Thursday 27 September 2018

Populist Policies, Business Issues and New Direction


The two populist policies by the Pakatan Harapan coalition – the zerorized GST and fixing of fuel prices (RON 95 and diesel) have helped boost the economy for 2018. GDP growth for 2018 is still anticipated to be above 5%. The re-introduction of SST will impact the economy by early next year (2019) and beyond. Private consumption will slowdown in 2019 without any further tax holidays. That together with an anticipated slowdown in the construction sector will impact growth for 2019 to below 5%.

The key issues for businesses, going forward, include:
·       Increasing operating costs;
·       Declining revenue contribution;
·       Uncertainty of prospects;
·       Direction for economy and Government support; and
·       Weakening domestic demand.

Investments (private/public) in new projects are now withheld, reducing further impetus to growth. Although in the immediate, trade “wars” have not impacted export volume/value, it could be of concern in 2019.

So the Minister of Finance really has to devise new strategies to spur investments and encourage further domestic consumption without any attendant effect on inflation. Fiscal tools seem limited with debt (including guarantees) to GDP above 65% while monetary policy and exchange rate determination remain critically poised. What could he do?

Sell non-strategic Government assets; refinance/reschedule existing debt; provide tax incentives for businesses; secure higher dividend from Petronas (with higher oil prices); and incentivise the services sector especially medical, education, tourism and financial in employing unemployed graduates. Large-scale projects will come into focus perhaps in 2020 or beyond. It’s not his immediate concern. He could of course, do an “amnesty” for corrupt funds to surface although Indonesia reportedly did not succeed. So he has a difficult game to play!




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