Recent populist measures by Malaysia’s government to check cost of living may have lowered inflation but they have spooked investors in a slowing economy.
Last week, the Pakatan Harapan (PH) administration announced it had offered RM6.2 billion (S$2 billion) to take over four highway concessions from a private contractor, a plan it said would reduce toll rates for motorists.
It had also, earlier that week, halted a proposal by cement producers to hike prices by 40 per cent, and implemented price controls on medicines last month.
These moves may boost flagging approval ratings for the one-year-old government, as surveys show living costs remain at the forefront of Malaysians’ concerns.
Lower prices should also help the Treasury, which is grappling with over RM1.1 trillion of inherited debt but still needs to roll out promised public projects like low-cost housing and health programmes.
But they come at the expense of businesses, and economic growth.
“The combination of lower cement prices and higher operating costs have resulted in our member companies suffering significant losses,” the Cement and Concrete Association said, pointing to the combined loss of RM1 billion incurred over the past nine quarters by the three cement producers listed on the local bourse.
Malaysia’s average gross domestic product growth since the change of government in May last year, compared with 5.9 per cent in 2017.
Meanwhile, gross domestic product growth has declined to an average of 4.5 per cent since the change of government in May last year, compared with 5.9 per cent in 2017.
The Malaysian Institute of Economic Research’s Consumer Sentiment Index has crashed from a 21-year high of 132.9 points a year ago to 85.6 points, while the Business Conditions Index is now at its lowest since 2016 at 94.3. The neutral mark for these indices is 100.
Last year’s optimism that the country’s economic prospects would improve under the graft-busting administration of Prime Minister Mahathir Mohamad has now morphed into uncertainty and pessimism.
“Falling public approval for PH makes it harder for the government to develop a cohesive agenda to boost the lagging economy,” Eurasia Group’s Asia director Peter Mumford told The Straits Times, referring to a recent survey showing just 39 per cent of respondents being satisfied with the government, compared with 79 per cent a year ago.
“Populist price controls and haphazard reforms of monopolistic sectors, such as utilities and pharmaceuticals, increase regulatory uncertainty among investors who are adopting a wait-and-see approach,” Mr Mumford said.
PH has pledged to break up monopolies and end price-fixing to benefit the consumer.
But critics say that while this is beneficial in industries with a limited number of players and licences like telecommunications and energy, open market forces should prevail elsewhere.
“We have cautioned against a blunt policy that disregards cost variance (arising from location, service level and specialisation),” Association of Private Hospitals of Malaysia president Kuljit Singh said of drug price controls.
While the public stands to gain from these initiatives, so does the government. Its medicine bill for hugely subsidised public healthcare is over RM2 billion annually, while cement is crucial to build public housing and government buildings.
An official source also told The Straits Times that higher cement prices could affect the administration’s ability to build low-maintenance roads in rural areas, where support for PH is weakest.
And while the RM6.2 billion takeover of toll concessions will require a bond issue, state coffers will be relieved of having to compensate private-sector concessionaires up to RM6.5 billion to forgo rate hikes.
Motorists will save RM180 million in total annually when toll rate discounts are given.
Despite official statistics showing deflation of 0.7 per cent in January and 0.4 per cent in February, Malaysians still do not believe they have more money in their pockets, with 54 per cent of those surveyed in March citing inflation as their biggest concern.
This weak sentiment, which has slowed retail sales growth, may have contributed to low expectations of business opportunities.
Capital flight in the past year – over RM18 billion in equities and RM29 billion in bonds – has been coupled with slowing direct investments from the private sector.
Private investments growth dropped sharply to just 0.4 per cent in the first quarter of this year, compared with 4.8 per cent last year, and 9.3 per cent in 2017.
In fact, investments by local firms have shrunk under the new government, with foreign companies taking a larger share.
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