This article first appeared in The Edge Malaysia Weekly on May 6, 2019 - May 12, 2019

Almost a year has gone by under the rule of a new government over what is now called “Malaysia Baru”. My primary concern would be the economic state that we are in and how far we have regressed.

Malaysia still lacks a central economic narrative to guide businesses and investors on the future direction of the economy. As a highly open economy, we will be impacted by adverse global developments as world growth and trade moderate. The government needs to find ways to continue to stimulate the domestic economy.

We have seen weak sentiment prevailing in the stock market as there is no significant domestic catalyst to excite investors on the future growth of the Malaysian economy. The FBM KLCI, which recorded an all-time high of 1,895 points 12 months ago, has dropped to 1,638 points as at April 24, representing a 14% decline in over a year. In fact, for 2019 (until April 24), the index remains the sole loser in Asia with the bourse recording a decline of 3.1%. In light of the foregoing, it has now become imperative for the government to come up with new ideas and formulate economic directions. Merely following through initiatives by the previous government is not enough for the country to navigate through the more challenging economic landscape.

The cost of living remains an issue for most, especially the vulnerable groups like the B40. Despite all the promises to the rakyat during the 14th general election by Pakatan Harapan (PH), prices of necessities have risen despite the removal of the Goods and Services Tax (GST). A sustained increase in prices amid slower income growth has affected households’ purchasing power. While price control initiatives and efforts to subsidise fuel prices are helpful, they are by no means sustainable. The PH government should strive to address the issue of stagnant wages, especially for the lower income groups, by carrying out holistic human capital development programmes such as job matching and reskilling as well as encouraging more entrepreneur initiatives.

The recalibration of fiscal targets undertaken under 2019 Budget last year has not yielded the desired effect. Notwithstanding the promise to reduce the government debt, we see instead further debt being accumulated. As at April, RM43.5 billion of government debt has been raised on top of the RM7.2 billion Samurai bonds raised in February. Outstanding government debt now amounts to RM792 billion, compared with RM705 billion in March last year.

The reality is that government revenue is lower due to the abolition of GST. To add to the burden, oil prices remain volatile and this could compound uncertainties with regard to Malaysia’s oil revenue prospects, notwithstanding the one-off special dividend from Petronas.

We also have not seen any major tax reforms announced by the Tax Reform Committee since the tabling of the last Budget. The introduction of a digital tax, which will come into effect next January, will further burden the lower income group and is not in sync with the initiatives for the development of the country’s digitisation strategy.

Overall, if not managed carefully, the combination of high level of public debt and inability to have sustainable sources of revenue will have repercussions on Malaysia’s sovereign ratings in the future.

On a positive note, there seems to be a strong commitment to undertake institutional reforms such as tackling corruption and upholding the integrity of the public administration, but the effects of it have yet to be seen. There have been steps taken to tackle scandals that have been plaguing the nation, particularly 1MDB, SRC and FELDA.

The review of key infrastructure projects such as MRT2, East Coast Rail Link and Bandar Malaysia, to some extent, has helped reduce uncertainties among investors and business communities alike. Hopefully, this will further spur economic activities and steer the country towards a better future.

Datuk Seri Johari Abdul Ghani was second finance minister in the Najib Razak administration

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