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Sunday, January 11, 2015

NOTHING CAN SAVE MALAYSIA IF NOTHING IS DONE: Urgent actions needed to revive economy

NOTHING CAN SAVE M'SIA IF NOTHING IS DONE: Urgent actions needed to revive economy
Over dinner with a political party leader recently, we talked about the country's economic concerns, including the sharp decline of international oil prices to below US$50 per barrel, the plummeting ringgit, impact from the upcoming GST and aftermath of the east coast floods.
The national economy is in for inestimable dramatic changes over the next twelve months. The drastic fall of oil prices and the devastating floods on east coast, in particular, have disrupted the government's budgetary allocations. Poor handling of these could trigger crisis in the national economy.
Bank Negara's whole year foreign reserves fell by US$18.9 billion while foreign holdings of Malaysian Government Securities (MGS) fell by RM1.5 billion or 1% m-o-m in November to RM145.3 billion. All these figures point to the seriousness of this whole issue.
So far we have only seen the finance ministry issuing a public statement urging GLCs and statutory institutions to stop asset acquisition and investment activities overseas for the time being, while the Cabinet has in principle agreed to waive the visa fee for Chinese tourists to Malaysia. The former is meant to stem the outflow of capital while the latter is to lure more Chinese tourists to the country.
However, these two measures alone will not be sufficient to dispel the looming crisis.
Thousands at May Day rally against GST
The government should tackle the economy, check capital outflow and strengthen public confidence from three different aspects.
First and foremost, the finance ministry must review the 2015 Budget and slash unnecessary expenditures and adopt austerity measures so that the government can afford to set aside an additional RM1 billion for the post-flood restoration while capping the budgetary deficit at 3% of the GDP.
The 2015 Budget was tabled based on crude oil prices of between $100-$105 per barrel. If the crude prices fluctuate between $40 and $65 per barrel, the government will lose RM26 billion in oil revenue. According to expert predictions, it will take several years before the oil prices will go back to the $100 level.
Consequently the government must spend wisely in order to contain the rising debts.
Despite the tight finances, total expenditures in this year's Budget remain at a high of RM273.9 billion, RM9.74 billion more than last year. The education ministry will receive the most allocations at RM56.6 billion or 20.11% of the total, which is acceptable as education is critical to nation-building.
Nevertheless, allocations to the Prime Minister's Department have also shot up year by year. It will grab RM19 billion this year, an increase of RM2.6 billion over last year, vis-à-vis education ministry's RM2.03 billion increase.
Administrative expenses should be slashed further; so should the Mindef's. Without checking unnecessary wastage and irregularities, the government may have to resort to loans to tackle the enormous expenditure bills.
Reducing allocations and expenses and strengthening fiscal management will help restore foreign investors' confidence in the country's financial discipline. This is the right move to take and there is no turning back.
Secondly, the government must speed up the clean-up and rebuilding works in flood-hit areas in order to win back public confidence. Currently the cleaning up operations have been sluggish. The government must deploy the military to bring things back to order as soon as possible, constructing prefab modular homes which are cheaper and faster to build.
The 123,000-strong military have agreed to cut their salaries to help the flood victims through their toughest days. Cabinet ministers and senior government officials should do the same, too.
Sluggish restoration means affected businesses will not be able to stand up again soon, distracting the government's focus to revive the national economy besides hampering public sentiments. Right now the government must show its capability to lead the country out of the doldrums.
Thirdly, the government must strive to lessen the financial burden of the people while boosting their incomes.
Although RON95 price has slipped by 35 sen to RM1.91 per liter, goods prices have not come down proportionately owing to high operating costs. It is therefore essential for the government to lower electricity tariffs and gas prices to offset the impact of a fast depreciating ringgit.
In addition, the economy of rural areas still depends heavily on the prices of commodities such as palm oil and rubber. Falling commodity prices will only curtail the purchasing power of rural residents. As such, the government should instruct our envoys to India and China to talk their host countries into buying more Malaysian palm oil and rubber, probably through barter trades or other ways, while promptly resolving the issues pertaining to the exports of Malaysian bird's nest to China.
We must act fast before things get complicated further. - Mysinchew

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