WHAT'S NEXT ?

Now GE-13 is over and what’s next? It’s time to close rank and to move forward.

How do our economy  fare  this year especially after  the general election? In the first quarter of this year we have seen a decline on GDP growth from  6.4% in the previous quarter to 4.1%.  The  reasons  are weakness in the external demands however this  was supported by a robust domestic demand. Slowdown in  manufacturing  sectors  and imports of capital goods due to strong investment activity had brought down the overall growth.

 The inflation rate remains at 1.6%,  the same as last quarter but has increased recently to 1.7% in April.  It is anticipated that the inflation rate will increase between 2% to 2.5% this year. One can see that the  food  and non- alcoholic beverages items have currently increased. The food and non-alcoholic beverages has risen to 3.8% year on year in April and has been at 3.3% for the last two months. The OPR or interest rate has not moved from 3% since the last two years. The unemployment  rate  remains  at  3.3% . However when 3.3% translated into numbers it may come up to more  than  400,000  whereby almost a quarter of these are graduates!

The bold move by the government is in the  implementation of the  Economic Transformation Programme (ETP)   which will be on-going until the year 2020. This will boost the  domestic  demand  and will  be the main anchor for the GDP growth.  It should be noted that the  construction  for the  MRT or manufacturing plants required importation of high technology capital goods. This  may have significant impact on the trade balance. The socio - economic benefits including the spin off  such as  the PRIMA housing in the vicinity of the MRT augur well for the property market.

The ETP projects are capital intensive, long gestation period and are funded by the government. Previous history had shown that both STAR and PUTRA LRT are economically no go. The government need to bail both after a few years of operation. The MRT project line 1 is on-going   but the Line2 has yet to be awarded and pending cabinet approval. Analysts are concerned on the viability of the project since the cost is astronomical.  Although the project EIRR submitted by the consultant is quite impressive but one should know how economists work to make a project viable! The current country’s debt  is in the region of Rm 479 billion or 53.9% of GDP. With the interest rate of Rm 16 billion per year and the need to fulfil election commitments will the 55% limit be breached?

The  Eurozone  and US  economics  have not improved much and with such uncertainty Malaysia GDP growth of 5.6% was achieved for the year 2012 compared to Thailand 6.4 %, Indonesia 6.2 %, Philippines 6.6 %, Singapore 1.3 %, S. Korea 2.0 %  . This year we do not expect to see much changes and analysts targeted the GDP  growth  is in the range of 5% -5.5%.

What is seen above has been quite a rosy picture.  However  there  are few areas of concerned which one should take note.  Are  these   growth  sustainable?  Will  there  be cost overruns  on the mega projects?  The   household debt has been increasing  from  76.6% in 2011 to 80.5% of GDP  in  2012 and  will there be a  credit bubble?  What about  possibilities  of being  swallowed up by economic  bubble  arising from ‘hot money’ from developed nations?  The   stock  market   has  been  bullish  and has reached   all  time  high recently.  What goes up may come down and that is the law of nature!

The GST or goods and  service  tax  which will take the  place of SST has been mooted a few years ago. Whether it is going to be implemented this year or  next  year  only the government can tell. The public must be well educated and  explained  the  impact caused before its  implementation.  The  GST  is not new as most of the countries have implemented including our  Asean  neighbours. We are one of the last few countries to implement. The government expected to gain an additional of  Rm 27 billion once implemented.

It was recently announced that Malaysia will follow Singapore model on its implementation. Singapore GST rate is currently at 7% and if Malaysia is going to follow it will be quite a burden for Malaysians. The GST is a broad- based value added tax levied on supplies of goods and services and import goods.  Inflation  is  inevitable if it were to start at 7% hence the low income earners will be affected. However, this    depends  on the type of goods to be exempted. Singapore started the GST with 3%  in 1994 and increased to 4% in 2003 and 5% in 2004. Currently the rate is 7% since 2007. Australia implemented the GST at a rate of 10% in  2000  and  with inflationary effect.  The  published rate  as shown in the government website is  4%.  A  change to 7% will  not be well  received by many.

The sweetener is that on implementation of GST the government will reduce the corporate tax and individual tax. However the number of  taxpayers  involved are relatively small , in the region of 12%. This will  benefit  only salaried workers earning  more than  Rm 3000.

 Amidst all  the  focus is  on  the   government  steering  for a  high income nation, one should not forget the rural folks. There is a need to close disparity between the urban and rural areas. If this is not done there will be discontent among the low income earners and happenings like in Stockholm recently, Paris and London a few years back were good lessons to learn. The announcement made recently  by the Selangor MB to emphasise more on  the  rurals    is laudable.

Finally education will be a major topic from now on. Many has voiced their concerned on declining standards of our universities and the need to bring back English as the medium of language.  Datuk  Seri Idris  Jala, the Pemandu  CEO did mention that structural reforms include education. Our country has decline in the world competitiveness ranking from 10 in 2010 to 15 this year.   To  overcome  global  weakness Malaysia need to be competitive  and need to have a  strong workforce in term of skill and high calibre  professionals . We  cannot  become  world beaters if our workforce lack communication skills and proficiency in English. We will be lagging behind our nearest  neighbour  who has a very highly intelligent cabinet members. Now if we want to move forward, education reforms should be a priority.

Ir. GHAZALI IBRAHIM