What a month it’s been for Malaysia’s economy. Fourth quarter GDP growth was stronger than expected (4th quarter GDP - 5.1%, and GDP for 2013 - 4.7%). Foreign Direct Investment for 2013 is the highest on record. The budget deficit has been reduced to 3.9%, exceeding the government`s target of 4%. Strong growth, low unemployment, poverty reduction, and manageable inflation has international markets, ratings agencies and commentators from near and far praising Malaysia’s government’s economic competence.
Prime Minister Najib Razak’s economic reforms – such as reducing subsidies on fuel and sugar, along with the planned introduction of a GST next year – while unpopular in some quarters, nevertheless appear to be working.
This is just as well. If Malaysia had continued down the path we were on last year, spending too much money on general subsidies and with inadequate long-term tax revenues, the country could have been headed for default, credit-rating downgrades or a run on the ringgit - or perhaps all three.
This would have had a devastating impact on the rakyat: unemployment would have increased as investors pulled money out of Malaysia, the government might have been forced into drastic cost-cutting measures, and the country might have had to pay more interest on its loans. All of this would have hurt the bank balance of each and every Malaysian.
Before Budget 2014, international markets, ratings agencies, and commentators were warning that Malaysia could be headed for economic trouble. Since 1997 Malaysia has been running fiscal deficits, which has meant that the government has had to borrow money in order to pay its bills. But since Prime Minister Najib took the initiative and introduced subsidy reform, the long term prospects for the Malaysia economy look bright.
For example, this month CIMB Group Holdings said, “The timely implementation of fiscal and structural reforms will boost investors’ confidence and enhance private-sector investment… we believe the government is on track to meet its fiscal-deficit targets”. Barclays Capital said, “Malaysia’s underlying industrial performance is improving, in line with exports… we expect growth to remain resilient.” Nomura, meanwhile, is positive on the ringgit because of the nation’s improving current-account position and prospects for fiscal consolidation.
The PM’s reforms may not have been popular – but they were necessary. And in implementing them, the PM has proven his economic credentials, unlike the opposition, which appears to have borrowed its economic policy from Santa Claus – free gifts for everyone, with no thoughts of the consequences. While campaigning a few days ago Anwar said, “I admit that a government cannot control all, but petrol and sugar prices should not be increased.” The classic used car salesman: tell them whatever they want to hear, as long as it gets you what you want.
The PM’s reforms have not only upset the opposition. Even within the ruling coalition, there are those who follow Anwar and subscribe to the ``Father Christmas School of Economics``, demanding that the PM spends money the country doesn’t have on general subsidies the country doesn’t need. The PM has wisely resisted the siren voices that would dash our economy on the rocks.
He has cut wasteful subsidies, such as sugar, that not only makes the population unhealthier but also tends to benefit the middle class and wealthy Malaysians. Instead, the PM has focused on expanding measures such as BR1M – which gives cash directly to those poorer families in need. BR1M also serves as a clever way to boost growth, because poorer households tend to spend their cash hand-outs, whereas richer households tend to save extra income.
Sadly, those within BN who share Anwar’s reckless economic instincts also appear to share his penchant for destabilising politics. Taking their cue from Thailand’s hapless protest leader Suthep, there are a minority of people within BN who are trying to undermine the treasured stability of our political system.
Though unpopular, Najib’s economic policies are producing important results. Credit Suisse has said that Malaysia’s credit rating is dependent on whether PM Najib has the resolve to see his reforms through. Fortunately for Malaysia he has shown he has the backbone, despite all the backdoor political shenanigans. Achieving developed nation status and improving living standards for the rakyat depends on it.
By
Datuk Huan Cheng Guan
President
Centre for Political Awareness Malaysia
