Mahathir expects Malaysia’s economy to rebound from coronavirus but foes get no credit
- Former prime minister believes Malaysia can recover sooner than many other countries but accuses current government of ‘doing too much politics’
- Mahathir singles out PM Muhyiddin Yassin’s reluctance to convene parliament to ratify stimulus measures or discuss raising debt-to-GDP ratio
“Recovery becomes very difficult because lots of people are not able to earn any money at all … But despite all that, I think Malaysia has done much better than most other countries, especially in the handling of the pandemic,” Mahathir said.
“For example, people are now able to move around, go to the shops, walk around as long they accept that they must follow certain procedures that the government has implemented. While the economy now is not doing well, there is good opportunity for us to recover much earlier than others.”
Mahathir resigned as prime minister in February after the split of his multiracial alliance, Pakatan Harapan, which was replaced in government by Perikatan Nasional. He emphasised that the new administration, which came to power in March, deserved little credit for any successful recovery.
“On the whole, the government is doing too much politics, and [is not showing] strong consideration as to the performance of the economy,” Mahathir said during the 75-minute interview.
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Mahathir Mohamad on Malaysia’s politics, US-China relations and the pandemic
Mahathir highlighted Muhyiddin’s recent appointments of coalition allies to senior positions in government-linked companies and his reluctance to convene parliament, ostensibly to avoid a vote of no-confidence.
The former prime minister said these actions would diminish public confidence in the administration and eventually hurt the interests of small businesses and ordinary citizens. In particular, the appointment of loyalists in roles previously filled by professionals would “affect the performance of the economy”, he said.
Mahathir, who also served two separate stints as finance minister during his first 1981-2003 term as prime minister, said additional borrowing might be needed to stimulate Malaysia’s economy.
Although some 295 billion ringgit (US$69.3 billion) of stimulus has been rolled out since the start of the coronavirus pandemic, only 45 billion ringgit will be injected directly into the economy.
Bank Negara currently forecasts growth this financial year of between -2 per cent and 0.5 per cent, while market economists with a more bearish outlook believe Malaysia’s trade-reliant economy could shrink by as much as 8 per cent – worse than the 7.4 per cent contraction during the Asian financial crisis in 1998.
Malaysia’s fiscal deficit is expected to double from last year to 6 per cent, and Finance Minister Tengku Zafrul Aziz has said the country’s debt-to-GDP ratio, currently 52 per cent, could exceed the nation’s ceiling of 55 per cent. The country’s strict fiscal governance rules stipulate that breaching this threshold would require parliamentary approval.
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The government is also forbidden from using borrowed funds for operational expenditure, and from borrowing more than 35 billion ringgit in foreign currency-denominated debt.
“This government is not willing to go to parliament,” Mahathir said. “The opening ceremony [in May] was not even debated, it should be debated. So parliament is actually not functioning. And because of that the government will find difficulty in getting the money to support businesses, the stimulus packages and all that.
“Although the government has announced a very big amount of money, it is not coming. The people supposed to get the money are complaining they are not getting it. I believe that the money is not there. They have not borrowed money from outside.”
Mahathir said Malaysia, which is Southeast Asia’s third-largest economy, had ample domestic savings – about 40 per cent of GDP – to finance these measures, adding that “if we can make use of the savings then we actually need not borrow”.
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He referred to the substantial funds held by Bank Negara and other statutory entities such as the Employees Provident Fund.
“We are rich in terms of savings,” he said. “We can borrow at a good interest rate, the money is there … but I didn’t see them borrowing this money.”
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Economic analysts said Mahathir’s call for more borrowing had merit. Given the domestic savings surplus, it was feasible for deficit financing needs to be funded locally, reducing external financing risks, economist Yeah Kim Leng of Sunway University said.
However, there was still fiscal space to borrow and the central bank has room to further loosen its already accommodative monetary policy, including low interest rates and cuts in banks’ statutory reserve requirements.
“With increased stimulus spending coupled with lower revenue collection expected during a downturn, the government would need to resort to borrowing,” Yeah said. “While the amount of debt to be raised can be reduced by privatisation and asset monetisation, the government may be reluctant to resort to such measures due to low valuation amid weak market sentiments.”
Extracting more wealth by boosting dividend payouts from the nation’s golden goose – oil and gas company Petronas – may not be feasible due to oil prices, Mahathir said, although economists suggest it could be possible.
“Petronas could possibly eke out another 10 billion to 20 billion ringgit without derailing its capital expenditure plans,” Yeah said. “It is likely that there will be cutback or postponement in its capital spending plan due to the present global oil glut and weak demand.”
Mahathir offered another suggestion to ease the strain on the country’s finances: a further indefinite freeze of the multibillion-dollar Malaysia-Singapore high-speed rail project that has been on ice since 2018, when Pakatan Harapan came to power.
Months after coming to power in May 2018, Mahathir’s Pakatan Harapan government negotiated a suspension in the project until May 2020, allowing the project’s costs and viability to be reassessed.
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The original terms of the project were agreed by Najib’s government but Mahathir regarded it as unnecessary and too expensive, given Malaysia’s high debt load. Nevertheless, his government earlier this year indicated it was willing to proceed with the project on revised terms, only for Muhyiddin’s government and Singapore to last week extend the moratorium on construction until December 31.
Mahathir said he felt the project should not proceed in the near future as Malaysia had more pressing concerns. “The government needs more money to support … unemployed people, starving people as well as the small and medium-sized businesses,” he said. “And even the big businesses will need to have some support from the government.” ■