THE reputed international Fitch Ratings agency has given us a warning on the outlook for the Malaysian economy, which we should not ignore or neglect.

In preparing Budget 2020, the government’s economic and financial planners should take heed of this friendly warning and act sooner rather than later. We should not let this warning pass without more consultations with Fitch on how serious their constructive criticism could turn out to be.

Fitch Ratings has affirmed Malaysia’s long-term foreign currency issuer default rating at “A-”, with a stable outlook. But we must seriously take note of the several reservations that Fitch has, and must carefully consider and monitor the matter to remain on an even keel and progress further.

What are Fitch’s warnings?

1. High public debt 
2. Some lagging structural factors 
3. Weak governance indicators relative to peers 

a) The national debt has now been confirmed by Fitch to be high. By whatever standard of measurement used – by us, the International Monetary Fund or the World Bank – there is now  consensus that our debt is indeed high, although still not critical.

However, the debt has to be watched closely. We have to ensure better management of our budget expenditure and strive to strengthen our revenue to reduce the pressure to borrow more in the short to medium term.

b) The structural factors refer to our need to raise productivity, increase competition and meritocracy, and strengthen our successes in combating corruption and cronyism.

How far have we advanced to deal effectively with these long-standing structural issues?

In the minds of our foreign and even domestic investors, how successful have we been compared with the previous regime? 

Fitch expects our economy to slow down to 4.4% growth this year and 4.5% in 2020. With the US-China trade war looming large and the general world economic uncertainty, investors can get even more jittery and hold back their investment plans. Thus, the low economic growth rates for this year and ahead should not be ruled out. 

If the economy softens further to around 4%, the  implications of unemployment, especially for our graduates, could be worrisome. Small and medium businesses, farmers and fishermen, and smallholders in our plantation industries could suffer much from any slowdown.

We are still struggling to restructure the economy. We have not yet adopted major changes in our policies and  implementation to transform the economy, which is largely raced-based, to the vital requirement of becoming more needs-based.

We need a new economic model, but it will be difficult to adopt it as soon as possible. 

c) Weak governance relative to peers. To be fair, many measures have been taken to strengthen government institutions. We have seen this in Parliament Select Committees, the Election Commission, the Malaysian Anti-Corruption Commission, the civil service and other institutions to boost good governance.

We cannot do too much too soon, as good  governance takes much longer to restore and build up after several decades of neglect in the past. But our people and investors are somewhat impatient for more rapid changes in better governance.

Fitch has, however, subtly warned us to compare our “weak governance relative to our peers”. 

Thus, we have to take note of the more rapid  progress made by our neighbours in Asean, like Vietnam, Thailand, Indonesia and, of course, Singapore, to measure our real success in good  governance. 

Investors have the whole world to choose from, to put their money where their mouth is. They also need not look at comfortable physical climate and tax incentives alone to be attracted to invest in Malaysia.

Racial harmony, religious understanding and  political stability are also major considerations for both domestic and foreign investors, and  professionals. This is where the reduction of the brain drain is important. But we continue to have strong outflows of brain power, which is debilitating.

Fitch warns that the Pakatan Harapan coalition government only holds a small majority in Parliament and has seen its  previously high public approval rates fall significantly.

Fitch’s assessment is quite correct. This has been due to too much politicking and allegations of sex scandals. All this does not give confidence to investors, or even consumers, who will be dampened in their enthusiasm to increase consumption and investment. 

Conclusion

The international Fitch Ratings agency has subtly and  politely warned us of the challenges we are facing. 

It has also emphasised, in its usual guarded fashion, the essential need for us to take heed of their advice and warnings and make the necessary socio-economic and political adjustments, changes and even transformation, without undue delay.

We could face a real slowdown all round in all socio-economic, political and environmental fields if we don’t consolidate our strengths to overcome  our lingering weaknesses, to forge ahead to a better Malaysia in the future – for all Malaysians, please! – July 19, 2019.

* Ramon Navaratnam is Asli Centre of Public Policy Studies chairman.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.