IN its latest report published recently, an influential international rating agency, Moody’s, has downgraded global sovereign outlook for next year to “negative” from “stable”, stemming from the global political uncertainty.
In the report, Moody’s emphasised that: “In an unpredictable environment, growth and credit risks are tilted to the downside”.
How should the Malaysian government react to the findings of this report?
First of all, the right interpretation should be that credit-negative of the global economy in 2020 would somewhat weaken our economic fundamentals and essentially lead to its economy vulnerable and less resilience to external shocks.
To weather any impeding economic storm, there must be some “big push” measures to be put in place to prepare our economy for any worst case scenario.
As of now, the government has announced the 2020 Budget and laid down the long term economic plan, known as the Shared Prosperity Vision 2030 (SPV2030) for a policy direction in the future.
It is indeed a challenging task for the government to achieve its targeted gross domestic product (GDP) growth of 4.8 per cent next year.
But it is not impossible.
This is where I believe the government should consider to launch a stimulus package to complement the 2020 Budget.
This appears to be a trend worldwide as fiscal policy has taken a driver seat and the monetary policy a back seat in addressing economic woes.
What is more, the spending allocation for the 2020 Budget is smaller than expected and Malaysia’s debt-to-GDP ratio is still below the self-imposed level of 55 per cent.
Based on the Economic Outlook 2020 report, the big chunk of Malaysia’s economic growth would come from both private consumption and investment and exports of goods, comprising 38.2, 10.2, and 33.5 per cent respectively.
Thus, if the government decides to launch a stimulus package any time soon, boosting the purchasing power of consumers is paramount.
This can be done by introducing a living wage policy with the starting salary level of RM2,700.
The stimulus package should also allocate for the development of affordable housing programme, which not only can boost private spending and investment, but also improve the construction sector.
But the thinking behind the possible stimulus package should also recognise the need to address the structural issues plaguing the economy which essentially need immediate attention, such as the issue in the labour market and the critical aspect of total factor productivity (TFP) in contributing to growth.
Based on the economic growth literature, for Malaysia, five main determinants have been identified to improve TFP, namely innovation, education, market efficiency, physical infrastructure and institutional infrastructure.
Much of this was addressed in the 2020 Budget, but perhaps more can be done in the aspect of education, such as allocations for the empowerment of the dual language programme and also for training teachers for science, technology, engineering and mathematics programme.
Surely, we hope for the best for next year. But merely hoping is not enough. We have to be prepared.
DR IRWAN SHAH ZAINAL ABIDIN
Associate professor of Economics School of Economics, Finance and Banking, Universiti Utara Malaysia