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Better times ahead

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  • Better times ahead

    AFTER a tough beginning to the year, investor sentiment on Malaysia seems to be on the mend, going by the recent views of some industry players.

    For one, property consultant Knight Frank has said that the Kuala Lumpur luxury condominium segment is expected to see improvements this year on the back of renewed confidence and improving market sentiment.

    “Malaysia is expected to return to the radar of investors after the market stabilises with more clarity in the policies of the newly-elected government,” it said.

    This week, we also saw the local stock market hitting a three-month high, suggesting that investor interest is returning, as the new government gets down to work and market and government policies get more limpid.

    A senior fund manager in the course of conversation this week pointed out that the disconnect between the positive vibes felt by Malaysians since the old government was ousted and the way markets had been reacting would gradually lessen.

    “It doesn’t make sense... markets will eventually match the mood on the ground... I am bullish on Malaysia.”

    Sentiment aside, there is real work to be done before actual structural change can take place.

    The Council of Eminent Persons, set up a few days after Pakatan Harapan ended the 61-year rule of the Barisan Nasional government, has said that there is no quick fix to the multitude of problems within Malaysia’s economy.

    Chairman of the council and ex-Finance Minister Tun Daim Zainuddin said chief among priorities is the Finance Ministry. It must bring in revenue for the country and make sure expenditure is not wasted, plus there must be no corruption.

    That said, whether or not the growing optimism surrounding markets reflect actual conditions, no one can really tell, but one thing’s for sure, no one gets hurt by hoping for the best.

    Railing against the benefit

    PEOPLE know when it is time to cut their losses. For stock market traders, hoping for a rebound in the share price of a bombed-out stock with little fundamentals is akin to wishing for a stroke of great fortune.

    For businessmen, they know the time will come to close their enterprise for good when customers fail to patronise a shop that has been set up. Operating costs do not justify keeping the establishment open after whatever they have tried before has failed to turn things around.

    It is not to say it is the same for infrastructure projects. For many, government projects are to provide a public good, whereby costs should not be the be-all and end-all when justifying the merits of a project. Some public services like healthcare is a losing concern when judged against the money that is used to provide the service, but the economic welfare of that service is invaluable.

    So, when looking at the decision to ditch the East Coast Rail Link (ECRL), there are many arguments made as to why the project needs to continue. From the logistics perspective to the opening of corridors to economic activity to job creation, there are merits as to why the project will bring benefits to the country.

    But from the simple cost-benefit analysis and looking at the shocking state of government finances, the project is a red flag in terms of need at the moment. The cost of RM81bil is humongous and the interest payments alone, given a rough 5% annual payment, are already a huge burden. Add on the operating cost that the project operator will need to shoulder and the ECRL, given its low multiplier effect as much of the material and people are sourced from China, is a loss from the start, especially when it is designed to basically ship cargo from the west coast of the Peninsula to the east coast, saving shipping companies about a day of travel. And given how much cargo and people it will need to carry, the project’s payback period is decades away, at best.

    Short-term pain before long-term gain

    THE one thing that is an eye-opener is just how the government’s finances have been handled over the past few years.

    From revelations on just how much the government owes for the goods and services tax refunds to paying back taxpayers that are due for a refund, the state of how the government’s books were managed would see many scratching their heads over how things were done in the past.

    Add on the money the government has to pay for its obligations for 1Malaysia Development Bhd and that will leave a big hole that needs to be fixed.

    One thing is clear, all of the monies that need to be paid will leave a hole in the pocket of the government. The idea of kicking the can down the street for a later day is just prolonging the inevitable, and prudence obligates the government to take stock of the realities and deal with them now rather than later.

    What this means is that many will be wondering what government spending will look like when the budget for next year is announced on Nov 2. The revenue shortfall and the need for reimbursement will see money being used to repay their commitments rather than being channelled to segments of society that could do with it.

    This will also see pressure being applied on government expenditure, and with a need to maintain a steady decline in the deficit, there will be interesting reading of the budget when it is tabled in November.

    As it is, the government accounts for 23% of the gross domestic product, and whatever deficit in its spending will affect growth. That impact is unwanted, as Malaysia’s credit rating hinges on our economic growth, and growth also translates to tax revenue.

    For sure, Malaysians will need to brace themselves for new taxes. How and in what form they will be remains to be seen when the government unveils its medium-term growth plan. This pain, however, is something Malaysians will need to endure over the next two years.

  • #2
    I really hope that the better time will come faster!!