MALAYSIA’S economic growth has lost steam over the last decade with the average annual GDP growth pace coming in at 5.33%.
This was a significant drop from the average annual growth pace of 9.27% in the decade before the 1997 Asian financial crisis.
Concurrently, the country’s revenue-to-GDP is on a decline since the early-1990s, from 26.05% in 1992 to 17.5% in 2019, whereas the debt level rises steadily following each economic crisis, from 31.9% in 1997 to 56.8% as of November 2020.
It is a fact that we can no longer grow at speeds we once had in the past without breaking our present growth frontier. It is pointless to romanticise about past successes and putting ambitious growth targets without addressing the basic issues first, in this case, the pace of Malaysia’s economic growth.
The discussion should begin with a consensus on whether decelerating growth is aligned with our long-term economic goals or otherwise.
In doing so, we must also come to terms with the fact that other economies will take advantage of Malaysia’s slowing growth pace as they pursue their national interests.
There are good reasons why we should tolerate slow economic growth. Firstly, Malaysia’s annual growth is still relatively higher than other economies with similar characteristics.
To illustrate, Malaysia’s annual GDP growth is markedly higher than economies with similar gross national income per capita (Argentina and Russia), similar economic size (Hong Kong, South Africa and Denmark) and similar population size (Saudi Arabia and Peru).
Secondly, reaching a consensus to push for speedier growth can be tricky given current circumstances. Unlike the past, strong leadership and the enabling political environment — be it domestic or international — is absent in the push for speedier growth.
So, in other words, the “feeder” to speedier growth — whether through taxation or debt — is constrained through the regulatory and political lenses.
Besides, the required institutional quality and capacity to support reforms demand a more granular inspection.
Thirdly, we tend to appreciate quality growth more as we get older and become more literate. Intangible growth parameters — sustainability and climate change, inclusiveness, gender balance, income and wealth inequality — are essential in the quality growth basket.
Having said that, it is vital to also deliberate on whether we have reached the required developmental stage to embrace quality growth.
To be clear, the world appears to have warmed up to the egalitarian development model and often views the Scandinavian economies as the gold-standard of a mature (social) democracy.
Pursuing economic growth for headline numbers alone is often seen as a purely capitalist move.
And fourthly, in line with increasing life expectancy, as a community, the propensity to appreciate stability in life is higher than adapting to constant disruptions coming from rapid economic growth.
This is where slow growth can be an indication of economic “stability” at the time when undertaking reforms would precede adjustments to our daily lives.
To illustrate, the disruptions coming from back-to-back reforms following the New Economic Model were viewed unfavourably by most electorates, leading to the first regime change in the country’s history.
In contrast, there are compelling reasons why we should not tolerate slow growth. In the case of Malaysia, there is a positive relationship between business confidence and headline growth.
The “feel-good” factor is lost when the economy cannot match past GDP growth pace. Inevitably, there will be a heightened sense of detachment from slowing growth as the people are unable to see, touch and feel the fruits of economic growth over time.
Superspeed growth matters to a small and open economy like Malaysia. Much of the country’s slowing growth is due to low levels of private investments since the Asian financial crisis.
In the pre-Asian financial crisis era, businesses respond positively to mega infrastructure projects as they present greater economic opportunities to firms in modernising their supply chains.
Furthermore, individuals benefit from the improvements in the quality of life and social mobility over a longer period.
We need continuous infrastructure upgrading as population growth and migration will ultimately create demand for reliable and quality infrastructure investments.
This may sound clear-cut in theory, but in reality, the feasibility in big-ticket spending is often subject to intense public debate.
Having said that, our fiscal space is being cornered by the increasing global economic uncertainties and crises.
Since the world is becoming more Keynesian following each crisis, the anti-cyclical response is only beneficial in containing economic fallout in the short term, but it can be unrewarding in the long term if governments tend to boost private consumption instead of investing for future growth.
At the time when economic crises tend to influence policymaking, so will the growth trajectory in the medium-to-long term.
Analysts are trained to be descriptive, rather than predictive, so crises often hit us without an alarm bell.
Democratic societies often expect governments to step in to address the here-and-now economic challenges and in doing so, policymakers tend to overlook the overall development objectives.
Perhaps, this is why governments tend to resort to debt accumulation to spur short-term growth rather than to improve revenue creation.
Economic growth will become superficial if we continue to live in a loop of spending too much in the short run, with little impact in improving the overall wellbeing of the people in the long run.
This article is not intended to be an answer to the question at hand, but rather to initiate a debate on Malaysia’s apparent slowing growth.
However, this writer opines that, on balance, the basis and push for speedier growth will result in a much larger economic pie and not less of it.
Fair and equitable distribution is, undeniably, a must, but rapid economic growth should be a pre-requisite to distribution.
Firdaos Rosli, Head, Economic Research, MARC
This article was first published in The Malaysian Reserve dated February 15, 2021.