Launched on May 21, 2015, the 11th Malaysia Plan (11MP) 2016-2020 was the government’s final ditch effort to lift Malaysia’s status to become a fully developed country within the last five years of the 30-year Vision 2020 plan.
Based on the National Development Strategy of Malaysia, the 11MP is focused on the implementation of high-impact projects to boost the development of Malaysia’s people and capital.
While Malaysia’s political landscape has shifted mid-way, and analysts as well as the brainchild of Vision 2020 himself, Prime Minister Tun Dr Mahathir, have said that the country might not reach its 2020 target on time, this mission to push the nation’s economic development, remains.
The recently released mid-term review of the 11MP (MTR11MP) highlights this, with new realistic priorities on segments such as balancing developments across regions, empowering Malaysia’s human capital, enhancing environmental sustainability via green economy and more.
It also highlights where the new Pakatan Harapan Government stands in terms of its strategies to steer Malaysia’s economic developments, particularly now, as global trade uncertainties continue to add downwards pressure to most economies.
“Under the MTR, the real GDP growth target for 2016 to 2020 was revised downward to 4.5 to 5.5 per cent, from five to six per cent when the plan was launched, on account of the challenging global economic outlook and domestic fiscal constraints.
“Similarly, for 2018 to 2020, the growth target is projected to be softer, that is between 4.5 to 5.5 per cent, from 5.1 per cent in 2016 to 2017, supported by sustained domestic demand, especially from private sector expenditure,” RHB Research Sdn Bhd (RHB Research) said in a report.
It pointed out that this was broadly in line with RHB’s forecast of 4.8 to 5.2 per cent for the same period.
“We think the reduced growth target is more realistic as we enter the late stage of the global growth cycle and uncertainty is rising amid the escalation of US-China trade war and monetary policy tightening by major economies,” it opined.
Echoing this view, Bank Islam Malaysia Bhd, chief economist, Dr Mohd Afzanizam Abdul Rashid, said the review had shed more light on government policies which were critical, at a time when the external environment is becoming increasingly challenging on the back of ongoing trade tensions, global monetary tightening, as well as uncertainty in commodity prices.
“The government’s main emphasis now are on efficiencies, service delivery by the public sector and capacity building.
“Greater emphasis on real income, that is, household income after taking into account the inflation rate indicates that household finances should be more resilient as purchasing power can be improved further via targeted subsidies and financial assistance to the needy group.
“That way, spending can be optimised as the programme will only benefit the targeted group,” he was quoted as saying by Bernama.
Meanwhile, RHB Research noted that based on the 11MP MTR growth target, Malaysia’s gross national income (GNI) per capita is expected to reach RM47,720 or US$11,700 in 2020, in line with moderate inflation.
“This is about six per cent below the estimated minimum income threshold of a high-income nation. Malaysia is expected to achieve this income threshold by 2024.
“Nevertheless, the goal of becoming a developed nation should go beyond merely attaining a high-income level – as it requires Malaysia to progress in many other dimensions, such as economics, politics, culture, psychology, spiritual and social,” it opined.
This was also highlighted by Dr Mahathir during his announcement of the MTR 11MP as he pointed out that the government would no longer looking at development by measuring the rate of economic growth or gross domestic product (GDP) alone.
“We see development in terms of increasing people’s purchasing power and development that is enjoyed by all citizens or shared prosperity,” he said in the Dewan Rakyat.
He said the new policy would ensure that there was no large income gap between the poor and wealthy, as well as among races and ethnic communities.
He added for the second-half of 11MP, the PH government had set new priorities and emphasised on the philosophy, policy and development strategy of the country believed to be in line with the aspirations of the people and the government’s determination.
With that, BizHive Weekly explores some of these new priorities and how these plans could affect certain sectors:
A change in priorities to reach Vision 2020
The new strategies introduced by the new government in the halfway point to 2020 mainly revolve around lifting Malaysians financial well-being in order to reach the status of a ‘developed country’.
Under the ‘Enhancing Inclusive Development and Wellbeing’ strategic pillar, the government hopes to increase Malaysians’ mean monthly household income to RM8,960 in 2020 from RM6,958 in 2016, with faster and sustainable increase for B40 household income.
While initially, the research team at MIDF Amanah Investment Bank Bhd (MIDF Research) believed that in the near term, consumer retail spending could still be weak due to the reimplementation of the sales and service tax (SST), it is more optimistic about the government’s MTR 11MP long-term effect.
“On a longer term horizon, we opine that the government’s commitment to gradually improve the wellbeing of the Rakyat by addressing the disparity across the states and the low income level of the B40 households will result in increase in discretionary spending,” it opined.
Ports and logistics
The MTR 11MP also listed out the improvement and continuation of the development of key airports and ports nationwide including Sabah’s Sepangar Bay Container Port. While the plan does not list out the development of new ports or airports, analysts are still positive on this as the strategy would give current airports and ports the capacity to grow and enhance its competitiveness.
