THE now infamous phrase, “It’s the economy, stupid”, coined in 1992 by American political consultant James Carville, is apt to describe the current directionless and indifferent attitude of our politicians towards the economy. Their apparent idiotic indifference, especially evident since early this year, has set our economy riding on a locomotive-less train.

Their animal instinct is to broker for positions and their own survival, rather than to pay attention to the alarming world economic downturn. Putting their fingers in the pies of government-linked companies (GLC) appears to be the height of their economic involvement.

In the just-released World Bank October 2020 Economic Update for East Asia and the Pacific (EAP), the forecast for Malaysia’s gross domestic product (GDP) growth for 2020 is now further reduced to -4.9%, worse than the previous forecast of -3.1%. This follows a shocking sharp decline of 17.1% Q2 GDP (year-on-year) announced last month, rendering ours the worst performing economy in Asean. Our economy is already in recession and it only awaits the Q3 GDP report to make it official.

The Covid-19 pandemic may be a convenient carry-all for our politicians in the ruling coalition to throw blame. Malaysia’s forecasted 4.9% GDP contraction this year is worse than the 3.5% shrinkage forecasted for the EAP region, despite us being one of the few nations rich in oil and gas.

Our national debt is now RM1.2 trillion. In December 2019, our government debt to GDP ratio was 52.5%. By June 2020 it shot up to 59%. The fiscal deficit in 2019 was 3.4%. It is expected to rise to 6% with the implementation of the National Economic Recovery Plan.

Raising the nation’s debt-to-GDP ratio from the current statutory limit of 55% to 60% seems to be the preferred easy way out. Our economic train has now moved into the danger zone with little room to manoeuvre in times of crisis.

By convention when the budget deficit ranges 3 to 4%, the amber warning should flash. There are certain politicians and some economists suggesting more and more debt spending taking the cue from the US. The US budget deficit has now skyrocketed to US$3 trillion (RM12.4 trillion) due to massive spending on coronavirus relief, necessitating the Fed chief to caution it was “unsustainable”.

Our local champions have forgotten that the US central bank could print and electronically create money because the dollar is the world’s reserve currency, thereby creating inflation at will and reducing or robbing assets value. Our Bank Negara cannot and should not.

In our case, even with amber warning of reaching the 60% debt-to-GDP ceiling and a fiscal deficit of 6%, it is already close to being unsustainable. ‘Unsustainable’ means debt restructuring and possible default.

Debt cannot be rolled over in perpetuity. Continuous borrowing and increasing our national debt will be met with a subsequent fiscal crisis where much of our budget has to be allocated for debt servicing. It is also akin to mortgaging the lives of our future generations. 

There are also those painting rosy pictures, saying our economy will recover in H2 2020, and growth for 2021 will reach 6%. Their careless comments give a false sense of security and encourage complacency.

Clueless politicians got baited hook, line and sinker. It all boils down to the baseline. Baseline reset for GDP computation and comparison is usually done every five years, and our current baseline is set at 2020.

Using the 2020 baseline, these people could be correct. Compared to the previous baseline at 2015, they are not. Malaysia’s growth rate in 2015 was 5.1%. Compare this to the forecasted negative 4.9% growth for 2020.

Like a runaway train, our economy will soon change from flashing amber to red. Our budget income is highly dependent on the price of oil and gas.

Budget 2020 was based on the oil price of US$62 per barrel. Petronas has declared a net loss of RM21 billion for Q2, denting hopes of much-needed dividends.

SMEs are struggling. Unemployment rate is climbing. Even so, many of those employed are on reduced wages or reduced working days. Our private debt level, 80% of GDP, is too high. The cessation of loan repayment moratorium will further squeeze private spending.

Poverty rate is climbing. A key finding mentioned in the World Bank report stated, “The Covid-19 shock is not only keeping people in poverty, but also creating a class of ‘new poor’”. Over and above all this, our clueless politicians champion race and religious politics. These are indicators of an economy heading towards self-destruct.

Cut in wasteful spending should have been the first cautionary remedial measure. Reform of protective service sectors to be more competitive should have been next. Also, support and encourage enterprises in the digital industry in this emerging internet-of-things and artificial intelligence industry.   

Reforms in the GLCs should have been a priority, not appointments of politicians to head and fill the boards. Universiti Malaya Prof Edmund Terence Gomez has pointed out that seven government-linked investment companies (GLICs) alone control over 68,000 companies and 42% of Bursa Malaysia. Reforming the GLCs and GLICs could potentially put the locomotive back in the economic train.

It’s the economy, stupid. – October 1, 2020.

* Captain Dr Wong Ang Peng is a researcher with an interest in economics, politics, and health issues. He has a burning desire to do anything within his means to promote national harmony. Captain Wong is also a member of the National Patriots Association.