Measures in manifestos will give near-term boost to consumption: Moody's

PETALING JAYA: Barisan Nasional (BN) and Pakatan Harapan’s manifestos for the 14th general election (GE14) are unlikely to have material impact on Malaysia’s economy although they are expected to boost the country’s consumption over the near term.
In a statement today, Moody’s Investors Service assistant vice-president and analyst Anushka Shah said this is due to the backdrop of Malaysia’s export-driven growth as well as risks to inflation.
“Ahead of elections, BN and the key opposition Pakatan Harapan have both unveiled their manifestos and specific spending programmes targeted at key voter bases. These measures include raising minimum wages, greater cash handouts, relief for Felda settlers, amongst others.”
Anushka said the impact of these programmes on the sovereign credit will depend on how they are funded and whether they have a negative effect by delaying government’s ongoing efforts at fiscal consolidation.
“More generally, our rating assessment takes into consideration broader political risk for all sovereigns. We see political risk as being ‘low’ for Malaysia, based on a moderate-probability low impact scenario,” she added.
In addition, Anushka said, although domestic political risks have increased in recent years, they have not adversely affected policy reform as the government has demonstrated commitment to its fiscal deficit reduction goals through past electoral cycles.
In the manifesto themed “With BN for a Greater Malaysia”, BN promises to give additional 1Malaysia People’s Aid (BR1M) to target groups, a special incentive of RM5,000 for every Felda settler, cap interest rate limits lower and credit card late payments and reduce broadband subscription costs by 50%.
The manifesto also promised to eliminate price differences for Peninsular Malaysia and Sabah-Sarawak.
Meanwhile, Pakatan Harapan plans to increase the current minimum wage to RM1,500, and to ensure the rates are standardised between Peninsular Malaysia and Sabah and Sarawak.
The coalition also pledged to delay National Higher Education Loan Fund (PTPTN) repayments until a borrower obtains a monthly salary of RM4,000, and provide tax incentives for employers to help pay their employee PTPTN loans without a salary deduction.
Socio-Economic Research Centre (SERC) executive director Lee Heng Guie, commenting on BN’s manifesto, said it is all important that fiscal consolidation stays its course despite the back-of-the-envelope calculation of RM5.6 billion extra spending it will incur.
“I would believe that they will look into the potential higher revenue coming from oil, maybe GST (Goods and Services Tax) collection; this should be able to keep the additional spending but most importantly, you must not derail from the overall fiscal consolidation. That’s important,” he told reporters at a briefing on SERC’s quarterly economy tracker today.
Based on a rough calculation, the government would need an additional RM4.2 billion to pay for the higher BR1M promised as well as a new category of recipients, while the salary increments for civil servants would cost RM1.4 billion, totalling RM5.6 billion extra.
The government has targeted a fiscal deficit of 2.8% of gross domestic product this year.
Commenting on BR1M in particular Lee said the government must look into how best to utilise the programme as it is a short-term relief for the vulnerable groups and will become a big commitment if the government continues to widen the scope.
“I’m happy to note that in the manifesto they did mention they may want to refine the BR1M mechanism in terms of conditionality tied with training. That is the right path. You must empower and enhance the capacity of the people who are receiving BR1M,” he added, reiterating Bank Negara Malaysia’s comments on working out a system to slowly exit from cash payouts under BR1M.