“Port operators are encouraged to improve their services in enhancing competitiveness. Among others, initiatives will be undertaken to improve the ranking of the main hubs, namely Port Klang and PTP.
“Given the underutilised capacity of existing ports, proposals for the construction of new ports will not be considered. Strategies will also be undertaken to improve land connectivity through road and rail networks and enhance capacity of ports through the construction of additional berths and wharves,” Maybank IB Research noted.
The plans to boost SME participation in cross border sales as well as the development of highways and the Digital Free Trade Zone (DFTZ) are also expected to benefit logistics companies.
“Looking ahead, we do not discount the possibilities of other last mile delivery players and e-commerce platforms to participate in the DFTZ,” MIDF Research said.
Maybank IB Research also noted: “Logistics players will continue to benefit from the initiatives under the 11MP MTR.”
However, it also warned that local logistics players could see some earnings risks as competition may heat up on the potential entry of international logistics players as they are keen to tap into the e-commerce growth.
The MTR 11MP also highlighted new emphasis on empowering Malaysia’s human capital and to that, analysts expected it to positively impact education-related companies.
“There is an increased emphasis on improving the general state of the education system in the second half of the 11MP.
“This is due to its limited success in producing students that are able to think critically, innovatively and creatively to contribute to the future development of the country,” MIDF Research noted.
The government has also emphasised on making education more accessible to the B40 income earners in all primary, secondary and tertiary education levels; making them a priority in terms of placements in the education institutions. Besides that, the government has emphasised on the need to increase the quality of graduates.
As such, MIDF Research opined that this strategy would likely benefit education-related players, especially those involved in IT-related training as this could address the issue of low quality graduates and human capital.
With the government’s aim to increase Malaysians’ mean monthly household income by 2020 under the ‘Enhancing Inclusive Development and Wellbeing’ strategic pillar, the healthcare sector also stands to benefit from this strategy.
The government is looking to explore a healthcare scheme that aims to create a national health financing scheme which will provide assistance for primary care treatment for the B40 households to ensure comprehensive health coverage while more hospitals and clinics will be built to improve access to quality healthcare and increase the hospital beds to population ratio.
The coverage of primary healthcare services will also be further extended by providing healthcare services closer to communities, homes and individuals especially to in rural and remote areas.
MIDF Research noted that while Malaysia’s public spending on healthcare, as per GDP, had breached four per cent level since 2015, it is still one of the lowest in the region as neighbouring emerging economies.
It also pointed out that the lack of public spending on healthcare has resulted in inadequate public health facilities and services to meet the healthcare needs of the population in urban and non-urban area.
“Premised on this, more investment are needed to be allocated in healthcare to enable Malaysia’s public spending on healthcare to be more in line with the benchmark set by World Health Organisation (WHO) of seven per cent,” it said, noting that there is also a pressure to increase healthcare spending arises due to the significant increase in medical and healthcare costs in Malaysia, especially in recent years.
“The increase in healthcare cost has resulted in more patients, especially from the B40 households, to demand for public healthcare service. In order to address this, the government plans to create a national health financing scheme which will provide assistance for primary care treatment for the B40 households.
“This will enable the B40 households to seek treatment at private hospitals,” it commented.
For Malaysia’s financial sector, analysts believe that banks could benefit from the various new strategies the government plans to implement in the second half of the 11MP.
The continuation of development of infrastructure projects and push for more private investments for industry innovation, for example, could stimulate the growth of higher quality loans, Affin Hwang noted.
It also pointed out that high labour productivity could lead to a higher income society in the longer run, stimulating demand for growth in the services sector and higher consumption spending.
Meanwhile, Maybank Investment Bank Bhd’s research team (Maybank IB Research) believed that the government’s emphasis on strengthening the country’s economic growth could lead to the enhancement of productivity within the financial services sector.
It said that the new strategy could promote greater use of digital technologies and provide regulatory support towards creating a cashless society, lowering cost of transaction and widening access to underserved customers as well as enhance development of Islamic finance through the adoption of a value-based intermediation.
Aside from that, it opined that the strategies highlighted in the MTR 11MP could position Malaysia as a regional sustainable and responsible investment (SRI) centre while banks could also promote green financing as a new asset class.
Since the change in Malaysia’s Federal government, the construction sector is one of few major sectors in Malaysia that has taken a heavy beating due to the uncertainties surrounding the continuation of several high-impact infrastructural projects across the nation.
Under the 11MP, ‘Strengthening infrastructure to support economic expansion’ was one one of the six key Strategic Thrusts.
The goal under this thrust is to strengthen infrastructure to support economic expansion, lay the foundation to strengthen economic expansion and provide an enabling environment to support growth.
However, according to the 11MP MTR, infrastructure development continues to be affected by issues and challenges, such as lack of coordination in transport and energy sectors, financial sustainability in water services and regulatory conditions related to broadband infrastructure.
