By Tan Sri Ramon Navaratnam
THE World Bank (WB) is normally cautious, polite and diplomatic in its reports on national economies. But you have to read between the lines to eek out the messages the WB wants to convey to Governments and their peoples. The WB in its “East ASIA and Pacific Economic Update of Oct 3 ,2017 presented a Summary entitled ” Balancing Act” on Malaysia .
It is well appreciated as truly, a difficult act to balance! So what are the main WB messages to Malaysia?
Firstly. The Malaysian economy has done well, with a growth of 5.2 % this year and a slower growth of 5% and 4.8% in 2019! Hence the 2018 Budget has to do more to strengthen the economy.
The slow down is due to our risks as an Open Economy, as we are vulnerable to external demand. This means that our exports could decline and our imports could rise. Thus our Balance of Payments current account surpluses could narrow. Also our Exchange rate could then decline further and our cost of living could rise!
But the WB characteristically does not specify the details, lest it is seen to be dampening our official optimism, as they see themselves as our guests in Malaysia!
Secondly. The WB notes that Private Consumption, that is what the rakyat spend on food, transport and shelter etc, is large and has “expanded firmly”. It is estimated at 6.6% in 2017 and another high of 6.5% in 2018.
However, total Investment is expected to increase at a slower pace of 6.1 % this year and only 3.2 % next year.
We have to remember that higher consumption can lead to less productive expenditure. And lower capital investment can lead to less infrastructure and lower capacity to generate production and income in the future. What can or will the Budget do about this structural problem. The WB has provided the problem and not the solution!
Thirdly. Inflation rose to 4.1% in the first half of this year. This is high and is likely to rise further with the relatively weak Ringgit. At the same time the prices of Food rose by a high of 4.2 % for the 12 month period ending July 2017. This is causing much hardship especially to our low income groups,
However, the WB does not give any solutions. But will the Budget 2018 adopt the necessary measures to reduce food prices ? My proposal would be to liberalise the rules and regulations and reduce any protectionist policies and the wide scale corruption and expenditure wastage that both suppress and restrict the supply of basic goods and services.
Fourthly. House prices have risen faster than our income growth, according to the WB. This makes the basic need for housing to become more unaffordable to the lower income groups.
Thus the WB rightly points out that higher house prices raises the cost of living. But the WB gives no solution, even briefly.
I would say that the solution here is for Government to build and to provide more incentives to the private sector to more rapidly expand the supply of affordable houses. However, the long awaited mass production of more affordable houses, through the purposeful adoption of the Industrial Building System( IBS), has not moved faster. The IBS should now be implemented with a stronger political will. And if there are powerful vested interests that oppose the use of IBS , they should be strongly opposed by the Government instead.
This will be enthusiastically welcomed by the Rakyat, in the national and public interests . This move will benefit the Rakyat and not some parties with narrow self-interests. I hope the Budget will provide the necessary push for the IBS.
Fifth. The WB clearly states that ” the Malaysian economy continues to face uncertainties mainly from the external environment ” . But the WB has completely ignored the more serious threats from within our country, which we can control .They are extremism , racialism and religious bigotry . Indeed they are debilitating negative forces that can undermine the national and international confidence in our country and its potential and future . And the WB politely keeps silent , although they are aware from their global experience that domestic and foreign investment can be adversely affected by these negative internal forces . How come WB?
Sixth. The WB surprisingly and glibly proposes “reducing exemptions on the Goods and ServicesTax(GST)! Does it not realise that the low income groups are already experiencing considerable pain from rising prices ? How could the WB also suggest-” addressing the rise of civil servants’ salaries and pensions” to contain the Budget operating expenditures . Instead the WB could have proposed raising productivity in the civil service by promoting more competition, incentives and meritocracy? Will the Budget address these thorny issues or let the matter rest and fester?
Finally, the WB does mention in passing the need to ” accelerating Structural Reforms to improve both private sector productivity and public sector efficiency ” to sustain our current growth momentum in the medium term. I agree entirely, but the WB does not say how ? By being over polite the WB is missing the whole purpose of its mission in Malaysia . The WB has to be more direct and pointed in its remarks , however brief they may be . This is essential so that the WB where I once sat in its Board, will not lose its high reputation.
My conclusion is that the WB, has to better serve Malaysia and other developing countries please! But more importantly, we hope that the coming Budget 2018 on Oct 27 will address the subtle concerns expressed by the WB, on the soft state and the future of our economy amidst domestic and global uncertainty ! But we can face our challenges , if we show stronger leadership and a collective national will to succeed further ! We shall overcome with God’s Will !
*Tan Sri Ramon Navaratnam is Asli Center of Public Policy Studies Chairman.
*The views expressed here are the personal opinion of the writer and does not necessarily represent the views of The Malaysian Times (TMT).