Frankly Speaking: Place growth over short-term targets

This article first appeared in The Edge Malaysia Weekly, on July 29, 2019 - August 04, 2019.
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Finance Minister Lim Guan Eng last week reiterated that Malaysia will achieve its fiscal deficit target of 3.4% of gross domestic product this year, noting how the absolute deficit figure for the first five months of 2019 of RM21.4 billion is down RM13.6 billion over the same period last year. Achieving next year’s 3% fiscal deficit target, which was announced last November, however, would be “challenging”, says Lim, who is due to table Budget 2020 on Oct 11.

While the government is rightly measuring its message with regard to the budget deficit and national debt to retain the country’s sovereign ratings, policymakers must not forget the need to communicate the desire to stimulate economic growth and encourage private investment as well as invest in people, technology and infrastructure, which will help future-proof the economy.

As Bank Negara Malaysia governor Datuk Nor Shamsiah Mohd Yunus rightly pointed out last week, urgent structural reforms are needed to rebuild the country’s strength and prepare for the future.

Reforms, she said, should not only address the immediate economic vulnerabilities — which include enhancing the fiscal position and strengthening household resilience — but also ensure that the right kind of investments are attracted that will yield high-value industries and jobs.

If spending or revenue-reducing targeted tax cuts are justified, investing in the growth engines that would have the best trickle-down effect on the economy should take priority — even if the pump-priming means temporarily expanding the fiscal deficit again to last year’s level of 3.7%.

The latter, if deemed necessary, will require clear messaging that longer-term goals remain intact to yield the maximum benefit for the country.

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