KUALA LUMPUR: A think tank says political stability and policy continuity will be key in arresting the slower growth in private investments, which is one of the biggest challenges facing the economy.
The Socio-Economic Research Centre (SERC) said Putrajaya needs to prioritise a smooth leadership transition, set a clear direction for policies, deliver on unfulfilled manifesto promises, improve communications and execute programmes and projects timely.
At a press briefing on its 2020 economic outlook, SERC executive director Lee Heng Guie said the growth rate in private investments has been slowing from 9% in 2017 to 4.3% in 2018.
Lee said private investments grew at a mere 0.8% in 2019, and for 2020, SERC is expecting a growth of some 2.2% due to Budget 2020 measures.
“An unstable political environment may undermine investors’ confidence, reduce investment and hinder the pace of economic development,” he said.
Prime Minister Dr Mahathir Mohamad is supposed to hand over power to PKR president Anwar Ibrahim as agreed by Pakatan Harapan before the 14th general election, though no time frame has been set.
Some observers have said this uncertainty is affecting investor confidence as businesses are unsure whether Anwar would continue Mahathir’s policies.
“Investors and businesses want clarity, consistency and continuity (3Cs) while maintaining a competitive and business friendly environment,” Lee said, adding that the government has not been effective in its communications.
He said Putrajaya must also come out with short and medium-term plans to ease the high cost of living where food, essentials, transport, healthcare, housing and education are concerned.
On SERC’s 2020 outlook, Lee said it is predicting a gross domestic product (GDP) growth of 4.5%, slightly lower than Putrajaya’s 4.8% projection.
He said the economy will be driven primarily by private consumption – as has been the case for the past few years – though it will grow slower at 6.7% in 2020, compared to the estimated 7.2% in 2019.
“So, it’s important that the government creates the right sentiment, support consumer sentiments and work hard to grow private investments,” he said.
Lee said the government must ensure that it executes projects in a timely manner, as they could have multiplier effects on the economy and boost private consumption.
Under Budget 2020, he said, Putrajaya had allocated RM53.2 billion for 4,744 ongoing projects and RM2.8 billion for 722 new projects.
He said challenges facing the people include a possible increase in unemployment rate to 3.4% from 3.3% in 2019, and higher headline inflation of 2% compared to the average 0.7% previously.
This would likely be due to businesses passing on higher costs incurred from implementation of the minimum wage, digital tax, potential increase in water tariffs, and crude oil and commodity prices, among others.
Lee also noted several positive initiatives in Budget 2020 which would help boost the economy, such as the RM6.5 billion [email protected] initiative to boost employment and the RM1 billion allocation for incentives to attract investments from Fortune 500 companies.
He said SERC also proposed several “low-hanging fruits” the government could go for to boost revenue potential from Visit Malaysia Year 2020.
They include local councils being more flexible with closing hours for night activities, increasing the number of quality tour guides, organising food festivals in major cities, and easing congestion at the Malaysia-Singapore Causeway.