MOODY’S Investors Service has revised Malaysia’s economic outlook from “positive” to “stable” although, thankfully, Malaysia still enjoys A3 status.
No doubt the international economic environment is facing serious headwinds from declining oil prices and an overall economic slowdown, especially in our major trading partners like China.
As Prime Minister Datuk Seri Najib Tun Razak has rightly stated, we can’t do anything about the adverse external developments.
At the same time though, I believe we should not play down the internal factors that are restraining our full potential for growth, price stability and better income distribution.
The question now is whether we are doing enough to protect and even prevent our economic fundamentals from weakening further. I think we can and should do more.
Budget 2016’s targeted deficit of 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 serve our national socio-economic goals?
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 to serve the best interests of the people, especially the bottom 40%. Hence, budget cuts cannot and should not get too close to where it hurts the rakyat most.
We have to be realistic and design any new budget revisions according to our 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.
The current world and Malaysian economic slowdown could be seen as a blessing in disguise. We should seize this opportunity to think more creatively and to introduce revisions and further transformations in our economy.
1) Budget deficit: In this time of economic stress, we should relax slightly the aim to achieve the deficit target of 3.1% of GDP, at least for now. We could hopefully still maintain our stable status when the tide turns.
2) Debt: We should not be trapped by our own imposition to fix a debt ceiling of 55% of GDP.
There could be some leeway but we must only borrow to finance viable projects which benefit the rakyat and not for prestige purposes or to serve the interests of big business. Borrowing to finance operating expenditure should not be allowed.
3) Operating Budget: We have to accept that there are severe constraints to raising revenue at this time. After all the uproar over the GST, which has nevertheless helped us, it will be ill-advised to introduce any new tax. In the longer term, however, we should think of new taxes at the higher income levels to narrow the budget deficit and also the widening income disparities.
More also needs to be done to cut the excesses in operating expenditure. For instance, travelling, study tours and foreign visits, elaborate opening and closing ceremonies, special uniforms for all kinds of occasions, and big lunches and dinners should be curtailed.
4) Development projects can be delayed or phased out over a longer period to slow down budget expenditure and reduce the strains on the budget deficit.Some delay will not hurt the rakyat too much, especially for projects with long gestation periods.
5) Private sector role: There should be a full review of the role of the Government and the private sector in economic development. 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, housing and a whole range of services, should not the private sector and business compete to provide better 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 has to be reviewed more thoroughly and the New Economic Policy, which the late Prime Minister Tun Abdul Razak envisaged to last for only 20 years, should be phased out. On the 40th anniversary of his sad demise, this may be the best time to review the NEP.
7. Good governance 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.
8. National unity is paramount. The recent 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 well-being for all Malaysians. 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 curtailing the budget deficit on the one hand and protecting the welfare of the rakyat on the other can be easily achieved if there is a stronger political will to deliver what is right, just and fair to the rakyat in the larger, long-term national and public interest.
I sincerely hope the Government will seriously consider some of these views in the spirit of open dialogue and public consultations for a better Malaysia.
TAN SRI RAMON NAVARATNAM
Asli Center of Public Policy Studies