Just as Nagwa Assran, CNBC Kuwait’s bureau chief, said in her introductory speech, talking to taxi drivers gives her a real sense of the how a country is faring because they have a way of analysing their data from the bottom up. I do exactly the same thing when I visit a country.
My conversation with taxi drivers revealed a real sense of anxiety in the GST tax that the government will be announcing on Friday, inflation worries, the need for longer term reforms from education to support for small businesses, the desire to see fairer distribution of wealth – not in the form of cash hand-outs but an incentivised scheme that promotes productivity – and a progressive government who actively engages and delivers.
During the dialogues and discourses, the underlying two main themes mask by the optimistic forecasts were filtered through an overwhelming consensus amongst thought leaders that it is time for the Fed to start scaling back stimulus on fears of the repercussion of further asset price inflation and further volatility in this region and to combat the rising wealth gap by distributing through economic inclusion. The export-dependent nature of the country’s economy will be hit by slowing global demand next year coupled with the unwinding of the US monetary policy.
The fear of the Fed winding back on their stimulus is very real; however, as an external force, the struggle to mitigate the effects of this hinges on the longer term policies that address the structural issues of the country. To better prepare the region, the ASEAN Economic Community (AEC) aims to integrate the ASEAN nation and through this appear as a collective unit.
The problem arising from this effort was highlighted by Dato’ Sri Nazir Razah, Group Chief Executive of CIMB Group. He noted that the AEC lacked leadership and the agreements made by the respective government have yet to be funnelled down to the business level, and the objections from some government officials in Indonesia to the original map agreed by their leaders sabotage the success of this agreement by stirring up emotions through national press. The reluctance of Indonesia to lead this pact has proven to be the biggest barrier to overcome and is understandable given the upcoming elections next year, but it is necessary as it is also the answer to moving this pact forward.
Economic inclusion and distribution of wealth dominated Malaysian leader’s conversations, yet it would be a task to overcome these internal challenges. Jaspal Singh Bindra, Group Executive Director and CEO Asia for Standard Chartered, touched on the need to open up opportunities to the others who might not be part of the system. This scenario is evident in Asian countries where wealth between the ultra-rich and the poor has always been wide. An estimated $4 trillion has flowed into the region in the past five years which has exacerbated the situation with the middle income crunch, where those people in this wage group find it hard to adjust to rising costs, and the low income group find themselves in a vulnerable situation that it appears to be impossible to climb out of.
CPI for the country has been steadily increasing the past decade to the highest level on record in August, with 107 points. Although the country posted a trade surplus in August, the current account surplus is shrinking rapidly to its lowest level in the second quarter this year. There is a high debt to GDP level of 53% and the government has been running a budget deficit ever since anyone can remember. The concerns are reflected in the MIER consumer sentiment which has been on a rise since 2009 but is now going through a steep decline since March this year.
This rising cost of living and economic fragility is not a unique phenomenon in Malaysia, but an issue for most countries. However, to avoid social unrests which we have seen in other regions there is an urgent need to relieve the pressure felt by households and to bridge a gap between the demands of the people and the delivery from the government.
There is a high level of expectation from the budget to address the myriad of issues faced by the country and its citizens. The international market participants have priced in positive responses with the strengthening of the ringgit and the KLCI index in anticipation of the fiscal stance the government will take going forward. However, given the grievances, including demand for transparency and accountability from the government, it is likely there will be disappointments amongst the group.