THE World Bank is normally cautious, polite and diplomatic in its reports on national economies.

But you have to read between the lines to seek the messages it wants to convey to governments and their peoples. 

The World Bank in its East Asia and Pacific Economic update on October 3, presented a summary entitled “Balancing Act” on Malaysia. It is well appreciated as truly, a difficult act to balance!
 
So what are the main messages?

Firstly, the Malaysian economy has done well, with a growth of 5.2% this year and a slower growth of 5% and 4.8% in 2019! Hence Malaysia is weakening, unless the budget does more to strengthen it.

The slowdown is due to our risks as an open economy, as we are vulnerable to external demand. 

This means our exports could decline and our imports could rise. Our balance of payments current account surpluses could narrow. 

Also our exchange rate could then decline further and our cost of living could  rise!

But the World Bank characteristically does not specify the details, lest it is seen to be dampening our optimism.

Secondly, it notes private consumption – what the rakyat spend on food, transport and shelter etc, is large and has “expanded firmly”. 

It is estimated at 6.6% in 2017 and 6.5% in 2018. However, total Investment is expected to increase at a slower pace of 6.1% this year and only 3.2% next year. 

We have to remember higher consumption can lead to less productive expenditure. Lower capital investment can lead to less infrastructure and lower capacity to generate production and income in the future. 

What can or will the budget do about this structural problem? The World Bank has provided the problem but not the solution!

Thirdly, inflation rose to 4.1% in the first half of this year. This is high and is likely to rise further with the relatively weak ringgit. 

At the same time the prices of food rose by 4.2% for the 12 month period ending July 2017.

Will the 2018 Budget adopt the necessary measures to reduce food prices?

My proposal would be to liberalise the rules and regulations and reduce any protectionist policies and the wide scale corruption and expenditure wastage that suppress and restrict supply of basic goods and services. 

If this is not done soon enough, the rakyat will suffer more from rising prices.

Fourthly, house prices have risen faster than our income growth. The World Bank rightly points out higher house prices raises the cost of living. 

The solution is for the government to build and to provide more incentives to the private sector to more rapidly expand the supply of affordable houses.

The Industrial Building System (IBS) should now be implemented with a stronger political will. If there are powerful vested interests that oppose the use of IBS, they should be strongly opposed by the Government instead. 

I hope the budget will provide the necessary push for IBS.

Fifthly, the World Bank states “the Malaysian economy continues to face uncertainties mainly from the external environment” but completely ignored the more serious threats from within our country, which we can control – extremism, racialism and religious bigotry.

The World Bank politely keeps silent, although they are aware from their global experience domestic and foreign investment can be adversely affected by these negative internal forces. How come?

Indeed these are also the push factors for the rising “brain drain”. Will the 2018 Budget deal with these structural problems or sweep them under the carpet?

Sixthly, the World Bank surprisingly and glibly proposes “reducing exemptions on the Goods and Services Tax (GST)!  

Does it not realise the low income groups are already experiencing considerable pain from rising prices? How could the WB also suggest “addressing the rise of civil servants’ salaries and pensions” to contain the budget operating expenditures. 

Instead the World Bank could have proposed raising productivity in the civil service by promoting more competition, incentives and meritocracy?

Will the Budget address these  thorny issues or let the matter rest and fester?

Finally, the World Bank does mention in passing the need to “accelerating Structural Reforms to improve private sector productivity and public sector efficiency” to sustain our current growth momentum in the medium term . 
          
I agree entirely, but the World Bank does not say how? By being overly polite, it missing the whole purpose of its mission in Malaysia. 

The World Bank has to be more direct and pointed in its remarks, however brief they may be. This is essential so the World Bank  will not lose its high reputation.

Conclusion, the World Bank has to better serve Malaysia and other developing countries.

More importantly, we hope Budget 2018 on October 27 will address the subtle concerns expressed on the soft state and the future of our economy amidst domestic and global uncertainty!

But we can face our challenges, if we show stronger leadership and a collective national will to succeed further! 

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

* 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.