Economists: Cut the handouts, avoid higher interest rates

JAYA: Warning of a potential global economic slowdown, economists say there are a few things Budget 2023 must address.

Prof Geoffrey Williams of Malaysia University of Science and Technology said the focus of Prime Minister Datuk Seri Anwar Ibrahim’s government should be on keeping inflation low, protecting people from the rising cost of living and promoting sustainable growth and investment.

“Anwar should cut out most of the handouts from Budget 2023 and try to have a smaller increase in spending and a lower deficit to provide reserves in case the downturn is more severe next year.

“The previous government never had an independent assessment of its Budget plans. Anwar should do this either with a panel of independent forecasters or by setting up the Parliamentary Budget Office immediately,” he added.

Prof Williams said Anwar’s government should also adopt the Assistive Basic Income idea from Barisan Nasional’s manifesto to begin a Universal Basic Income process.

This sets a minimum threshold of household income at RM2,208 per month and the government will automatically supplement all household incomes that fall below the threshold.

“Malaysia faces the same challenges as many countries do in maintaining growth and controlling inflation, but we have done relatively better than our regional peers.

“Growth this year is very strong, likely above 8% for the full year, but will slow next year to normal rates of around 4% to 5%,” he said.

Prof Williams said inflation has ticked up but has been controlled with subsidies and price caps.

“It has likely peaked and will moderate next year. In October, it fell to 4% from 4.5% in September and 4.7% in August, so it’s easing off.”

The immediate challenge is to set a budget to maintain growth and keep inflation down to avoid higher interest rates, he added.

He said the domestic economic challenges are mainly due to the scarring and structural damage from the Covid-19 lockdowns and the ensuing policy response.

“International challenges come from an expected slowdown in global economic activity, which will affect Malaysia’s trade and investment,” added Prof Williams.

Senior Fellow at the Malaysian Institute of Economic Research Dr Shankaran Nambiar, meanwhile, said the Budget will be Anwar’s first instrument to contain the effects of a shrinking global economy in 2023.

“There will be limits to what he can do using monetary policy, so I expect he’ll explore fiscal options,” he said.

He said the retabling of Budget 2023 is likely to be followed by strategies to handle immediate economic contraction in 2023.

Anwar had said Budget 2023 could be tabled in a month or so after the Parliament sitting on Dec 19.