Saturday, November 3, 2018

Malaysian Budget 2019

Let me give a brief analysis.

1. The Malaysian Budget 2019 is contractionary on the economy because the government will take more from the general public than to pump money into it as it undertakes to reduce the federal deficit from 3.7% in 2018 to 3.4% in 2019, 3% by 2020 and 2.8% in 2021.

2. With the economy expected to grow slightly from 4.8% in 2018 to 4.9% in 2019. This means that the private sector has to do a lot of the heavy lifting of the economy. If the government continues to politicise its policies by behaving as if it is still doing election campaigning rather than managing investor confidence, it is unlikely that the private sector will invest in amounts that will overcome the fiscal consolidation. The world economy is slowing down and there are attacks on palm oil. The only consolation in the horizon is the oil price.

3. The budget is an eye-opener for those who had hoped for a miracle to happen to their lives in the last general elections. The sore truth is that life for ordinary people are going to be hard hit by the attempt by the government, any administration, to try to raise its revenue. It is a rotten state of affairs in Malaysia that the government thinks that it is the great determinant of our prosperity. No, it is no, any administration. The government has been good in taking from the general public to line the pockets of the elite. This is not changed.

4. Times are going to be hard for a long time as the US is determined to reverse the Quantitative Easing of the money supply raising interest rates. Malaysian monetary policy will continue to be "accommodative" (the central bank has no new word for its monetary policy since its opened its doors) which means keeping local interest rates unchanged which in turn means the ringgit will continue to tank, just purely on interest rate differentials. Investor confidence has not been fully discounted yet.


walla said...


The bigger issue to note with regards Budget 2019 that matters more to local producers and businesses is that the US trade war is going to sour relations with China for a long time coming and that is affecting us because both are significant buyers.

In regressing to protectionism by refluxing its multinationals to invest in production back home instead of overseas, the US is not going to be much of an investor and buyer locally for that matter other countries in the region.

The new US fund to support Indo-Pacific infrastructure projects are just as a smaller counter-weight to China's BRI/Obor projects.

For at least the next two decades then, Asia will be denuded of US economic presence save for its financial services and dollar-dependent trade financing motifs operating through its international banks.

Even if there is a microscopic chance of the present trade tensions easing in Buenos Aires, Trump's Cfius executive agenda has spread its wings of exceptionalism into the core of the US GOP. The Pandora box has been opened and cannot be closed again because the US will not say it has been wrong to use its strategic rivalry excuse against China as just some election campaign lightning rod.

Outcome of the uncertainties generated by the US tariff and investment blockades, what Asian countries are thus facing at the moment are higher business and transport costs, slower domestic and cross-border investments, disruption of supply chains and depression of retail business. Cash-flows will tighten, stocks will deplete and employment will be constrained while costs of goods will rise owing to less-than-optimized choices of sources now to be found which because demand exceeds supply will be raising their price of participation.

For us, servicing our debt over-hangs will be at cost of not having enough critical-mass funds for growth-priming development projects just when more youths will enter the shrinking job-market and more people will age to depend mostly on their savings. One expects productivity to take a hit.

Bottom-line is therefore: we can't depend on just domestic and internal resources and initiatives alone if we are to survive and not face the specter of a massive downturn in the private sector, whatever the numbers issued by the public sector.

Politically, the incumbent may say it's because of the drag of enlarged debt to be serviced plus the global trade situation while the opposition will latch on how it has managed to buffet crises before albeit at higher hidden costs now prised open. But that's just public sector excuses. What may be agreed is that the private sector must drive to find a way out that can build momentum year to year for the next twenty.

The present government should give its blessings, and clear the red tapes which in turn will speed up processing, remove gatekeeper fees, and end the old rentier ways that have impeded business and investments.

Where investments are strategic and large, it may be necessary to back-burner the remits of affirmative policies on the imperative of creating more jobs for all and building revenue streams.

And the importance of tourism and agriculture must be addressed fruitfully. China inbound tourists have dropped 30-50%. It could be because they come through Singapore, or because Thailand has made a faux pas with two incidents, but for Malaysia, it could be because M2.0 went to Beijing and publicly alluded his host as a neo-colonialist. Undoubtedly they would have taken exception to the slight. Even their Admiral ZhengHe must have gritted his enamel. The show in Melaka town on the history may thus need to be updated for recent events. M2.0 should have realized that doing so won't win any bunny points from the US administration which he has also earlier complained as inscrutably flighty.

walla said...


Which comes to the matter of China investments in local manufacturing industries. Just as it has helped make Malaysia a major global maker of solar panels in quick time, it can also rapidly invest in other industries as well. If it is already doing so in countries like Vietnam and Cambodia, it can do no less here because at the moment Thailand remains Japan's hub, Singapore remains US hub, Indonesia has domestic policy issues while Philippines has infrastructure challenges.

Furthermore, since we don't have a bilateral agreement with the US, we can presumably be excused from the US poison pill clause that has been inserted to chain Mexico and Canada to the US. Implication is forever.

It has been noted elsewhere that at the moment Malaysia's economic performance remains neutral but its profile fits the most in Asean for China investment cooperation.

One may argue if we let in more China manufacturing investments, they may supplant our own local producers but that's just the same way of looking at the world as is being advanced by those in Washington. Which so far has been disruptive of trade and draining on valuation thereby crimping of the growth necessary to eclipse the challenge of demographic changes and technology disruption of employment patterns.

If M2.0 is wary of China, he can always get Japan to come in as well to produce next-door to China on Malaysian soil so that we can get the best of two worlds even as today Japan is raising more cooperation with China.

Perhaps the US will by then also see it is to its advantage to remain here because we will then become not just a diversified nation with an open diversified range of industries but also diversified investors from near and far in reflection of our strategic location at the crossroads of east and west so that we can pay off those debts and reactivate projects now costing us a bigger bundle to hold than a yacht and a jet-plane.

And are you out of the mud now, etheorist?

etheorist said...

Up on the mud, in the mud, coated with mud, not quite out of the mud. Nothing serious, except for a minor case of stickiness.

walla said...

Hankering for happiness, the threshold of sadness falls.

Some problems were constructed not to be solved but to be left to their own half-lives.

We live on who live more for others.

Pain, the equalizer.


walla said...

Sometimes that which is not done is what is needed done.

Henry said...

This is awesomme