WHOEVER forms the new Government after the 15th General Election (GE15) will face many developmental constraints, economic challenges, and business issues. The new Government can ill afford a new honeymoon period but will have to hit the ground running.
Global recession risks will mount in 2023. The deceleration in global economic growth will continue in 2023 as it continues to be buffeted by a prolonged period of shocks, disruptions and uncertainties.
This includes continued military conflicts in Ukraine; the still high global inflation; tighter monetary policy; and the induced negative external spill-over effects on the emerging markets via financial and trade channels.
The global economic trend growth rate is weakening rapidly with the US economy and Europe anticipated to experience recessions while China’s economic growth will only strengthen in 2023, assuming the government relaxes its “dynamic zero-COVID” strategy amid containing the property stress.
Businesses should prepare for continued volatility in the years ahead.
Key priorities
The survey by Merdeka Centre from Oct 19-28 indicated that among the top concerns for Malaysian voters are inflation (31%), followed by political instability (13%), corruption (12%) and enhancing economic growth (12%).
The new Government should focus on five overlapping priority areas: (1) Restoring governance effectiveness and accountability as well as fighting corruption; (2) Sustaining the economy; (3) Creating jobs and enhancing people income; (4) Enhancing the nation’s competitive investment climate; and (5) Promoting foreign and domestic investment.
To achieve this, the new administration must regain credibility and trust of our people, businesses and investors by focusing on the following:
- Swift passing of Budget 2023: This is an immediate priority to ensure a smooth operation of the government administration, good execution of positive economic multiplier projects and programmes as well as credible policies to sustain Malaysia’s economic momentum.
This is vital as the risk of global recession is mounting in 2023, especially with the US and European economy facing strong inflation and aggressive interest rate hikes. All these external headwinds – including the prolonged military conflicts in Ukraine – would temper Malaysia’s exports with the ensuing negative spill-over effects on domestic economy via both trade and financial channels.
- Managing inflation and high cost of living: This entails putting in place measures to mitigate the impact of rising prices and high living cost on vulnerable households. They include reviewing the effectiveness of current price controls and subsides on producers to balance as well as protect the interest of consumers and businesses.
- Rationalisation of subsidies in stages to preserve fiscal sustainability: Moving away from a blanket subsidy towards targeted subsidies is a more fiscal sustainable as subsidies which come with huge “opportunity cost” to the society. It reduces the fiscal capacity as the huge financial resources spent on subsidies have diverted the budget’s allocation from other sectors such as education, healthcare, infrastructure and housing.
The implementation of subsidy reform will follow the principles of 3Cs – credible, compensation and communication:
- Credible: Shifting from universal-access subsidy programme to targeted programme requires a comprehensive and transparent mechanism with clear objectives to identify poor households and to deliver benefits. The introduction of automatic pricing mechanisms and phased in price increases to smoothen adjustment.
- Compensation: Targeting by social category through targeted cash or near-cash transfers such as limiting benefits to the poor; children or pensioners, or to households in certain geographical regions. Coupons can be allocated to allow targeted households to consume a certain “lifeline” amount of subsidised food or fuel products. Social safety nets are more cost effective and have a much more profound impact than generalised price subsidies.
- Communication: Transparent and extensive communication to explain why is there a need to shift from products subsidy to targeted households will benefit the vulnerable households more or how the resources saved from a universal subsidy programme will be redeployed for other priority spending such as investment in infrastructure, funding pensions for an ageing population or providing better healthcare, better education or helping to combat climate change.
- Enhance competitive investment climate: Reviving as well as sustaining both domestic and foreign investment are crucial to drive high level of private investment to boost economic growth and create better paying jobs. Domestic SMEs (small medium enterprises) have to be facilitated and be given sufficient financial assistance to transform into competitive business enterprises in domestic and international markets.
The Government must continue to enhance the country’s investment climate through ensuring political stability, macroeconomic resilience, policy certainty and clarity as well as enhance an effective and productive business-federal government-local authorities’ relations. These will send positive signals to win over both domestic and foreign investors’ confidence.
The Government has to enhance public delivery services and efficiency; reduce regulatory and compliance costs; enhance competitive tax regime and cost of doing business.
With the geopolitical fragmentation and the strained US-China relations in trade and technology, Malaysia has to enhance its investment climate backed by favourable incentives and policies to attract the reshoring of production bases. The Government has to provide clear strategies for all key economic segments and industries (vertical and horizontal).
- Address shortage of workers; jobs and skillset: The recruitment process and arrivals of foreign workers must be expedited to ease the shortage woes faced by the industries. The quality of reskilling and upskilling as well as training programs should be prioritised to narrow the skill mismatch.
The development programmes must focus on jobs creation and skills for youth, promoting entrepreneurial culture; productivity-linked wages for employees; enhance TVET (technical and vocational education and training) for future work; support investment in skills, lifelong learning and reforming the apprenticeship; more flexible training; greater investment and innovation in key areas of lifelong learning. – Nov 17, 2022
Lee Heng Guie is the executive director at Socio-Economic Research Centre (SERC) Malaysia.
The views expressed are solely of the author and do not necessarily reflect those of Focus Malaysia.
Main photo credit: Firdaus Latif
