Budget 2020 must brace for rough seas, says prominent economist

Malaysian Institute of Economic Research chairman Kamal Salih.

PETALING JAYA: Ahead of the tabling of Budget 2020, a think tank has warned that the coming year will be tough, given the challenges of slower economic growth, US-China trade tensions and global uncertainties posed by factors such as instability in the Middle East.

Noting that many economists have spoken of the likelihood of a recession, Malaysian Institute of Economic Research chairman Kamal Salih told FMT the government would have to prepare to cushion its impacts.

He did not foresee a recession as bad as the ones in 2008 and 1997, but he said business would slow down and some companies might have to close shop or cut jobs.

The government would have to ensure a soft landing without compromising on the sustainability of future growth, he added.

“We anticipate this budget to still be expansionary,” he said. “There’ll still be a lot of priming and government spending to maintain a managed growth process, without which we would collapse to a hard landing.”

He expects policies to be geared towards maintaining domestic demand to keep businesses running, but said this would be challenging for Putrajaya.

“Even if the government wants to go into deficit spending to support domestic demand, it can’t break the bank,” he said, adding that it was not the time for big projects.

Kamal also said the private sector was likely to take a wait-and-see approach, with exports expected to be reduced and foreign investors holding back on spending.

He said the government might have to borrow money to finance development.

The bleakness of the outlook, he added, did not mean the government should go into panic mode and start selling national assets to balance the books.

“You can’t go for a fire sale,” he said. “Valuations are all down now since the demand is not there. You can’t adjust your balance sheet to support your current account. Long-term growth will be affected.”

Putrajaya has come under criticism from the opposition over the sale of assets, particularly those belonging to sovereign wealth fund Khazanah Nasional.

Essentially, Kamal said, Budget 2020 must guide the country in riding the rough waves and should provide minimum support to businesses and the general public while waiting for the economy to recover.

He said Malaysia, being a nation which exports many goods and commodities, would normally recover more quickly from recessions than would advanced countries.

He described Malaysia’s recoveries as “V-shaped” instead U-shaped, as experienced by advanced nations.

However, he said, the government must, for the coming year, anticipate pressures such as rises in the cost of living, which would call for targeted subsidies, job creation and support for small and medium enterprises.

“For example,” he said, “give those small-time entrepreneurs who serve the working class a bit of a free run. If they are selling nasi lemak by the roadside, don’t harass them. Issue more licences and make it easier for people to make a living.”

Unemployed graduates, he said, could be given training or training allowances so that they could easily enter the job market.

Finance Minister Lim Guan Eng will table the budget today.