This article first appeared in The Edge Financial Daily on October 9, 2019
KUALA LUMPUR: The Malaysian Rating Corp Bhd (MARC) has proposed that the upcoming Budget 2020 provide more budgetary initiatives to ease the costs of doing business in Malaysia.
This is because while Malaysia is ranked 15th out of 190 economies in the World Bank Doing Business 2019 Report, it occupies the 122nd position in terms of starting a business, said MARC chief economist, Nor Zahidi Alias (pic).
“It is important to note that entrepreneurial activity is a pillar of economic performance, a key competitiveness factor,” Nor Zahidi wrote in a ‘Pre-Budget 2020: Sharing the Prosperity of the Nation’ report.
For small and medium enterprises, Nor Zahidi said he foresees continuous efforts to create a more conducive ecosystem for them that includes appropriate policymaking, logistics support and export programmes.
“We anticipate more measures to be introduced to address unique problems faced by microenterprises which include access to financing, human resource availability as well as business operations.
“In addition, there will likely be more initiatives for Industry 4.0 and steps to overcome Malaysia’s premature deindustrialisation in Budget 2020.
“While the transition process has slowed, it is nevertheless a wake-up call to strengthen the manufacturing sector. MARC expects the initiatives to also include programmes aimed at increasing collaborations between public and private sectors and increasing the pace of technological adoption,” he said.
Against a backdrop of deteriorating global economic prospects, Nor Zahidi says he does not foresee the government being too stringent in setting the budget deficit target for 2020.
He said raising necessary development expenditures that are required to defend economic growth will be prioritised over achieving an unrealistic budgetary target in the short term. This is especially true when the government revenue will likely be affected by softer global crude oil prices.
“Overall, we foresee continuous efforts by the government to rationalise operating expenditure (opex),” he said.
In the first half of 2019, opex rose by roughly 6% and accounted for 48% of the whole year’s budget of RM259.9 billion.
“In this regard, there will be concerted efforts to reach out to targeted groups more efficiently through a more comprehensive database. Allocations will continue to be on a needs basis rather than across the board. Similarly, reducing financial leakages will be carried out through greater transparency of procurement processes.”
MARC also does not anticipate new major taxes to be imposed at a time when economic growth is below trend, though it said the main way to increase revenue will be through greater efficiency in the collection of taxes.
“Some positive results have been seen, that is, direct tax collection grew by 12% in 2018 despite a moderation in economic growth from 5.9% to 4.7%. Going forward, with the impending implementation of the digital tax in 2020, the government could diversify its revenue base in the future. In addition, oil-related revenue will remain decent in 2020 based on the average medium-term oil price projections of between US$53 and US$67 per barrel.
“We foresee the government budget deficit ratio to decline to 3.2% of gross domestic product (GDP) in 2020 from 3.4% of GDP in 2019,” Nor Zahidi added.