Malaysia needs bold fiscal policy, not pander to rating agencies

We have to recognise that countercyclical fiscal policies are what is contributing to economic recovery in the West, besides vaccinations, says KRI’s Jomo


THE government should be bold in its fiscal policy and not be held hostage to credit rating agencies, said Khazanah Research Institute (KRI) senior advisor and prominent economist Dr Jomo Kwame Sundaram (picture).

“It is very important to be bold on fiscal policy, we cannot be held hostage to credit rating agencies and such,” he said during the panel session of KSI Institute Malaysian Economic Summit 2021 virtual conference yesterday.

Jomo noted that Malaysia has a situation where fiscal policy is a major challenge, whereas in comparison, Western countries have undertaken strong countercyclical fiscal policies borrowing as needed.

“We in Malaysia hesitate, and quite understandably, because we have a situation where giving more money to such a government may be a licence for disaster, for increasing corruption and abuse.

“So, people understandably hesitate in Malaysia, but we have to recognise that countercyclical fiscal policies are what is contributing to economic performance recovery in the West, besides vaccinations,” he explained.

Jomo said the government should stop relying on a top-down approach in the pandemic management as it is not applicable for all situations.

He stressed that the country should also stop looking at stay-at-home lockdown as the only option.

“You need to have all-of-society involvement. Look at the spontaneous support from members of society to provide welfare aid to the less fortunate people in society, look at the spontaneous volunteers of young people who help out with the vaccination campaign.

“If you do things right, you mobilise all of society, who want to lift this problem,” he said.

“Unfortunately, we have this top-down approach that is not getting us anywhere. You cannot just turn off and on an economy, and the same goes with enterprises. That is disastrous, especially if it is open-ended.”

Economic Club of Kuala Lumpur advisory council member Tan Sri Yong Poh Kon urged the government to review the categorisation of essential and non-essential services as it has partly contributed to Malaysia’s economic slowdown.

Yong, who is also Royal Selangor International Sdn Bhd chairman, suggests that we need to have a new description on what is essential and non-essential as there are so many supply chains in the country.

“During the Movement Control Order 1.0, plastic packaging was not essential until later, this caused a disruption in the supply chain as food, which is considered essential, was not able to be packaged.

“But for this latest lockdown, the smelters in Penang that smelt tin ore into tin are not allowed to operate, because of this the same issue regarding food packaging will occur again, as tin cans are not able to be produced.”

Yong said it is important moving forward for the government to step away from the idea of essential and non-essential, and equally share the pain of the lockdown.

“You can cut down 50% to 60% capacity, have plenty of scope to distance yourself, good standard operating procedures and that way everybody can operate.”

Malayan United Industries Bhd chairman and CEO Andrew Khoo said it was recently reported that German, Dutch and Japanese trade groups in Malaysia have expressed concern over the government’s Covid-19 response and also hinting those businesses are rethinking their long-term investment decisions.

“The next six months is therefore going to be absolutely critical to ensure the right level of confidence is cultivated among these trade groups and the wider foreign investment community.

“We need collective leadership, both public and private sectors. Strong, purposeful, clear leadership devoid of self-interest but rather, with the right intention of improving society by making a positive impact.”

He said the government needs to improve the national competitiveness, in terms of foreign direct investment by introducing more investor-friendly policies and incentives.

“Encourage foreign investors to establish or relocate subsidiary in/to Malaysia. Malaysia could take advantage of the current disruption in the global supply chain.”

He also suggests the government to speed up the implementation of the National Fiberisation and Connectivity Plan, which aims to improve the country’s digital connectivity by rolling out the 5G network.