KUCHING: The revised Budget 2023 which will be unveiled by Prime Minister Datuk Seri Anwar Ibrahim On Friday is generating keen interest among economists.
Universiti Malaysia Sarawak (UNIMAS) economist Dr Jerome Kueh said that the revised budget would need to strike a balance between achieving economic growth and taking care of people’s welfare, despite limited fiscal resources.
In Kueh’s view, it must be people and business-oriented, with a focus on sectors that will have both short-term and long-term impacts. This approach is necessary to ensure that the budget can generate sustainable positive spill-over effects.
He opined that the agriculture sector is a vital sector to look into in the revised budget, especially for food security.
“If there are enough agricultural products in the market, the demand for them will be met indirectly,” he said, noting that incentives for the agriculture sector are crucial in boosting productivity and output, especially through smart farming with digital technology.
“Any market imbalance results in higher prices for agricultural products, which the society will have to bear, and this worsens with increasing inflationary pressure,” said Kueh in an interview with New Sarawak Tribune yesterday.
He also called for attention to be paid to the service sector, particularly tourism, which could provide an alternative source of income for the country.
Prior to the COVID-19 pandemic, in 2019, the tourism industry ranked as the third-largest contributor to the economy, with a 15.9 per cent contribution to the total Gross Domestic Product (GDP).
To reduce the impact of inflation on the B40 and M40 groups, it is necessary to reevaluate the current system of subsidies.
Based on Department of Statistics Malaysia (DoSM)’s new household income classification in 2020, a household with a monthly income of below RM4,850 is categorised as B40 while M40 is for those with an income of between RM4,851 to RM10,970.
Kueh insisted that “the targeted subsidies approach is critical at this stage,” as a general subsidies system may result in “leakage in the system” and would not effectively assist those in need.
Meanwhile, Universiti Teknologi Mara (UiTM) Sabah economist Dr Firdausi Suffian highlighted the need for a larger development fund for Sabah and Sarawak, citing the previous ‘deferred’ budget as a basis.
He noted that in the last (old) budget allocation, the two states were granted RM5.3 billion and RM6.3 billion, respectively, which was the largest budget allocation in the history of East Malaysia.
“Now we understand there are austerity measures but at the same time the government needs to spur development. So having a larger development fund for both states is crucial,” Firdausi said.
“Both states can be considered as economic powerhouses (in terms of resource contribution), hence would need bigger funds to develop.”
He further stressed the importance of addressing infrastructure issues such as the Pan Borneo project, schools, hospitals, and roads, which have been long overdue.
Firdausi, echoing Kueh’s sentiment, asserted that Sabah must shift its focus from commodity crops to food production in order to combat rising food costs.
“Sabah’s heavy reliance on food imports makes it vulnerable to price fluctuations and production chain disruptions. As the state is the third-largest food importer, any disturbance in the supply chain will impact price levels.” he said.
However, this shift won’t be easy since industrial commodities offer lucrative income.
Investment in industrial development and attracting Foreign Direct Investment (FDI) is crucial for Sabah as a means of enhancing its economy.
“Given the higher cost of living pushed by inflation, improving and generating income is central for Sabahans,” he said.
Currently Sabah’s average salary is the lowest in Malaysia, and food inflation has peaked at 7 per cent, making income generation a critical issue.
Firdausi pointed out that the state’s unemployment rate has remained high, averaging 5.5-6 per cent pre-pandemic and rising to 9.1 per cent in the second quarter of 2021 before decreasing to 8.2 per cent in the third quarter.
Poverty in Sabah is at 25 per cent (1 out of 4 Sabahans are poor), higher than the national average of 8 per cent, due to various issues related to access to school, quality education, teachers, nutritious food, internet, employment, and a decent wage.
Centre for Market Education (CME) economist Dr Carmelo Ferlito has weighed in on the recent World Bank survey that suggested companies cut production due to price controls.
When questioned about it and whether the revised budget should abolish all forms of price control measures, Ferlito said that they “have been a complete disaster.”
He stated that any further delay in getting rid of them would make the readjustment longer and more painful.
“They have already delayed by two years the essential adjustment between supply and demand for price stabilisation.”
There are various ways to implement price control, and subsidies represent one of those methods. Ferlito warned that price controls do not control inflation but rather conceal it, which poses a risk of destroying industries as seen in poultry. He added, “I am totally in favour of targeted subsidies although I realise it is not an easy path.”
Our back-of-the-envelope calculations indicate that the revised Budget 2023 is likely to be the largest at the time of tabling, surpassing the old Budget 2023’s headline of RM372.3 billion. On that, Ferlito argued that an expansionary budget would further misdirect the allocation of resources, create sporadic and unstable employment, and increase inflation pressures.
Instead, he suggested bold measures that go beyond the scope of the budget to rebuild a pro-investment ecosystem. These measures include liberalising the labour market, reducing red-tape for foreign investors, and improving banking regulations.
Ferlito also prefered tax reform to reduce income tax and reintroduce GST to raise revenue collection and introduce new sources of revenue. He further recommended strengthening enforcement and introducing special schemes for small and micro-businesses to raise revenue.
To a question about the debt service charges estimated in the previous budget and whether it can be reduced in the revised budget, Ferlito replied, “I think it will be difficult for it to go down, with interest rates on the rise.”
