Tough times don’t last, tough nations do (but discipline is key!)

Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz – photo Bernama

WE have entered the final quarter of 2022 which various data points will go down in history as Malaysia’s ‘turnaround year’, following two years of debilitating economic hardship caused by the pandemic.

We have had three consecutive quarters of economic growth: 3.6% in 4Q2021, followed by 5.0% in 1Q2022 and 8.9% in 2Q2022.

Unemployment in July this year was 3.7%, a significant drop from the peak of 5.3% in May 2020. Our trade for the second quarter of this year reached a record high of 1.35 trillion RM and we are on track to land in the upper range of the 5.3-6.3% GDP growth forecast for 2022.

These are all clear and encouraging signs of the economic recovery that we have worked so hard for. The government’s policy responses, coupled with the efforts of various sectors in Malaysia, have enabled our people to successfully bounce back from the pandemic.

But now we must temper our optimism with a dose of realism, as well as prepare our country and its people for an impending global economic downturn in 2023 that will affect small trading nations like us.

The US Federal Reserve’s historic rate hikes to cap its global domestic inflation are also aimed at slowing its economy, the repercussions of which have no doubt been felt around the world, including in Malaysia. These drastic rate hikes have contributed to a stronger US dollar, affecting most countries that trade primarily in US dollars, although global inflation has played a much larger role in driving up prices against the stronger US dollar. strong.

Also, it doesn’t help that the war in Ukraine has lasted much longer than expected, with disrupted global supply chains affecting millions of people, driving up prices due to increased demand for a supply. lesser.

Perhaps we should also ask ourselves about the root cause of today’s global problems.

Have we oversold the concept of globalization, with its enormous carbon footprint as supply chains chase the cheapest producers a few continents away? Why does the whole world rely on a single reserve currency? Is de-globalization the next megatrend, as more and more countries focus on self-sufficiency, especially food and energy security for the well-being of their people? Perhaps Asia needs to consider a new world order to safeguard the interests of its 4.7 billion people.

In the meantime, how do we prepare Malaysians for future volatility? How can we quickly build resilience? Since 2020, I advocate the long-term vision while being sensitive to short-term needs. MOF’s responsive, accountable, and reformist approach to policymaking is more important than ever, especially in preparing people and businesses for an impending global economic downturn and a growing trend of de-globalization in countries such as China. , India and the United States.

How can our companies help Malaysia build the resilience of its people as major powers rapidly de-globalise? This is where our pan-national approach will be more crucial than ever.

How business can help build national resilience

We need to strengthen ourselves internally. One way is to integrate ESG principles into the government and GLIC ecosystem. But while this supports our longer term goals, I believe there are low hanging fruits that businesses and market players can build on to help the country, but note that the list I sharing is not exhaustive.

First, companies could and should spend as much of their revenue as possible domestically, which may involve redesigning their supply chains to incorporate more locally produced inputs. Companies could also help empower small businesses by integrating them into their supply chains, instead of relegating them to the pillar of CSR.

Second, strengthening social safety nets and improving social protection should not be the sole responsibility of government. A social safety net program is best complemented by financial literacy, which companies can undertake to educate and uplift the communities in which they operate. Moreover, we have just entered October, which
is Financial Literacy Month designated by the Malaysian financial sector.

Third, businesses and GLICs should also play their part in attracting quality investment and creating better paying jobs. With China’s zero Covid policies, many investors from various countries have expressed their interest in moving to Malaysia, which public-private partnerships could certainly work on.

Fourth, stakeholders in the tourism sector could further encourage and promote domestic tourism. In fact, we still haven’t fully utilized some of the 2022 budget allocations for the tourism sector. The sector must also intensify inter-professional collaboration, such as with the medical industry to stimulate quality medical tourism.

Fifth, larger companies must also help smaller companies – especially those in their ecosystem – achieve their ESG goals. While the government has taken various steps to integrate ESG into many of its operations, the corporate sector, especially large corporations, must also play its part in encouraging their customers, suppliers and vendors to operationalize ESG considerations.

Small (disciplined) steps that will pay off big

I’m not free to share the measures that will be included in the 2023 budget, but what I can say is that discipline is a key theme in next year’s budget, especially as we prepare for the more difficult year to come. To that end, in addition to the proposed tabling of the Fiscal Responsibility Act at the end of the year, it would also help our employees and businesses instill a more disciplined mindset.

The analogy I would like to share is when I went from 85kg to my current 70kg frame several years ago, started running and eating less. Instead of reducing the rice by 50% all at once (which is way too daunting!), I reduced it by 10% every week. Finally, I reached my goal weight in just 2 months!

I think this is how we should approach rationalizing our subsidies – gradually, but with determination and discipline – to achieve future fiscal resilience.

Why do we need this? Back to our overall subsidy bill of RM80 billion this year. If we only gave our grants to those who really deserve it and could save, say RM30 billion, how many more schools, hospitals and better public transport can we fund for the masses?

The logic is simple: those who can afford it must pay market prices.

And while it was the government’s responsibility to take care of its people and businesses during the pandemic, today all economic and social sectors have reopened and we are no longer in pandemic mode. Through our RM21 billion wage subsidy, for example, we have helped 358,000 businesses and 2.96 million workers get back on their feet. It is time for them to continue the journey without further government control.

The government will always do everything possible to protect the rakyat against short- and long-term challenges, but this is a difficult balancing act as the global downturn looms. So, we really need a little discipline from everyone in Keluarga Malaysia, but we need to start now to help us get through the tough times ahead and ensure a more resilient future for us and our children.

* Tengku Datuk Seri Zafrul Tengku Abdul Aziz is the Malaysian Minister of Finance.

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