As such, the government highlighted various projects which it deems would support Malaysia’s economic development as well as narrow the rural and urban divide.
Some of the high-impact projects being planned or implemented from 2018 to 2020 include the Mass Rapid Transit 2 (MRT 2), Light Rail Transit 3 (LRT 3), Digital Free Trade Zone, Rapid Transit System Johor Bahru-Singapore, and more.
While these projects are expected to be implemented, analysts have noted that under the mid-term review of the 11MP, the construction sector is targeted to moderate at an annual average rate of 4.3 per cent in 2018 to 2020 from 7.1 per cent in 2016 to 2017 due to the slower growth of residential and non-residential subsectors.
Affin Hwang Investment Bank Bhd’s research team (Affin Hwang) pointed out that the original annual average growth rate target of 10.3 per cent in 2016 to 2020 will be revised to 5.4 per cent under 11MP.
“Greater adoption of the industrialised building system and ongoing civil-engineering projects such as the MRT2 and Pengerang Integrated Petroleum Complex in Johor are expected to contribute to the growth of the sector.
“Nevertheless, the overall growth momentum of the government civil-engineering subsector is expected to be dampened due to reprioritisation of major infrastructure projects to rationalise the fiscal position of the federal government,” it said.
It also noted that the development expenditure ceiling would be rationalised from the original allocation of RM260 billion to RM220 billion for the overall 11MP period, 2016 to 2020, to consolidate the fiscal position.
Meanwhile, MIDF Research believed that the slew of high impact projects announced should signal the sector’s sustainability.
“This would keep the construction companies busy for the next two years, with public projects segmented into transportation, education, water infrastructure, and healthcare,” it said.
As the sector progresses, however, it noted several the issues and challenges faced by construction companies such as the heavy reliance on low-skilled workers remained a pertinent challenge as companies strive to increase its margin.
“On top of this, the upward revision on wages would likely exert additional pressure, as the industry continues to be labour-intensive.
“While part of this problem could be mitigated with the use of IBS (Industrialised Building System), we opine that domestic players have not entirely embraced the technology,” it added.
Gearing up for vision 2020, Budget 2019 a game-changer
With just a year left to 2020, next year will be critical in determining if the nation will be able to reach Vision 2020 in time.
Therefore, the Budget 2019 has been viewed by many as a game-changer to Malaysia’s economy.
“As guided by the mid-term review of 11th Malaysian Plan, the fiscal policy approach of the new government will see significant structural changes in term of revenue and expenditure.
“Heavier weightage will be put on development expenditure particularly on social services or Rakyat-oriented projects. On operating expenditure, we expect increase in subsidies and restructuring in other components of the expenditure,” MIDF Research said.
It also highlighted that the Budget 2019 will set the direction of Malaysian economy in the short term. Like the MTR 11MP, it unveiled areas of priorities for the government which would provide cues and improve confidence particularly for foreign investors.
“In addition, clearer policy direction will be an impetus and boost for ringgit in the near term,” MIDF Research added.
Last Friday, Finance Minister Lim Guan Eng, during the tabling of the 2019 Budget, announced a higher Budget allocation for 2019 with several new taxes and increase in taxes, in line with the theme ‘Credible Malaysia, Dynamic Economy and Prosperous Rakyat’.
The PH government has allocated RM314.5 billion for the 2019 Budget compared with RM290.4 billion in 2018 Budget and out of this figure, RM259.8 billion has been allocated for operating expenditure and RM54.7 billion for development expenditure.
It was also announced that Malaysia’s fiscal deficit was expected to reach 3.7 per cent in 2018 as it was not realistic to meet the deficit target of 2.8 per cent in 2018.
For the next three years, Lim added, the PH administration was committed to implementing fiscal consolidation measures to lower the deficit to 3.4 per cent of gross domestic product (GDP) in 2019, three per cent in 2020 and 2.8 per cent in 2021.
Meanwhile, according to the Fiscal Outlook and Federal Government Revenues Estimates 2019 report released by the Ministry of Finance, during the adjustment period, fiscal position in 2019 would be set at a new base which would reset the new fiscal consolidation trajectory moving forward.
“With a narrow revenue base, there is a need for a more thorough expenditure review. In this regard, the government has undertaken the zero-based budgeting approach in formulating the 2019 Budget to improve spending efficiency,” it said.
The report also noted that the Federal Government’s fiscal stance would continue to be expansionary, where the amount spent into the economy is higher than the revenue collected.
“The government is confident that the fiscal stance is appropriate to support the economic and development agenda of the nation,” it added.
The report noted the government would continue to strive for higher global competitiveness, economic resilience and improved wellbeing of the people, as well as remaining investor-friendly particularly towards private investment with high value-added activity.
“The government will ensure that public investment will bring the desired socioeconomic benefit. Thus, emphasis will be given on the quality and outcome of spending rather than the quantity and output,” it added.
Source: Borneo Post Online