Find­ing the right bal­ance for 2018

The Sun (Malaysia) - - SPEAK UP - By Ra­mon Navarat­nam

WILL Bud­get 2018 ad­dress the eco­nomic con­cerns raised by the World Bank? The bank is nor­mally cau­tious, po­lite and diplo­matic in its re­ports on national economies. You have to read be­tween the lines to seek out the mes­sages it wants to con­vey to gov­ern­ments and their peo­ples. The World Bank in its East Asia and Pa­cific Eco­nomic Up­date of Oct 3, pre­sented a sum­mary en­ti­tled Bal­anc­ing Act on Malaysia.


First, the econ­omy has done well, with a growth of 5.2% this year and an es­ti­mated slower growth of 5% and 4.8% in 2019. Hence, the econ­omy is weak­en­ing, un­less the Bud­get does more to strengthen it.

The slow­down is due to our risks as an open econ­omy, as we are vul­ner­a­ble to ex­ter­nal de­mand. This means that our ex­ports could de­cline and our im­ports could rise. Thus, our bal­ance of pay­ments cur­rent ac­count sur­pluses could nar­row. Also our ex­change rate could then de­cline fur­ther and our cost of liv­ing could rise.

But the World Bank char­ac­ter­is­ti­cally does not spec­ify the de­tails, lest it is seen to be damp­en­ing our of­fi­cial op­ti­mism, as they see them­selves as our guests in Malaysia.

Sec­ond, the World Bank notes that pri­vate con­sump­tion, that is what the rakyat spend on food, trans­port and shel­ter, etc, is large and has “ex­panded firmly”. It is es­ti­mated at 6.6% in 2017 and an­other high of 6.5% in 2018. How­ever, to­tal in­vest­ment is ex­pected to in­crease at a slower pace of 6.1% this year and only 3.2% next year.

We have to re­mem­ber that higher con­sump­tion can lead to less pro­duc­tive ex­pen­di­ture. And lower cap­i­tal in­vest­ment can lead to less in­fra­struc­ture and lower ca­pac­ity to gen­er­ate pro­duc­tion and in­come in the fu­ture. What can or will the Bud­get do about this struc­tural prob­lem? The World Bank has pro­vided the prob­lem and not the so­lu­tion.

Third, in­fla­tion rose to 4.1% in the first half of this year. This is high and is likely to rise fur­ther with the rel­a­tively weak ring­git. At the same time the prices of food rose by a high of 4.2% for the 12-month pe­riod end­ing July 2017. This is caus­ing much hard­ship es­pe­cially to our low-in­come groups.

How­ever, the World Bank does not give any so­lu­tions. But will the Bud­get 2018 adopt the nec­es­sary mea­sures to re­duce food prices?

My pro­posal would be to lib­er­alise the rules and re­duce any pro­tec­tion­ist poli­cies and the widescale cor­rup­tion and ex­pen­di­ture wastage that both sup­press and re­strict the sup­ply of ba­sic goods and ser­vices. If this lib­er­al­i­sa­tion is not done soon enough, the rakyat will suf­fer even more from ris­ing prices.

Fourth, house prices have risen faster than our in­come growth, ac­cord­ing to the World Bank. This makes the ba­sic need for hous­ing to be­come more un­af­ford­able to the lower-in­come groups. Thus, the World Bank rightly points out that higher house prices raise the cost of liv­ing.

The so­lu­tion here, is for the gov­ern­ment to build and pro­vide more in­cen­tives to the pri­vate sec­tor to more rapidly ex­pand the sup­ply of af­ford­able houses. How­ever, the long awaited mass pro­duc­tion of more af­ford­able houses, through the pur­pose­ful adop­tion of the In­dus­trial Build­ing Sys­tem (IBS), has not moved faster. The IBS should now be im­ple­mented with a stronger po­lit­i­cal will. And if there are pow­er­ful vested in­ter­ests that op­pose the use of IBS, they should be strongly op­posed by the gov­ern­ment. This will be en­thu­si­as­ti­cally wel­comed by the rakyat, in the national and pub­lic in­ter­ests. This move will ben­e­fit the rakyat and not some par­ties with nar­row self-in­ter­ests. I hope the Bud­get will pro­vide the nec­es­sary push for the IBS.

Fifth, the bank states that “the Malaysian econ­omy con­tin­ues to face un­cer­tain­ties mainly from the ex­ter­nal en­vi­ron­ment”. But the bank has ig­nored the more se­ri­ous threats from within our coun­try, which we can con­trol. They are ex­trem­ism, racial­ism and re­li­gious big­otry.

They are de­bil­i­tat­ing neg­a­tive forces that can un­der­mine the national and in­ter­na­tional con­fi­dence in our coun­try and its po­ten­tial and fu­ture. And the bank po­litely keeps silent, al­though it is aware from its global ex­pe­ri­ence that do­mes­tic and for­eign in­vest­ment can be ad­versely af­fected by these neg­a­tive in­ter­nal forces.

These are also the push fac­tors for the ris­ing brain drain. But no men­tion is made by the bank of these grave con­cerns in the in­ter­re­lated po­lit­i­cal econ­omy.

That is the World Bank. But will the 2018 Bud­get deal with these struc­tural prob­lems or sweep them un­der the car­pet?

Sixth, the bank sur­pris­ingly and glibly pro­poses “re­duc­ing ex­emp­tions on the goods and ser­vices tax (GST). Does it not re­alise that the low­in­come groups are al­ready ex­pe­ri­enc­ing con­sid­er­able pain from ris­ing prices? How could the bank also sug­gest “ad­dress­ing the rise of civil ser­vants’ salar­ies and pen­sions” to con­tain the Bud­get op­er­at­ing ex­pen­di­tures. In­stead the bank could have pro­posed rais­ing pro­duc­tiv­ity in the civil ser­vice by pro­mot­ing more com­pe­ti­tion, in­cen­tives and mer­i­toc­racy.

Will the Bud­get ad­dress these thorny is­sues or let the mat­ter rest and fes­ter?

Fi­nally, the bank does men­tion in pass­ing the need to “ac­cel­er­at­ing struc­tural re­forms to im­prove both pri­vate sec­tor pro­duc­tiv­ity and pub­lic sec­tor ef­fi­ciency” to sus­tain our cur­rent growth mo­men­tum in the medium term .

I agree en­tirely, but the bank does not say how. By be­ing over po­lite the bank is miss­ing the whole pur­pose of its mis­sion in Malaysia. The bank has to be more di­rect and pointed in its re­marks, how­ever brief they may be. This is es­sen­tial so that the bank where I once sat in its board, will not lose its high rep­u­ta­tion.


The bank, has to bet­ter serve Malaysia and other de­vel­op­ing coun­tries. But more im­por­tantly, we hope that the Bud­get 2018 on Oct 27, will ad­dress the sub­tle con­cerns ex­pressed by the bank, on the soft state and the fu­ture of our econ­omy amid do­mes­tic and global un­cer­tainty.

But we can face our chal­lenges, if we show stronger lead­er­ship and a col­lec­tive national will to suc­ceed fur­ther. We shall over­come with God’s will.

Tan Sri Ra­mon Navarat­nam is chair­man of the Asli Cen­tre of Pub­lic Pol­icy Stud­ies. Com­ments: let­ters@the­

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