DEAR prime minister, how sustainable are the country’s debts?

Against all the assurances from the government, the falling ringgit is dire news for the economy.

It makes it more expensive to import essential items like food, imports of which rose from RM51.4 billion in 2019 to RM55.4 billion in 2020.

When a currency loses value, it can be helpful for manufacturers as it makes their exports cheaper. But given the broader economic climate, few would frame the steep drop as a positive development.

Before the pandemic, the country had already amassed a big public debt from the 1MDB debacle. 

Large fiscal packages to support increased health expenditures and expand social safety nets and loans and subsidies to keep businesses running and stabilise financial institutions in response to the pandemic have raised public debts to a disproportionate level.

The prospect of further interest rate hikes complicates matters. Any more hikes will surely push up the cost of borrowing for businesses and individuals, and leave less money for businesses to invest and consumers to spend.

As a result, the people are seeing a decline in living standards.

The fiscal outlook for the country remains brittle. The consequences won’t be limited to the markets. 

The government needs to introduce reforms to head off a debt crisis in the future.

The longer this situation persists, the more dire the consequences for the people. 

The economy will be the key issue in the general election which you have to call by mid-2023.

The country needs to renew its economic strategy. The people are concerned about low growth and increasingly high inequality.

The challenge for the next decade is generating stronger, sustainable, and inclusive growth.

Is the government bold enough for a hard-headed assessment of the country’s strengths and weaknesses? 

The rakyat does not want the government policies based on wishful or nostalgic thinking.

As should be obvious to all in recent years, it is important to be aware that the country is, and will remain, subject to global shocks.

Endemic policy and short-termism have been a key weakness of the country’s economic policy over the last 10 years and they still afflict us today.

This has certainly been a problem for the last 40 to 50 years. That is not surprising given that the dominant form of economic policy making during this period has been race-based.

The government needs to build long-termism into decision making via institutions that help reinforce it as well as the involvement of broader groups of stakeholders and racial groups which can go some way to reduce the turbulence of winner-takes-all politics.

The country’s racial diversity provides an opportunity for experimentation as well as different approaches to economic leadership and strategy.

There are broad-based rhetorical commitments focusing on raising growth and reducing inequality but they have always been sidelined for obvious reasons. 

Economic policy during this period has come in the form of improvisation in the face of crises, rather than via new strategic thinking.

The government can claim that it is serious about the task but the people don’t trust the representation.

The people are now waiting to see whether 2023 Budget to be presented on October 7 will amplify investors’ fears about the sustainability of the country’s finances and cause a further drop of the ringgit.

Judging by the rhetorical commitments so far, the country is staring at a bleak future with a burgeoning public debt with no long-term strategy to address it. – September 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.