PUTRAJAYA should not get into heated exchanges with financial services firms or rating agencies over their analysis of the nation’s economic prospects, said former World Bank economist Lim Teck Ghee, adding that the government should instead focus on proving itself in its first term of power. 

On Thursday, Finance Minister Lim Guan Eng had dismissed as “untrue” a report by Nomura Global Research that Malaysia’s 2018 fiscal deficit would deteriorate to 3.9% of the GDP. 

Guan Eng had also slammed Nomura’s concern over the government’s political stability, calling it “misplaced and overdone”.

The finance minister’s outburst came about after it was reported that Japanese bank Nomura had downgraded Malaysian shares to “underweight” from “neutral”, adding that a possible credit ratings drop could cause further fiscal slippage.

“Our economists believe there is a high risk of fiscal slippage and the possibility of a sovereign ratings downgrade that could trigger more capital outflows,” the bank had said in a report.

Economist Lim said Nomura was a respected financial services group and global investment bank that does not have a political axe to grind. 

“Rather than get involved in a public debate with its analysis of the nation’s fiscal deficit and future economic prospects, the Pakatan Harapan leadership should let the outcome of its policy reforms speak for itself,” Lim told The Malaysian Insight.

“For now, the Nomura report highlights various concerns that the government should pay closer attention to.”

In its Asean Strategy report published on Wednesday, Nomura also said Malaysia’s fiscal deficit is expected to widen to 3.9% of GDP in 2018 and 3.7% in 2019 — higher than the government’s estimates of 3.7% and 3.4% for this year and next year, respectively.

Nomura said there has not been “a significant reform push” from the new government that could potentially lead to expansionary economic activity, while the fall in oil prices in recent months and “populist moves” such as the removal of goods and services tax (GST) have also been detrimental to Malaysia’s income. 

Guan Eng had responded by saying that the government is confident of achieving 3.7% and 3.4% of fiscal deficit to GDP in 2018 and 2019 respectively.

Nomura’s action follows Singapore bank DBS’ downgrade of Malaysian shares on Monday, where it cited similar concerns over potential weakening of the country’s fiscal position. 

On Tuesday, Moody’s Investors Service had warned of a downward rating below ‘A3 stable’, the seventh level, if the country’s fiscal prospects weakened alongside growing political tensions.  

Economist Jarren Tam believed that the Nomura analysis “is fair and objective, rightly outlining key issues and gaps which require policy attention”.

“The government does not want to see a slowdown in economic progress as they enter the completion of their first year in power.

“That said, this report aptly highlights urgent matters with potential for expansionary growth,” he said, adding that wage growth and labour force productivity could come into focus as priorities.

Economist Lee Heng Guie believed multiple structural reforms announced by the government will contribute to growth. 

“The government has laid out a slew of fiscal measures and initiatives to rebuild the fiscal balance sheet in Budget 2019,” said Lee, who is Socio-economic Research Centre executive director.

“Fiscal reforms coupled with structural reforms would lift economic growth if they are well executed. More importantly, the government must have strong political will to implement the reforms.”

Guan Eng had said that reforms included the implementation of zero-based budgeting to increase the efficiency of government spending this year and a comprehensive application of open tender across all ministries since last year to increase transparency and effectiveness of government spending.

On Nomura’s concern that the fiscal deficit ratio may rise due to crude oil prices, Guan Eng said apart from the one-time RM30 billion special dividend from Petroliam Nasional Bhd needed to partially finance the payments of unpaid GST and income tax refunds, the estimated government’s dependence on petroleum income this year is only 19.5% compared to 41.3% in 2009. – January 12, 2019.