In the aftermath of the 14th General Election (GE14), increasing levels of economic nationalism globally and lack of a clear economic policy by the Pakatan Harapan government, the economic outlook for 2019-2020 looks dismal.
According to the Malaysian Institute of Economic Research (MIER), Consumer Sentiments Index has fallen below the 100-point confidence level, with financial and job expectations remaining “lull” and “growing jitters” over rising prices are observed.
MIER’s Business Conditions Index (BCI) also shows deteriorating signs with the latest figure closing at 95.3 points with decline in sales and lower export orders. This rather dismal economic outlook does not match with the Ministry of International Trade and Industry (MITI) data which actually exhibits increased level of exports, though gains remain modest.
Exports have grown YoY over 2017- 2018 by 7%, imports by 5%, total trade by 5.76% and balance of trade by a healthy 23.68%. Total trade volume in the year ending December 2018 was recorded at RM1.88 trillion. However, MIER dismal outlook and MITI optimistic reading can be reconciled rather easily: The trade data for 2018 largely shows the result of orderbooks of 2017, and the first half of 2018, and it will be interesting to see what trends the trade shows in the next six months.
To understand the Malaysian economic outlook in 2019-2020, we need to move away from the narrow comparison of trade aggregates and understand the bigger picture that a political economy lens can offer.
If we go back to the environment pre-GE14, we can summarise the entire campaign of Pakatan Harapan in one sentence: The cost of living for average Malaysians has increased considerably whereas the ruling elite are plundering national resources.
For the cost-of-living problem, Pakatan Harapan presented one panacea: Remove the Goods and Services Tax (GST). It actually achieved this objective in a short run, where we saw Consumer Price Index (CPI) declining considerably.
However, six months later, CPI has gone back to where it was in May 2018! The Institute for Democracy and Economic Affairs (IDEAS) has maintained earlier that it is wrong to associate the cost of living with GST alone, so this result should not be surprising. For the other big-ticket promise, fixing corruption, the Pakatan Harapan government has actually taken substantial steps, at least to the extent of plans. The announcement of the National Anti-Corruption Plan (NACP) is a clear example.
NACP 2019-2023 has these priority areas included: Political governance, public sector administration, public procurement, legal and judicial, law enforcement and corporate governance.
To put it in rather simpler and crude terms, it is clear that the Pakatan Harapan government has prioritised fixing governance over improving economy. Both are inextricably linked and we should certainly be hopeful that fixing governance will bring economic dividends sooner or later.
For example, the government has announced that it will adhere to a transparent and competitive public procurement policy. If this is truly implemented, we will see that the costs of public sector infrastructure projects will go down considerably, benefitting users and taxpayers alike.
This will also open up opportunities for all firms in the infrastructure business instead of a narrow, politically connected group. Reforms can be politically popular if packaged properly.
In the absence of an explicit economic policy statement, we can only deduce the economic policy direction of the Pakatan Harapan government indirectly.
In some cases, it can be derived on the basis of a positive, forward-looking statement or a policy, and in some cases, it can be deduced from absence of policies. For example, the announcement that the government will be allocating RM20 million in research and development for a third national car indicates that Malaysia is still invested in the idea of a national car.
The new Housing Policy also indicates that the government has shied away from resolving some existing bottlenecks such as Bumiputera quota and a plethora of over-sized government agencies, and has continued the old policy of more government provisioning, though consideration of social housing and rent-based housing solutions are welcomed.
In other cases, absence of a policy on government-linked company (GLC) reforms and avoidance of ratification of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) are other two important signals of an economic policy. It is likely that the government will not undertake any major reforms on GLCs and will also delay the process of CPTPP ratification, though it may speed up discussions on the Regional Comprehensive Economic Partnership, which is closer to essential Asean economic framework, and is not demanding in terms of internal governance reforms. These are not encouraging signals for a country which has a great potential.
To sum up the political economy outlook, Malaysia has entered into “Fasa Politik Baharu”, but it remains under “Model Ekonomi Lama”. In order to capitalise on the GE14 optimism that has waned down somewhat, the government should announce a New Growth Framework.
This New Growth Framework should replace the New Economic Policy and in due course of time, Vision 2020. It is the right time to start a national debate about the new framework beyond 2020. As the economic structures are changing more rapidly, we should think about shorter perspective plans, not exceeding 10 years.
Hence, Malaysia needs a framework of growth for 2020-2030, for which the recently announced council on economic policies is a welcome first step.
Ali Salman is CEO of the Institute for Democracy and Economic Affairs Malaysia(IDEAS)
First published in The Malaysian Reserve, 14 February 2019.