Setting the tone of a painful journey


Six months after pulling off the most extraordinary election result in Malaysian history, the Pakatan Harapan government had its inaugural investor conference themed “Malaysia: A New Dawn”.

Hosted by the Finance Ministry, the conference had the country’s strong frontliners as well as institutional investors from 10 neighbouring countries to discuss the government’s medium-to long-term objectives, plans to recalibrate the country and new growth trajectory.

Prime Minister (PM) Tun Dr Mahathir Mohamad took the stage to a cheering crowd, many of whom were half his age.

Such a reception was nothing new to Dr Mahathir who took the country through some of the most exciting times in the country’s economic development.

Delivering a withering and witty off-the-cuff speech, Dr Mahathir did not hold back on past government’s corruption, misuse of the country’s resources and throwing Malaysia into an almost bottomless debt pit.

“It will be tough for the new government because we inherited a country that has been completely disoriented.

“The worst and most important of all, we have found that the country owed so much money that it was difficult to even pronounce the numbers of zeros that were being handed over,” Dr Mahathir said in jest despite has had always been sharp with figures.

He was referring to the government’s debt and liabilities exceeding RM1 trillion and RM35 billion in Goods and Services Tax, and income tax refunds figures that fuelled market worries.

Highlighting the numbers were higher than previously disclosed under the administration of ousted Datuk Seri Mohd Najib Razak, Dr Mahathir noted that the government needed to find new sources of funds to pay its debt.

“It was suggested to have new taxes, but that may not be welcomed by the people…we may have to revise new taxes in order to have more money to pay our debts,” he said, adding that sacrifices and pain were necessary to overcome such a catastrophe.

According to Lim, the govt hopes to kill 2 birds with 1 stone (Pic by Hussein Shaharuddin/TMR)

Finance Minister Lim Guan Eng who is expected to table the 2019 budget in less than about three weeks, had sounded more cautious, informing Malaysians that they must be willing to expect some pain and make sacrifices despite the country’s economic fundamentals were still sound.

“This will not be easy, but I believe it can be done, for after all it is always darkest just before dawn,” said the finance minister.

He also stated that fiscal consolidation will not be achieved easily, and three years is needed to resolve fiscal related issues.

But Lim’s speech outlined one key strategic plan, trimming government’s stakes in state-owned companies to raise sufficient fund for Putrajaya to pare down the national debts.

“We hope to kill two birds with one stone, which is by unleashing the power of the private sector and reducing the crowding-out effect caused by the government.

“That will lead to the ability in gradually realising the value of government-owned assets and utilising these proceeds to pare down our debt obligations,” he said.

In the past, the government was heavily involved in businesses, giving unfair advantages to state-owned firms and limiting private entreprises’ success.

All is Not Lost

While the government is scraping the bottom of the barrel to keep the nation’s finances afloat and prevent another “Greece”, Bank Negara Malaysia (BNM) governor Datuk Nor Shamsiah Mohd Yunus wants to convince investors that the country’s footing remains sound.

Nor Shamsiah wants to convince investors that the country’s footing remains sound (Pic by Hussein Shaharuddin/TMR)

She wants investors to look beyond the headlines. Nor Shamsiah believes the country economy and financial systems have unique features.

“Malaysia’s policy stability and deep financial markets allow the country to withstand external shocks and ensure growth.

“We have the policy tools to ensure that the liquidity in the financial system is adequate to support intermediation activities,” she said.

In her presentation to the 2,000-strong crowd, Nor Shamsiah said the majority of foreign holders of government bonds are long-term stable investors, and the country’s strong financial and banking system would be able to mitigate any downside risks of capital outflows.

Malaysia despite the RM1 trillion debt announcement and worries of the possibility of widening fiscal deficit, has not attracted downgrades of rating agencies.

Some experts described the country’s RM1 trillion liabilities as “manageable” on the back of the continued reform by the government.

S&P’s Ratings Services Asia-Pacific sovereign and international public finance ratings senior director Tan Kim Eng reckons at 80.3% of the GDP, Malaysia’s national debt remains relatively high but not “at an extreme level”.

World Bank lead economist Richard Record said there is no any “magic number” to determine an ideal debt-to-GDP ratio for Malaysia.

“Apart from the debt-to-GDP ratio, it is also important to look at the resilience of the country’s debt profile, and Malaysia holds up very well in this aspect,” he said.

Khazanah Nasional Bhd MD Datuk Shahril Ridza Ridzuan is optimistic of the country’s debt repayment sustainability.

“There is strong liquidity locally to cover the financing needs of the government.

“Apart from the Employees Provident Fund and the funds, we have also seen a lot of demand from insurance companies and banks, among others, for government debt issuance,” he said adding that there is very little need for the government to borrow from abroad.

Beyond Finance and Ratings

Tan Sri Rafidah Aziz, who is known as a no-nonsense lady, also took to the stage to share her opinion, especially on the new government’s over indulgence of its election manifesto.

“Never let your manifesto that you crafted to win an election shackle you moving forward, as you may end up as a one-term government,” Rafidah said in a serious note after leaving the crowd laughing over her witty statements on Pakatan Harapan’s manifesto.

She went on suggesting that Pakatan Harapan should be a future-proof government instead of a government that is trying to prove its manifesto.

“The people had rejected a politic-centric government, they want a people-centric government,” she said.

Urging Malaysians along with those from the private sector to adapt a habit of giving only constructive criticisms instead of baseless ones, she said Pakatan Harapan supporters should not expect all promises in the manifesto to be implemented fully by the end of its five-year term.

“The private sector should never be allowed to be suppressed and the government should not abuse and use the private sector for its own gains,” she added.

Meanwhile, PKR president-elect Datuk Seri Anwar Ibrahim said the economy needs to be driven by the private sector and foreign direct investments that must be balanced with “needs-based affirmative action”.

“Any investment policies coming from the government must be inclusive, clear and transparent, while ensuring the poor is included in these plans,” he said, adding that affirmative action policies must not be race-based, but needs-based instead.

Anwar added that if the government choose to embark on market reforms, it shouldn’t be an excessive capitalistic notion — ignoring the poor and the marginalised.

The conference had pretty much set the tone of Budget 2019 and more importantly, the path for the next few years. A long and difficult journey nonetheless.