Is Malaysia’s current economic crisis foretold?

THE country’s economy, which was already reeling from the shenanigans known worldwide as 1MDB was brought to its knees by the Covid-19 pandemic, followed by a series of continuous ill-advised policies, misguided economic decisions and the lack of a plan to deal with rising living costs.

Given the extraordinary nature of the pandemic-induced crisis, an excuse could be given for the bungled attempts at the start in the handling of the pandemic as fiscal and monetary policymakers were working without a playbook.

The government responded with a massive relief package, equal to 43.5% of the country’s GDP although there is speculation, in the absence of official figures revealed publicly, that the actual spending impact is much smaller.

Malaysians generally always find a workaround to systemic government failings by creating a parallel private system. In doing so, it has, perhaps been counterproductive in failing to hold the public system to account allowing public services to continue to degrade over the last few decades.

The same can be said of the country’s vast networks of civil society groups, which are now a vital part of the economic system, as they regularly step into the breach of services which should be government funded.

Thus it is not surprising that the government’s reaction was slow. The government’s delay in unshackling the economy and the lack of a plan to deal with the rising costs and shortage in food supply has caused potentially untold misery for Malaysians in general.

The once appealing and powerful image of the PM 7 as a leader who said he put his race first before country, has fallen.

This is actually nothing new or surprising as the present group of ministers in the cabinet when it was helmed by Najib Razak. In that administration, a minister was quoted, famously, asking the rakyat to do their eat their own fried rice instead of eating out to save costs while the Prime Minister asked the people to consume kangkung, which is one of the cheapest vegetable among other available varieties.

As for the present food crisis, a leader of a party in the present administration went on record to say that the crisis was not the government’s fault.

If one is to look at the series of events since February 2020 from the previous unelected government, the crisis announced its arrival in stages.

From the installation of an unelected government to the outbreak of Covid 19 to the closure of a large section of the economy, raging infections amongst the foreign workers that stalled production facilities catering to the export market, the closure of commercial establishments during lockdowns, and the consequent loss of jobs and incomes.

In 2020 alone, the GDP contracted by 5.6% as compared to 4.4% in 2019. Malaysia’s poverty rate rose from 5.6% in 2019 to 8.4% in 2020. As of February 2022, the labour market had still not regained its pre-crisis position, with an unemployment rate of 4.1% vs. 3.3% in 2019. In addition, nominal wage growth in the private sector was only 0.4% following a 2.4% decline in 2020, and this is not enough to allow households to deal with this new inflationary shock.

The bright spot is that the bulk of Malaysia’s total external debt is by corporations and banks while the national debt stood at RM1.33 trillion as of June 2021.

Everyone has an inkling that the country’s economy is on the decline for the last 2 years. Even PM 7 publicly admitted that the country didn’t have much money left in April 2021. And all this time, it had no real concrete actionable plan and strategy.

The promise of a tiger economy and reaching developed nation status began 31 years ago when the 4th prime minister articulated a grand plan to raise the country to developed nation status by 2020. The vision he painted was one of a united, liberal Malaysia, where every race enjoyed the spoils of the nation’s collective success.

As quickly as it had begun, everything came crashing down.

First, the Asian Financial Crisis hit. The pace of industrialisation slowed down. Yes, it was growing but it was nothing compared to the decade leading up to the financial crisis.

Then politics took centre stage and went the opposite in issues of race and religion. The framework never became part and parcel of the national ethos to achieve vision 2020.

The NEP policy got corrupted and abused. The country failed to bridge the gaps between the haves and the have-nots.

When January 1, 2020, rolled around, the world still considered us a developing economy. 

The government’s social welfarism as patronage politics was disastrous, a reflection of leaders’ overconfidence and disconnect with the public that once adored them.

The shrinking of the income tax caused a drastic cut in government revenue. It took hardly any time for the pandemic to accelerate the downturn.

Self-assured of its political might, the ruling administration appears unperturbed by the fast-unfolding economic crisis.

The poorest will bear the heaviest burden of this crisis that will likely deepen in the coming months. 

It remains to be seen if the popular anger now transforms into a real political challenge. The fragmented response from the political opposition appears muted.

Two critical factors over the next few months will determine the country’s economic revival. The government’s ability to arrest the devastating impact of the food crisis and the opposition’s chances at winning the people’s confidence as a credible political alternative.

Even now, there is nothing to suggest that the government has a strategy going beyond the next few months. Its response to the enormous challenge so far is, at best, piecemeal.

The political costs of this crisis will affect the parties in the present ruling coalition but the economic aftermath will be the country’s to bear.

So what went wrong? And who’s to blame?

Whose fault is it really? Only the leadership.

Similarly, the situation in Sri Lanka was also due to leadership. – June 30, 2022.

FLK reads The Malaysian Insight.

* 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.

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  • Of course.

    It was predicted more than 10 years ago. Read .....

    ......and that was before 1MDB and Covid-19.

    Yet no one in the government do a damn thing about it!

    Posted 1 month ago by Malaysian First · Reply

    • Why?

      Because many of our politicians were/are idiots who cannot develop the country through implementing outstanding policies so they relied on subsidies to cover up their incompetence.

      Posted 1 month ago by Malaysian First · Reply

    • Look. In the 1960s, we were ahead in development over South Korea, Taiwan, Hong Kong and Singapore (which was just a mosquitoes infested swampy island) among others.

      Now we can't even dream of catching up with them.

      Posted 1 month ago by Malaysian First · Reply