Mahathir expects Malaysia's economy to rebound from coronavirus but foes get no credit

Malaysia's economy has been battered by the coronavirus recession but according to former prime minister Mahathir Mohamad it is not all doom and gloom, provided the current government is willing to act.

On the contrary, Mahathir told This Week In Asia he believed the country had a "good opportunity" to rebound sooner than its regional competitors because of its steady handling of the public health crisis and signs consumer demand is already stirring.

"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.

Mahathir was replaced as prime minister by Muhyiddin Yassin, a former ally who now relies heavily on the support of the United Malays National Organisation (Umno) and Najib Razak, both tainted by the 1MDB financial corruption scandal. Najib's Barisan Nasional coalition, which was dominated by Umno, was defeated by Mahathir's Pakatan Harapan coalition in landmark elections in 2018.

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.

Malaysian Prime Minister Muhyiddin Yassin before his swearing in earlier this year. Photo: AP alt=Malaysian Prime Minister Muhyiddin Yassin before his swearing in earlier this year. Photo: AP

After Malaysia was hit by the triple whammy of the pandemic, plunging oil prices and an unstable new government, the country's growth projections were substantially downgraded by economic forecasters, including Bank Negara Malaysia, the central bank.

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.

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.

For Mahathir, the problem is clear: Muhyiddin's refusal to convene parliament to ratify his stimulus measures and to discuss the possibility of raising the debt-to-GDP ratio. Muhyiddin last month convened a one-hour sitting of the house limited to a single order of business: Malaysia's King Sultan Abdullah Sultan Ahmad Shah delivering a ceremonial opening speech. Some observers concluded that Muhyiddin approved the sitting to ensure the legislature would not be automatically dissolved " it had not been convened since December and the constitution stipulates it must sit at least once every six months.

Former Malaysian prime minister Mahathir Mohamad in 2018. Photo: AP alt=Former Malaysian prime minister Mahathir Mohamad in 2018. Photo: AP

"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".

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."

Apart from Finance Minister Zafrul's comments about raising the debt-to-GDP ratio last week, Muhyiddin's administration has so far not provided specific details about how the stimulus measures are being financed. Mahathir's allies have said they plan to grill the government about the package when parliament next sits on July 13.

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."

Commuters in Kuala Lumpur wear protective masks on a Mass Rapid Transit train. Photo: AP alt=Commuters in Kuala Lumpur wear protective masks on a Mass Rapid Transit train. Photo: AP

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.

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.

This article originally appeared on the South China Morning Post (SCMP).

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