KUALA LUMPUR: The spike in domestic consumption as a result of the abolition of the 6% goods and services tax (GST) will only be temporary, according to former prime minister Najib Razak, who predicts that the return of the sales and services tax will increase pressure on Malaysia’s economy.
In a recent interview with FMT, Najib said every economic sector in the country had taken a dive except domestic consumption. He said this was reflected in the sharp drop in the growth of gross domestic product (GDP) since the change of government in May.
“It is now lower than Thailand’s and Indonesia’s GDP growth rates, which we have been outperforming for some time,” he said. “This is a worry for sure.”
Bank Negara Malaysia (BNM) recently revised the GDP growth forecast from 5.5-6% to 5%.
Najib attributed the lower growth to the cancellation and suspension of “much-needed infrastructure projects” as well as slow payments to government suppliers.
The former finance minister said imports had been increasing at a faster rate than exports since the zero-rating of the GST and its attendant rise in domestic consumption.
“As a result, our trade surplus has dropped,” he said. “Added together with outflows of funds since the election, our current account surplus had a big drop that surprised most people. It has now dropped to less than US$1 billion, which is much lower than the RM15 billion in the previous quarter.”
He warned of a “twin deficit” if the Pakatan Harapan (PH) government allowed the surplus to turn into a deficit.
“If domestic demand and imports continue to rise while our exports growth weakens, we could run into a trade deficit too. And that would be a triple deficit.”
He said the present government could still breathe due to “high cash balances” left by his administration in BNM, Petronas and Khazanah.
“But when this runs out, what will happen?” he asked.
“Growth, the stock market and job creation were moving along fine when Barisan Nasional (BN) was in power. We had no problem with that as we had recovered well from the great global recession in 2008-2009 and then the big oil price slump in 2014-2016.
“So I do not understand why the PH government is experiencing such problems almost immediately after BN lost.”
He claimed that his administration had a good national transformation plan, saying it was working after initial hiccoughs.
“It would have put our country in a very strong position for innovation, growth and resilience,” he said. “It is a shame that we can no longer execute this to the end.”