THE reputed international Fitch Ratings agency has given us a warning on the outlook for the Malaysian economy that we should not ignore.
In preparing for the 2020 Budget, the government’s economic and financial planners should take heed of this friendly warning and act sooner rather than later.
Fitch has affirmed Malaysia’s long-term foreign currency issuer a default rating at A- with a stable outlook. However, the agency also has several reservations:
> High public debt;
> Some lagging structural factors;
> Weak governance indicators relative to peers.
The national debt is now confirmed by Fitch itself to be high. By whatever standard of measurement used, by us, the International Monetary Fund or the World Bank and other agencies, there is now consensus that our debt is indeed high, although still not critical.
The debt has to be watched closely. We have thus to ensure better management of budget expenditures and strive to strengthen budget revenues to reduce the pressure to borrow more in the short to medium term.
The lagging structural factors would refer to our need to raise productivity, increase our competition and meritocracy, and strengthen our successes in combating corruption and cronyism.
How far have we advanced to deal effectively with these long-standing structural issues?
In the minds of our foreign, and even domestic, investors, how successful have we been compared with the previous regime?
Fitch expects our economy to slow down to 4.4% this year with a slight uptick to 4.5% in 2020. With the US-China trade war looming large and the general world economic uncertainty, investors could get even more jittery and hold back. Thus low economic growth rates for this year and ahead should not be ruled out.
If the economy softens further to around 4%, the implications for unemployment – especially for graduates – could be worrisome. Small and medium businesses, farmers and fishermen, and smallholders in our plantation industry would suffer from any slowdown.
But we are still slow, and are struggling, to restructure the economy. We have not yet made the vital transformation for the economy of moving from race-based to more needs-based policies and implementations. We need a new economic model but this is proving difficult to adopt quickly.
When it comes to Fitch’s concern about weak governance, to be fair, many measures have already been taken to strengthen the institutions of government.
We have seen this in the Parliament Select Committees, the Election Commission, the Malaysian Anti-Corruption Commission, the civil service and other institutions, all of which will boost good governance.
We cannot do too much too soon, as good governance takes a long time to restore and build up after several decades of neglect. But our people and investors are somewhat impatient for faster changes for better governance sooner.
Fitch has subtly warned us to compare our weak governance relative to our peers. Thus we have to take note of the more rapid progress made by our neighbours in Asean, like Indonesia, Thailand and Vietnam, and of course Singapore, to measure our real success in good governance.
Investors have the whole world to choose from to put their money down and they don’t necessarily limit themselves to looking for a comfortable physical climate and good tax incentives alone as reasons to invest. Racial and religious harmony and political stability are also major considerations for both domestic and foreign investors and professionals.
This is where the reduction of the brain drain is important. But we continue to have strong outflows of brain power, which is debilitating.
Fitch warns that the Pakatan Harapan coalition government holds only a small majority in Parliament and has seen its previously high public approval rates fall significantly.
Fitch’s assessment is quite correct. This has been due to too much politicking and allegations of sex scandals. All this does not give investors confidence, and even consumers will be wary of increasing consumption to boost the economy.
Fitch has subtly and politely warned us of the challenges we are facing. It has also emphasised, in its usual guarded fashion, the essential need to make the necessary socioeconomic and political adjustments and transformations without delay.
We could face a real slowdown all round, in all socioeconomic, political and environmental fields, if we don’t consolidate our strengths to overcome our lingering weaknesses and forge ahead towards a better Malaysia for all Malaysians.TAN SRI RAMON NAVARATNAM
Chairman , Asli Center of Public Policy Studies