Malaysia relied on expansionary spending during downturns such as the Asian Financial Crisis of 1997-99, recession that followed the Sub-Prime financial crisis of 2008, and Covid 19 Pandemic. Usually, it failed to do the necessary post-crisis fiscal consolidation, thus embedding fiscal deficits permanently.
From a debt level of less than 30% of GDP, it has shot up to near 65% under Muhyiddin’s brief Langkah Sheraton PN-led administration in 2020. In addition to the rising debt, many countries are faced with a common situation of post-pandemic fiscal constraint of rising inflation, and shrinking current account balance yet the political narrative is too distanced from the increasingly disturbing economic realities.
In advance economies faced with high debt situations, the political discourse is often dominated by short-term incentive than its long-term fiscal sustainability. For emerging economies such as Malaysia, fiscal tightening is politically painful that government tend to delay it until a major crisis forces some form of serious action.
It was merely post-crisis fiscal consolidation undertaken by late Abdullah Badawi and Najib Razak but it led to them both to lose the premiership. So will Anwar Ibrahim face the same fate at the current post Covid 19 consolidation phase of the fragile Unity Government he led?
He has just announced a play safe fuel rationalisation plan in which limiting the subsidised Ron 95 fuel to 300 litre will not reduce the subsidy spending and it means the debt reduction is still out of sight claimed his former party Deputy President cum Economic Minister turned policy critic, Rafizi Ramli.
It only shows Anwar evading the same political road travelled by Pak Lah and Najib. And, he is aware that Rafizi’s one stroke of the brush solution is too disruptive and had he taken his advise, the robust demonstration in Indonesia, Nepal and France would have been preceded by Malaysia last year.
It’s the reason he took the safer political route than risk his premiership prematurely before the big test of the Sabah state election. And it means risking the debt level to rise further than RM1.3 trillion in the midst of Trump’s tariff could put further strain on export and the current account buffer.
New growth engines
To shift out of this quagmire, it was suggested that Malaysia need to identify new growth engines that are capital-light for the government and yet leverage its existing infrastructure, ecosystems, and resources. This finding offers a broad general idea and few suggestions are already work-in-progress.
High value services, digital economy, higher-value manufacturing, green industries, halal sectors, and logistics stand out as sectors for Malaysia to push with its existing infrastructure. It does not require heavy government subsidies, but just regulatory clarity, talent policies, and facilitation.
Malaysia is already hosts to regional shared service and outsourcing centres for multinationals in Business Process Outsourcing (BPO), IT support, and finance operations.
It could be further explored to harness the existing talent pools in Klang Valley, Penang, and Johor’s Iskandar region. To scale this up, it requires regulatory efficiency and talent upskilling, without large subsidies from government.
Effort by MOTAC is already showing results to outpace Thailand, more can still be done in the area of medical, education, and ecological tourism.
Malaysia has a good reputation regionally with existing private hospitals in Penang, Kuala Lumpur and Melaka. Private institution of higher learning already attracting ASEAN, Middle Eastern, and African students and educational tourism. Eco and cultural tourism can be further improved by expanding connectivity and enhancing quality standards without heavy fiscal injection.
The way forward currently remained within the digital economy and tech-enabled sectors. There is a temporary setback in securing AI chips, but Malaysia already secured its position in the region for data centres and cloud services. Strong electricity grid, connectivity, and existing regional hub position Malaysia for hosting cloud infrastructure with AWS, Microsoft already investing.
Government need to encourage further SMEs in manufacturing and services to adopt Artificial Intelligence and Internet of Things (IoT) solutions. This leans on the Industry4WRD framework by MDEC. In the digital content and creative industry, Malaysia could leverage on its bilingual workforce and relatively low costs for gaming, animation, and streaming content.
Government should explore to upgrade its manufacturing capacity and capability. For instance, Penang is already a hub for electronics and semiconductors industry. It needs to move further up the value chain into design, R&D, and chip packaging/testing services which captures higher margins.
Malaysia has a base in gloves and healthcare equipment. It could pivot into medical devices and precision instruments such as diagnostics, sensors, and med-tech to capitalises on existing industrial parks.
Going green
The government is already promoting the green economy and renewable energy. In the solar value chain, Malaysia is one of the top global producers of solar PV components (First Solar, Hanwha Q Cells). Developing end-to-end capabilities (system integration, services, recycling of panels) adds value.
In the waste-to-energy and circular economy, urbanisation creates waste streams that can be monetised into energy or recyclables with relatively modest policy support. With ASEAN carbon market integration looming, Malaysia can position KL as a carbon trading hub and leverage Bursa Malaysia’s voluntary carbon market platform.
There is an increased awareness on food security in Malaysia for the past few years upon going through the Covid 19 pandemics. It is high time to seriously explore the opportunities in the area of agri-tech and halal economy.
Leverage on the idle land and smart farming technologies such as hydroponics, precision farming and drone technology to raise yields in vegetables, fruits, and aquaculture for both domestic food security and exports.
Malaysia already has the ecosystem of JAKIM certification, and logistical infrastructure. It should be expanding into global halal pharmaceuticals, cosmetics, and logistics adds high-value exports.
Trading nation
As a trading nation, Malaysia should seriously pursue to upgrade its logistics and regional trade facilitation to be ports and inland logistics hubs to prepare for the game changing Thailand Landbridge and competition to Singapore.
Malaysia’s geography between Malacca Strait and South China Sea already anchors Port Klang, Penang, Johor’s PTP, and inland ports such as Padang Besar, and Nilai. Investing in digitalisation, automation, and customs efficiency creates high returns without major subsidies.
It needs to establish its position in e-commerce logistics to build on Malaysia’s role as a regional fulfilment hub for ASEAN e-commerce players.
At this juncture, Anwar should stop being distracted by politics or geo-politics but focus on the challenging economic voyage ahead and what is described as cross-cutting enablers. Firstly, it is the regulatory reforms to reduce red tape, ease of doing business, and faster approvals. Second, the human capital upgrading in STEM, vocational, and digital skills.
And, third but not the last, the need for public-private partnerships. Instead of government fully funding, it could co-invest with GLCs or private sector.
If there is reluctance by KTMB or RAC to privatise the rail asset or services, partial privatisation should be considered. It is high time to explore a cheaper and efficient mode of transportation other than road and air.
No comments:
Post a Comment