11MP Mid-Term Review sheds more light on policy direction
KUALA LUMPUR: The MidTerm Review of the 11th Malaysia Plan (MTR11MP) which has outlined the government’s strategy to steer the country towards a prosperous, harmonious and inclusive nation should ease the concerns on policy direction, said economists.
Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the review had shed more light on government policies which were critical, at a time when the external environment is becoming increasingly challenging on the back of ongoing trade tensions, global monetary tightening, as well as uncertainty in commodity prices.
“The trade war between the US and China, global monetary tightening and the United Kingdom Brexit are some of the key external challenges that have shaped investors confidence, capital flows and volatility in the financial markets,” he told Bernama.
As of September this year, he highlighted that the foreign investors had reduced their Malaysian Government Securities (MGS) holding to 39.5 per cent of total outstanding MGS compared to the previous high of 51.9 per cent in October 2016.
The decline, he said, was in tandem with the rise in the US Federal Fund Rate which has risen 200 basis points since December 2015.
In the MTR11MP, Afzanizam said the macroeconomic targets had been revised to reflect the current realities which were mostly non-existent when the plan was first tabled in 2015.
Among the notable changes; the Gross Domestic Product (GDP) growth projection has been revised downward to between 4.5 and 5.5 per cent from 5.0 to 6.0 per cent between 2016 and 2020, while the inflation rate is expected to range between 2.0 and 3.0 per cent from the original estimate of 2.8 per cent.
Add to that, the unemployment rate is anticipated to remain below 3.5 per cent from 3.4 per cent recorded at the end of 2017.
Afzanizam said more importantly was the revision of the fiscal deficits target by end2020, from 0.6 per cent of GDP to three per cent.
“This suggests that the government is being pragmatic in setting its fiscal consolidation goal after taking into account the repeal of the Goods and Services Tax (GST). It also suggests that the government is not on an austerity mode,” he said.
In the first half of 2018, he noted the fiscal deficits stood at RM30.1 billion or 4.5 per cent of GDP.
“The government’s main emphasis now are on efficiencies, service delivery by the public sector and capacity building.
“Greater emphasis on real income, that is, household income after taking into account the inflation rate indicates that household finances should be more resilient as purchasing power can be improved further via targeted subsidies and financial assistance to the needy group.
“That way, spending can be optimised as the programme will only benefit the targeted group,” he added.
Sunway University Business School Professor of Economics, Dr Yeah Kim Leng said the key thrusts in the MTR11MP showed that the government would continue with the direction of the economy in line with the expectations of the private sector.
“Overall, the MTR11MP has set the broad terms of a mediumterm fiscal framework that should help to reduce somewhat the domestic uncertainties faced by the private sector,” he said.
The thrust of continuing policy, as anticipated by the private sector, was in line with good policy governance that were needed to ensure sustainable growth, which would invariably result in greater social harmony and political stability, he said.
The review also emphasised the longer term perspective in institutional and structural reforms needed to induce sustainable growth and reducing economic disparity, he added.
On structural reforms, Yeah said the review had underscored the needs to maintain fiscal prudence in terms of debt management while introducing gradual pace of fiscal consolidation.
“The balanced budget target, which has been revised to 2024 from 2020, is seen as gradual, hence, would ease some concerns in the market that the government would cut spending budget drastically,” he said.
Although this may remain a concern among rating agencies, he said Malaysia’s ability to sustain growth, achieve full employment and rising income, as well as current account surplus and low inflation, would be more important rather than the intermediate objective of a balanced budget.
“I believe the rating agencies will likely be more positive on the government’s seriousness in reducing debt level and emphasising fiscal sustainability by improving fiscal strength and increasing efficiency of public finance management,” he added.
Echoing the positive views, Putra Business School Senior Lecturer and Manager for Business Development Dr Ahmed Razman Abdul Latiff described the review as a mixture of the continuation of the original 11MP but with greater emphasis on good governance, inclusive economic growth and prudent fiscal growth.
“Most of the new measures introduced were based on the Pakatan Harapan’s manifesto as well as taking into consideration the realisation of higher federal debt and reducing revenue due to the abolishment of the GST,” he said.
He said the spirit of Vision 2020 would continue with the call for “Bangsa Malaysia”, which ultimately aimed at ensuring the nation and the people achieved developed status economically, politically, spiritually, socially, psychologically and culturally.
“Having a ‘Bangsa Malaysia’ approach means everyone should benefit from the growth of the nation and the income and wealth gap should be reduced between groups.
“At the same time, prudent government spending should be the key target with more emphasis on equity partnership for projects rather than debtbased arrangement,” he added.