Prime Minister Anwar Ibrahim will face tremendous challenges as he navigates the country’s economy as we move into 2023.
With his tremendous experience and intellect, we have the best possible candidate in Anwar to take us through the hurdles that will come up as the global economy goes through difficult times.
Forecasts for the next year have not been kind. The International Monetary Fund puts the global growth figure at 2.7%. That is an optimistic number in comparison to Fitch’s 1.4%.
At home, Bank Negara Malaysia expects the economy to grow within the range of 4% to 5%.
All do not agree. The less optimistic think it is more likely that we will achieve 3.7%.
The route ahead is cut to a narrow path. Fiscal profligacy in the past will limit what can be done for some time ahead. Anwar will surely want to set the books right and bring the deficit level down.
How much of that job can be done next year is not clear.
So far, the prime minister, who is also the finance minister, has been saying the right things.
He is right to frown upon blanket subsidies. The petrol subsidies benefit the rich more than they do the poor.
The careless use of subsidies has been raised before, but not much has been done to date. Getting the mechanisms right is a bit of a problem.
How, for instance, will we implement a targeted approach in the case of petrol? Do we issue some kind of a card for those who qualify for a rebate at petrol kiosks, or do we decide based on the capacity of the vehicle? Or do we extend a monthly cash transfer to cover a fixed amount of petrol use?
The prime minister was, again, right in his concern regarding electricity subsidies. Once again, he held to his belief that large businesses should not be beneficiaries of power subsidies.
The RM150 aid for school children regardless of family income bracket, however, is a mild break from the targeted approach.
Macroeconomic policy tends to lean on the side of austerity these days. Policymakers seem to favour tighter measures, and these include higher interest rates, less handouts, and less subsidies. But they may not always work best.
India was criticised for not espousing austere economic policies in dealing with the outcome of the pandemic. It turned out that the approach that Delhi took turned out well.
The prime minister will have to balance conventional economic thinking with the practicalities of managing a nation, and that, too, a country that is caught in a diversity of political persuasions.
As the country takes a slide down, some issues will stand out.
The cost of living is one such issue. It has been a lingering issue that has not received much attention in preceding administrations, and it might be a matter of more concern next year.
Rising food prices may not abate moving forward. The lower external demand will disrupt labour markets. Youth and graduate unemployment, which is already high, will, in all likelihood, get higher.
The ringgit has seen some strengthening since Anwar came into power, rising to a little under RM4.45. This denotes an increase of 1.8%. But it needs the right policy to sustain the increase, and the markets have to be convinced that the right plans are going to be put in place.
Bold policies could change the perceptions of foreign investors. Anwar was right to convince a padi mogul into directing RM50 million to padi farmers. Bolder would be to dismantle monopolies across the board.
The prime minister can be expected to use his influence to draw foreign direct investment into the country. That has to be supported with measures to make Malaysia more investment-attractive.
The old style of incentives will not work, less so when investors will be more cautious next year. But 2023 may be the time to work on those with deep pockets and who have the longer haul in mind. A clear and novel framework will have to be devised.
Budget 2023 will be a good signal of Anwar’s vision and direction for the short-term. It will give some sense of how he plans to use fiscal policy to handle the downturn.
Anwar is reported, after his BNM meeting, to have stated, “Attracting quality investments, shifting, moving to a low carbon economy, elevating social protection, enhancing fiscal durability will be among some of the approaches and initiatives that will be taken.”
There is broad consensus on the problems that plague us and the challenges we are likely to confront. The proof of the pudding will be in the “how” part.
We will have to move beyond generalities (that economists are so famous for) and move into concrete action plans (that civil servants are adept at).
It will be important to convey how we propose to overcome the downside risks – quickly, clearly and decisively. And that will show our preparedness to sail through 2023.