The Edge Market
30 August 2018
Cover Story: The first 100 days - Clarity on five necessary fixes
DR Nungsari Ahmad Radhi, Executive chairman of Malaysian Aviation Commission. Trained in economics and mathematics, he is managing director of Minister of Finance Inc’s unit Prokhas Sdn Bhd, a trustee at Khazanah Research Institute as well as a board member of Pengurusan Danaharta Nasional Bhd, Lembaga Pinjaman Perumahan Sektor Awam, Syarikat Jaminan Pembiayaan Perniagaan Bhd and Syarikat Jaminan Kredit Perumahan Bhd.
This will take time, at least five years, to stabilise but it has to start now and everyone wants to know the plan, starting with Budget 2019.
So the Pakatan Harapan government decided to narrow the tax base by switching from the Goods and Services Tax to Sales and Service (SST). What are the alternative revenue streams?
The expenditure side of the budget will be constrained by both revenue and as well as existing levels of liabilities, what sort of prioritisation will be employed in allocation decisions to optimise the fiscal multiplier?
It looks like the immediate concern is to optimise cash flow. It is therefore optimal to refinance existing government guaranteed liabilities using cheaper sovereign securities thereby recognising these debt obligations on the balance sheet but it must be clear what the deficit targets are and what the level of debt is.
How will it make up for the loss of aggregate demand from cancellation or down-sizing of public projects, or is the government sacrificing short-term growth for a stronger medium and long-term foundation? These questions need clear answers.
As a matter of principle, all appointments of the Yang Di-Pertuan Agong — as recommended by the Executive — should be vetted and approved by Parliament and these people should be answerable only to Parliament. Parliament too needs to be properly resourced and institutionally strengthened by the introduction of enough select committees to enable it to play its oversight role. My article, “Institutional Reform starts with Parliamentary Reform” in The Edge (Issue 1221, July 2, 2018) addressed this specifically.
Arrest the domestication of the economy
The small open economy that is modern Malaya/Malaysia has always been dependent on trade but the last decade or so has seen sources of growth coming from domestic sources, mostly contributed by household and government consumption, both of which were fuelled by debt.
The tradable sectors of the economy — which are also the more competitive and productive sectors — must be expanded, diversified and strengthened. If domestic economics are priced at domestic demand levels, the spiral we are seeing will continue.
While the resource-based sector — rubber, palm oil, and oil and gas — has benefited from the recent commodity super cycle, the foreign direct investment-based manufacturing sector has not evolved sufficiently beyond its original thesis of low costs of inputs. New types of investments are required and the entry of smaller businesses must be facilitated.
Regional Asean-level integration is a promising but very slow process. One proposal to hasten this process is to work towards some form of bilateral customs union with our immediate neighbours — the Iskandar Region and Singapore, for example — and other selected regions. This will facilitate free flow of goods between the areas. It will encourage the relocation of Singapore-based businesses to Iskandar and also develop transhipment businesses in Malaysia, which is the kind of impetus that is needed.
Address the low-cost, low-income economic structure
The domestication of sources of growth — a dependence on domestic resources at the domestic level of (income) demand — has made Malaysia a low-cost and therefore low-income economy, which is also reflective of the productivity of Malaysia’s labour force. It is a vicious cycle.
To make matters worse, the labour market, reflective of broader societal values, treats women poorly even though they form the higher end of the nation’s human capital spectrum. Economically, this is the result of not pricing child-bearing and child upbringing as an economic activity, and since this role is assigned to women, they are underpaid as many of them will exit the labour market to perform this role. There are also rigidities in the labour market that do not facilitate women’s re-entry into the labour market, which has the effect of lowering the aggregate national output.
The issues of overall low productivity and women’s participation in the labour market have to be resolved.
At the same time, the cost of adopting technology must be lowered and the economics of scale and scope of digitalisation have to be made a key national agenda as a means to improve overall productivity. The digital infrastructure is as much a public utility as energy and telecommunications and a model of its provision by the private sector will have to be developed.
Emphasise quality teachers and teaching
There are so many things that are not right about the public education system — from primary schools to universities — that to tackle all of them at once will ensure failure. Ceteris paribus, an improvement in the quality of teaching, therefore the quality of teachers across the board, will improve the overall educational system significantly. So, just concentrate on achieving that — better assessment of teaching quality, teacher (re)training and performance monitoring as well as possibly exiting non-performers. The teaching profession must be one that involves continuous teaching assessment and retraining.