The international Fitch Ratings has given us a warning on the outlook for the Malaysian economy, which we should not ignore.
In preparing for the 2020 Budget, the government’s economic and financial planners should take heed of this friendly warning and act sooner rather than later. We should not let this warning pass, without having more consultations with Fitch, on how serious their constructive criticism could turn out to be.
Fitch Ratings has affirmed Malaysia’s long-term foreign currency issuer default rating at A-, with a stable outlook. But we must seriously take note of the several reservations that Fitch has made, and consider and monitor them, to remain on even keel and progress further.
What are these warnings?
High public debt
The national debt is now confirmed by Fitch to be high. By whatever standard of measurement used – by us, the IMF or the World Bank and other agencies – there is now consensus that our debt is indeed high, although still not critical.
However, the debt has to be watched closely. We have to ensure better management of our budget expenditures and strive to strengthen our budget revenues, to reduce the pressure to borrow more in the short to medium term.
Some lagging structural factors
The structural factors would refer to our need to raise productivity, increase our competitiveness and meritocracy and strengthen our successes, in combating corruption and cronyism.
How far have we advanced to deal effectively with these longstanding structural issues? In the minds of our foreign and even domestic investors, how successful have we been compared to the previous regime?
Fitch expects the economy to slow down to 4.4% this year and 4.5% in 2020. With the US -China trade war looming large and the general world economic uncertainty, investors can get even more jittery and hold back their investment plans. Thus, the low economic growth rates for this year and ahead should not be ruled out.
If the economy softens further to around 4% per annum, the implications of unemployment, and especially for our graduates, could be worrisome. The small and medium businesses and farmers and fishermen and smallholders in our plantation industries could suffer much from any slowdown.
But we are still slow and are struggling in trying to restructure the economy. We have not yet adopted major changes of transformation of the economy, which is largely raced-based to the vital requirement, to become more needs-based in our policies and implementation.
We need a New Economic Model but it has been difficult to adopt it as soon as possible.
Weak governance relative to peers
To be fair, many measures have been taken to strengthen the institutions of government. We have seen this in the parliament select committees, the Election Commission, the MACC and the civil service and other institutions.
We cannot do too much too soon, as good governance takes much longer to restore and build, after several decades of neglect in the past. But our people and investors are somewhat impatient for more rapid changes for better governance.
Fitch has, however, subtly warned us to compare our “weak governance relative to our peers”. Thus, we have to take note of the more rapid progress made by our neighbouring countries in Asean, like Vietnam, Thailand and Indonesia and, of course, Singapore, to measure our real success in good governance.
Investors have the whole world to choose from, to put their money where their mouth is. They also need not look at the comfortable physical climate and tax incentives alone to be attracted to invest in Malaysia.
Racial harmony, religious understanding and political stability are also major considerations for both domestic and foreign investors and professionals. This is where the reduction of the brain drain is important. But we continue to have strong outflows of brain power, which is debilitating.
Fitch warns that the PH government holds only a small majority in Parliament and has seen its previously high public approval rates fall significantly. Fitch’s assessment is quite correct. This has been due to too much politicking and allegation of sex scandals. All this does not give confidence to investors and even consumers who will be dampened in their enthusiasm to increase consumption and investment.
Fitch Ratings has subtly and politely warned us of the challenges we are facing. It has also emphasised in its usual guarded fashion the essential need for us to take heed of their advice and warnings, to make the necessary socio-economic and political adjustments, changes and even transformation, without undue delays.
We could face a real slowdown all round if we don’t consolidate our strengths to overcome our lingering weaknesses to forge ahead for a better Malaysia in the future – for all Malaysians.
Tan Sri Ramon Navaratnam is chairman of the Asli Centre for Public Policy.
The views expressed are those of the writer and do not necessarily reflect those of FMT.