Wednesday, 16 December 2020: The Center for Market Education (CME) welcomes the latest Budget 2021 approval but invites the government to think about a wider recovery strategy. 

“Now that the discussion on Budget 2021 and its tail of political fights are over, it is time to move forward with those measures that will move Malaysia from the containment to the recovery path”, said Dr Carmelo Ferlito, CEO of CME. 

The Center for Market Education believes that the growth projections for 2021 are too optimistic and invites to consider the possibility of a reverse square root trajectory: the crisis is followed by a physiological rebound (which follows the reopening of the economy) but then a period of flat growth follows. The length and flatness of such a stage will depend not only on the reliability and distribution chain of the vaccine but also on the economic strategy that is implemented now.

CME indicates the following urgent measures:

  1. A strategy for reopening borders for business travellers, at least within ASEAN.
    The Covid-19 crisis has demonstrated not only the potential of digitalization but also its limits. Business practices require physical interactions in order to produce long-term strategies which will create positive spill-over effects on employment.   
  2. Re-discover the business-friendly approach which made Malaysia an attractive destination for investment.
    This means:
    • More clarity on the labour market: Malaysia needs the contribution of both foreign workers and expatriates, within a clear regulatory framework which create opportunities for the local labour market and avoid the emergence of illegal situations.  
    • Extension of the MIDA “principal hub scheme” to Small and Medium Enterprises (SMEs). 
    • Further reduction of the business-related red tapes, with particular reference to the inefficiencies of the banking system.
  3. A new industrial strategy for relaunching Malaysia as a potential manufacturing hub.
    Covid-19 demonstrated the importance of a domestic industrial backbone, which in the case of Malaysia does not need to be rebuilt on a “cheap-labour” strategy, but rather on quality manufacturing which could leverage on the availability of skilled professionals and workers. This includes not only manufacturing in strict sense but also the development of advanced agriculture hubs.
  4. A tax reform centred on:
    • Lower income and corporate tax.
    • A targeted GST.
    • A strengthened enforcement system.

“These points demonstrate that we can build a recovery strategy without further increasing government spending”, Dr Ferlito added. “A debt-driven recovery strategy is not sustainable in the long-run, as it will create inflation and force future governments to increase taxation, diminishing the strength of the Malaysian economy and creating a vitious circle of brain drain”, Dr Carmelo Ferlito concluded.

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About CME: The Center for Market Education (CME) is a boutique think-tank based in Kuala Lumpur, Malaysia. As an academic and educational institution, CME aims to promote a more pluralistic and multidisciplinary approach to economics and to spread the knowledge of a sounder economics, grounded in the understanding of market forces. In order to do so, CME is not only involved in academic initiatives, but it organizes seminars, webinars and tailor-made economics classes for students, journalists, businesspeople and professionals who wish to better understand the relevance of economics for their daily lives and activities. Economics matters and needs to be presented in a fashion in which the link with reality is clearly visible. In this sense, we look not only at theoretical economics but also at policy making, with an emphasis on the unintended consequences generated by political actions.