Tall order for Tengku Zafrul – The Star Online


IT goes without saying that the pressure is on for ex-banker and now Finance Minister (FM) Tengku Datuk Zafrul Tengku Abdul Aziz (pic), who on his first day of office said that the focus is “on the immediate challenges ahead economically”.

Granted, while the onus is not completely on the FM to make things right and neither is it completely within his power to do so, observers say he must quickly set the pace and get down to work.

“The honeymoon period for the new Finance Ministry is likely to be a short one, if there is any at all, ” remarks OCBC Bank economist Wellian Wiranto.

OCBC Bank economist Wellian WirantoOCBC Bank economist Wellian Wiranto

The appointment of Tengku Zafrul, who has since said that he is no politician but a technocrat instead, comes amid a torrent of economic, political and social issues in Malaysia, which is being exacerbated by challenging global conditions.

Growth is at a 10-year-low, the stock market is bleeding and the ringgit continues to retreat against the benchmark US dollar.

All this amid an outbreak of a virus, Covid-19, which has now been declared a global pandemic, and collapsing crude oil prices, which are still reeling from failed talks between major oil-producing countries.

Tengku Zafrul is also taking on the top job amid much criticism, considering the controversial way in which Malaysia’s new government came into power just two weeks ago.

Institute for Democracy and Economic Affairs (IDEAS) CEO Ali Salman says it will be a “very major and almost transformational challenge” for the 46-year-old Tengku Zafrul to adapt to the “far more complex” world of policy and politics, given his corporate background.

“It is not to suggest that somehow corporate deals are not real, but to deliver an efficient and clean public finance system is a different ballgame, ” the head of the think-thank tells StarBizWeek.

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Plugging the revenue hole

But as they say, the show must go on.

And so one of the first things that the FM must do is to address the declining revenue from one of the country’s main revenue generators – oil – which is crashing to levels not seen in decades.

“Topmost on his agenda will be to plug the revenue hole left by the sudden slump in oil prices.

“Without any concrete measure, the oil slump, if it continues, will blow the deficit to more than 4% of GDP, ” says OCBC’s Wiranto, who has downgraded Malaysia’s 2020 GDP growth to 3.7% from the 4.2% he had predicted just a few months ago.

What is stoking concerns now is that the country’s Budget 2020, which outlines Malaysia’s revenue for this year, is based on an estimated oil price of US$62 per barrel.The current oil price is slightly over US$30 per barrel.

It is estimated that for every US$1 per barrel fall in oil price, the revenue that comes from it will be cut by RM300mil, which means a US$10 fall translates to a slashing of RM3bil in revenue.

Obviously, this will add pressure on the current fiscal deficit/GDP, which is at 3.4%.

“While Prime Minister Tan Sri Muhyiddin Yassin himself has floated the idea of a GST re-introduction, it is probably tough to do so now, given the political considerations plus the fact that it will be coming at a time when consumption is already challenged by the Covid-19 outbreak and all, ” Wiranto says.

Elsewhere, the government would need to find ways to juice up growth, given the challenges ahead, he says.

“Facing the fiscal deficit constraints, it’s going to be hard to pull off any bazooka spending.

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“Hence, it may have to resort to other palliative measures, including potentially cutting back on the EPF contribution rate by employers, mirroring the recent (voluntary) tweak to the employees’ contribution rate, ” Wiranto adds.

Alicia Garcia Herrero, chief economist for Asia-Pacific at Natixis SA says any delay in fiscal support is risking further Malaysia’s economic deterioration and “enlarging” the political instability.

“One of the top issues the new FM should address is the economic fallout from Covid-19, especially as the growth momentum has been decelerating, ” she tells StarBizWeek.

“Given the fragile domestic economy owing to subdued oil and gas prices, weak global manufacturing, lackluster investment, the fall-out of Covid-19, and weak external demand, we revise our forecast for Malaysia’s annual growth in 2020 from 4.3% to 3.6%.”

Downside risks

IDEAS’ Salman believes that Malaysia can achieve a balanced budget if wasteful expenditures are controlled.

“The FM should come up with a plan to achieve a zero budget deficit within three years, ” he says.

He feels that the top priority should be a careful review of the RM20bil stimulus package recently announced, with respect to priority, effectiveness and implementation.

“Public safety and security of medical staff should be given a preference over business incentives for more tourism and consumption, ” Salman says.

He also suggests that the FM devises a strategy to reduce government dependence on oil revenue, which has touched 30%.

“This can include a re-opening of the discussion to bring back the GST, albeit at a much lower rate, keeping exemptions on necessary items intact and ensuring an efficient refund system.”

OCBC’s Wiranto cautions that downside risks remain, even after revising dowward his expected growth rate for Malaysia this year to 3.7%

“Even this number has downside risks, depending on how the viral outbreak affects key Malaysian export markets such as the US, Japan and the eurozone, ” he says.

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“The big question now also is whether the global financial markets’ volatility can be alleviated enough by decisive global policy actions.”

According to AmBank Group chief economist and head of research Anthony Dass, coordination must be prioritised.

“It is important to have an objective assessment of the current situation, but more importantly, there needs to be coordination between the key ministries related to economic and financial matters.”

“Perhaps, one ministry could assume the lead role.

“Previously, there was no one voice and messaging lacked consistency.”

Tim Saw of InvestKL believes that one area that the Finance Ministry should look at is attracting technology-based FDI into the country.

In particular, he reckons that areas such as artificial intelligence (AI) and the Internet of Things (IoT) are important to help SMEs here.

“Our local economy is driven by SMEs, but what is lacking is the level of technology advancement in this sector.”

He says it is crucial for SMEs to be provided with the tools to enhance their level of technology usage and cites the example of a foreign multinational here that is using a lot of technology.

“If our SMEs are low-tech, they will struggle to be part of a high-tech supply chain belonging to that multinational.

“Should tech-related multinationals come in, they will create knowledge transfer for SMEs here, not to mention create jobs for Malaysians.”

Suggestions appear aplenty for the new FM while the clock continues to tick.

Ultimately, it will be down to execution.

For now, all eyes are on him.

“It certainly will be no ride in the park for him, ” quips one senior civil servant, referring to Tengku Zafrul’s interest in cycling, which is well-known in industry circles.





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