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Protect the people and economy first – but check the deficit closely!

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We can easily lose sight of the rising deficit if we are under too much pressure to grant more and more subsidies, Ramon Navaratnam warns.

Finance Minister Tengku Zafrul Aziz’s recent interview about Malaysia’s capacity to finance the various stimulus packages is viewed as most welcome, assuring and timely.

Many Malaysians had wondered how the government would finance the RM260bn Prihatin (caring) economic stimulus and the RM35bn package to fight Covid19, to protect the people’s health and to arrest the decline of the economy.

Where is the money coming from was the question in the minds of the people. Can we afford all these necessary but perhaps insufficient subsidies?

Depending on how long this pandemic will last, despite the heroic work undertaken by the decisive government, the compassionate frontline staff and the strong people’s support, will the government budget be able to sustain the financial strain and vast pressure now imposed on its budget deficit?

Thankfully, the finance minister has said that the budget deficit will be allowed to take the strain by agreeing to raise it to about 6% this year, from an estimated 3.4% projected in this year’s Budget.

I agree that the World Bank, the International Monetary Fund (IMF) and hopefully the commercial rating agencies will be able to accept our larger budget deficits. These bigger deficits are inevitable if we are to effectively overcome the national crisis over the prospects faced by the people and our economy.

The national debt will also increase, but the government will prudently focus on domestic borrowings and not on foreign debt that could put pressure on the country’s balance of payments.

Check the growing deficits to avoid a financial crisis

We already have the Covid-19 crisis and the economic crises. Let’s be very careful to avoid a financial crisis as well. If the nation’s deficit and debt rise too high, there could be a financial crisis as well. This is a threat and likelihood that we cannot afford.

Hence we have to check the following more carefully:

  • Monitor the rising deficit very closely. We can easily lose sight of the rising deficit if we are under too much pressure to grant more and more subsidies. We will need periodic reports to keep track of our deficit
  • Where the government cannot afford to do much more, we must allow the private sector more freedom to expand its business activities, without too much protectionism. Some old restrictive business policies, quotas, licences, approved permits, old rules and regulations need to be reviewed, revised and reformed to enable real businesses to emerge and expand
  • Government-linked companies must be prepared to invite more competition from businesses that can compete more efficiently to benefit the people and the economy as a whole
  • We have to develop a new economic model that can serve the country and our people more productively. We especially have to push harder to get into the digital economy. We must follow the ‘new normal’ more diligently and expeditiously
  • Our brain drain must be reduced drastically by removing policy constraints to enrich our own resources and capacity to attract more foreign investment and higher levels of technology
  • With the large expenditure approved to stimulate the economy, e have to watch out for a possible increase in corruption and the many leakages that can occur and erode public confidence in our stimulus packages
  • The income disparities that are causing so much misery in the US and all over the world must be avoided in Malaysia. The present stimulus packages can be extended to the poor, many of whom are unable to have a decent meal, even in relatively wealthy Malaysia. It’s a national shame!

More reforms needed

The government must be commended for doing well to counter Covid-19 and its adverse effects on the economy.

However, the budget deficit must be watched and checked closely to maintain and strengthen the integrity of the Budget.

As for the recovery stage, the nation needs more concrete reforms to adjust to the new normals developing worldwide and to build a better Malaysia!

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