be put in place soonest possible.
They concurred that such policies should have clear directions, transparency, credibility and which could be timely executed to attract foreign direct investments (FDIs) into the country and further propelled economic growth.
Bank Negara’s official estimate for the gross domestic product (GDP) is in the range of 4% to 5% for this year. Both the economic and financial data are signalling weaker quarters ahead for the local economy, which grew by 5.6% year-on-year in the first quarter of the year (1Q23).
According to Bank Muamalat Malaysia Bhd chief economist and social finance head Mohd Afzanizam Abdul Rashid, based on funds flow into the bond market, foreign investors are still sanguine on Government of Malaysia credit.
This was premised on the net inflows in the bond market amounting to RM15.9bil in the first five months of this year.
However, this can’t be said for the equity market. The equity market indicates that foreign investors have become net sellers totaling RM4.2bil in the first six months of 2023, he said.
“Equities investors usually invest based on company’s earnings prospects. When foreign funds are not really coming to our market, then the country needs to address the potential gap, especially in policy making.
“Therefore, having a credible economic plan and execution is obviously the immediate priority, as the foreign investors would want to know what are the plans in place to ensure the country could grow on a sustainable basis.
“The common parameters would be the fiscal consolidation, good governance, swift execution and tangible results which are key factors that would improve how foreigners would assess the country,” Afzanizam explained.
Centre for Market Education CEO Carmelo Ferlito
Centre for Market Education chief executive officer Carmelo Ferlito, meanwhile, said rather than an economic plan, what is needed is an action at a different level.
Malaysia is losing ground in terms of international confidence, competitiveness and ability to generate investments as its share of GDP is extremely low, around 15% versus 30% in Indonesia as at Jan 1, 2021.
He viewed the local economy as “consuming wealth rather than producing it (investing).”
“A true pro-growth strategy would address both the currency issue and the cost of living, which would be a stronger commitment compared to pro-market reforms.
“Pro-market reforms include averting price controls, liberalising the labour market, ease of doing business and financial regulations, which forms a clear exit strategy from an economic system dominated by politically motivated government-linked companies,” Ferlito noted.
University of Science and Technology economics professor Geoffrey Williams
University of Science and Technology economics professor Geoffrey Williams said it is vital to have clarity of the economic direction the government wants to take and the basic foundations of the economic approach.
“We do not need another Malaysia Plan or another interventionist strategy setting out more interference. We need a fresh look and feel.
“Furthermore, it is essential that there is transparency in policy design. We should know who is creating these policies and why they are doing this. It is important that organisations with a vested interest or private agenda should be exposed to public scrutiny.
“There must be proper independent oversight at the same time. Pakatan Harapan promised a Parliamentary Budget Office and this should be introduced to act as an independent fiscal institution to scrutinise policy for public debate,” Williams noted.
UCSI University assistant professor in finance Liew Chee Yoong
On the other hand, UCSI University Malaysia assistant professor of finance Liew Chee Yoong said the Prime Minister should embark on a comprehensive four-year plan to ensure strong economic growth trajectory, a firm ringgit, strong trade and exports, spur FDI and tackle the higher cost of living.
Liew, who is also a research fellow at the Centre for Market Education, said a comprehensive plan could include measures to strengthen the ringgit such as implementing sound monetary and economic policies, improving fiscal management, and maintaining economic and political stability.
A comprehensive plan could prioritise efforts to improve trade relations with other countries, explore new markets and promote export-oriented industries, he said.
“This plan should diversify export destinations and expand the export base, and by doing that, the country can reduce its dependence on a single market and increase its resilience towards external shocks.
“The comprehensive plan should include targeted policies and incentives to attract foreign investors, streamline investment procedures and improve the ease of doing business. This would contribute to job creation, transfer of technology and knowledge, and overall economic growth.
“Lastly, it should address the high cost of living so that the standard of living can be improved. The plan should include measures to manage inflation, enhance social safety nets, increase wages, and promote affordable housing initiatives. By reducing the financial burden on citizens, it can enhance social welfare and support sustainable economic growth,” Liew said.
Malaysian Institute of Economic Research head of research Shankaran Nambiar.
Malaysian Institute of Economic Research head of research Shankaran Nambiar said with the sliding of the ringgit and the high cost of living, there is a need to ensure the country is attractive to investors.
“We have lost some ground and we should try to recover it. It is no use saying these are old problems,” he said.
For the Prime Minister to be relevant, Nambiar said: “He would have to pursue energy transitioning, the greening of the economy, a swift 5G rollout and fostering the Fourth Industrial Revolution. Failure to do so would be to fail Malaysia’s competitiveness.”
He added: “Datuk Seri Anwar Ibrahim will have to distinguish himself by the grit and social commitment he can bring to the table. It is easy to succumb to a less effective tax policy simply because it is more popular.
“It is easy, for instance, to ignore optimal access to quality healthcare as it will reverse the trend towards a market-oriented healthcare system. Anwar is committed to social transformation, so we can expect a compassionate and forward looking economy.”
Williams, meanwhile, emphasised that the government should at the same time set out a clear strategy in line with the policy priorities it has already identified.
The most important thing is for the government to focus on system reforms, not on creating a new laundry list of projects and programmes.
“There must be a move away from the idea that the government can solve problems with money and toward an approach that reforming the system at its core can help us to choose between trade-offs more effectively and allow markets and individuals to solve many problems themselves.
“There should be some clear policy priorities which include addressing the cost of living through raising incomes, restructuring and rationalisation of subsidies, reforming the labour market, addressing the pension crisis and social protection and restructuring finance in the higher education system.
“At the same time, it is important that agendas driven by commercial or political self-interest such as digital economy, green growth or Fourth Industrial Revolution ideas should be left to the market,” he said.
On subsidies, Afzanizam said the government’s move for a gradual removal is the right thing to do but the rakyat need to be informed there would be short-term measures to manage the impact such as additional cash transfers and strict enforcement to eradicate profiteering.
‘’The government needs to demonstrate its resolve to reintroduce the goods and services tax (GST). Having GST can be inflationary initially, and therefore, setting the GST at a lower rate could be a good start. There must be comprehensive road shows so that everyone will be on board.
“As for the Fiscal Responsibility Act, it has to be tabled in the Parliament so as to demonstrate the credibility on how the government is managing its fiscal resources.
“Overall, these are very difficult decisions and without doubt, the government has to manage it delicately. To ensure its success, there should be effective communication on policy and followed with a robust execution,” he said.
