Resolve race, religion and education to aspire for a better, the real new Malaysia

https://youtu.be/ZGDwQk_7DXA

The Edge Special Report: The Real New Malaysia

A short year since the first change in government gave the people hope for a resetting of the national direction, grave doubts about the pace of scope of reforms are clouding the mood for Merdeka Day.

The risk of political instability, economic pain for modest income-earners and worsening communal relations have left many wondering what has gone wrong with the dream of a New Malaysia.

In our Special Report this issue in conjunction with Merdeka, find out what the country’s young people are wishing for the nation amid the cacophony of noises. Contributors include co-founder of #Undi18 Qyira Yusri, Zahirah Zulkifly from Teach For Malaysia and lawyer Melissa Sasidaran, among others.

On the economic front, the country is better off today than decades ago, but the income gap between the B40, M40 and T20 has actually grown. This underscores the fact that economic growth has not been equally distributed to all levels of society.

Of concern is whether there will be sustained income and unemployment growth for all segments of society, especially the lower and middle-income groups.

Then there is the issue of navigating the country’s economy to the right path towards new growth engines that is sustainable and inclusive.

This would mean addressing the various challenges facing the country such as low productivity growth and capital efficiency, continued non-optimal investment in capital-intensive and value-added industries and automation, skills gap for the future workforce, among others.

My aspirations for our 62nd Merdeka

SIXTY-TWO years ago in 1957, Malaya gained independence. The new nation was blessed with a multiracial and multi-religious society and abundant natural resources and natural beauty.

There were serious challenges facing the new nation then, but we were blessed with honest, strong, competent and dedicated founding fathers and able leaders who provided good governance, set up credible national institutions like parliament, the judiciary, security and civil services.

Most importantly, poverty, which was widespread at independence, was considerably reduced as we moved forward, thanks to assertive rural development policies.

The country was also blessed with high economic growth and dubbed a tiger economy. There was little corruption and cronyism for many years after Merdeka.

The economy has since grown faster and developed more strongly in the last 61 years, and the country has progressed in peace and harmony except for the aberration of the 1969 riots.

We were more united then and shared a strong national family spirit. We emphasised and enjoyed our commonality and universality as Malayan and then as Malaysians.

After 60 years of being governed by one political party, we realised that we had been going off the track with rising corruption, cronyism and fracturing national unity, religious intolerance, racism and widening income inequality.

That was when we as a nation said “enough is enough” and elected a new government in our uniquely democratic Malaysian way. Thank God for the fundamental change and transition towards greater socioeconomic, political and institutional reforms and revitalisation of our country under the Pakatan Harapan government.

But we have to work harder to stick to the straight and narrow path and not go off the rails again.

So, on this auspicious 62nd Merdeka Day anniversary, can we all resolve to develop a new national consensus and mould a New Malaysia Policy (NMP)?

To do this, we need to:

1. Apply the NEP to all Malaysians regardless of race or religion. Make the NEP a needs-based socioeconomic policy and end the race-based policy as practised now. This change in policy will remove the sense of alienation that most non-Malays and even many neglected bumiputra now feel;

2. Show greater priority in increasing the opportunities for the B40 groups of all races to earn higher incomes through better and more skills-based education and training programmes;

3. Reject compulsory training in some non-academic studies that are not directly related to improving the present generally low quality of education at almost all levels. Provide more technical and vocational training and use English to teach science subjects. This is essential to make our graduates more employable and get a more rounded education;

4. There should be equal business and employment opportunities in both the government and private sectors. The civil service and business sectors have to be more multiracial in their employment make-up. One way to encourage more multiracial ownership and balanced employment in the private sector in the context of the new policy of “Shared Prosperity” would be to provide new tax incentives in Budget 2020;

5. National schools could teach our mother tongues to encourage higher multiracial attendance. The current perception of national schools being Islamic schools needs to be corrected. They could then become schools of choice;

6. The present campaign against corruption, cronyism and money politics must be stepped up. Continuation of any elements of these very bad practices will undermine national interest and the public’s well-being and welfare;

7. The government must take a harder stand against hate speech and those who promote racial and religious conflict. Foreign speakers and external financing that promote social unrest should be dealt with more sternly and quickly. The government should not protect these undesirable troublemakers, both foreign and local, who can cause major disunity and instability;

8. Public institutions should be further strengthened and made more independent of any political interference. This is essential to safeguard the integrity and sustainability and, indeed, the very sovereignty of our nation;

9. With climate change and global warming becoming more critical, we must not look at short-term profits and neglect the longer-term devastation of Mother Earth; and

10. As far as possible, we should preach and practise universal human rights in a more sincere and serious way. We can always protect our religious and cultural values and adopt human rights at the same time.

On our 62nd Merdeka Day anniversary, let us all pledge to protect our precious Constitution, live by the principles of the Rukun Negara and resolve to aspire for a better Malaysia.

May God continue to bless our beloved country and people. Selamat Hari Merdeka 2019.

TAN SRI RAMON NAVARATNAM, Chairman Asli Centre of Public Policy Studies - Source link

 
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  https://youtu.be/FVnBpckzi5U.

Resolve race, religion and education to aspire for a better, the real new Malaysia

https://youtu.be/ZGDwQk_7DXA

The Edge Special Report: The Real New Malaysia

A short year since the first change in government gave the people hope for a resetting of the national direction, grave doubts about the pace of scope of reforms are clouding the mood for Merdeka Day.

The risk of political instability, economic pain for modest income-earners and worsening communal relations have left many wondering what has gone wrong with the dream of a New Malaysia.

In our Special Report this issue in conjunction with Merdeka, find out what the country’s young people are wishing for the nation amid the cacophony of noises. Contributors include co-founder of #Undi18 Qyira Yusri, Zahirah Zulkifly from Teach For Malaysia and lawyer Melissa Sasidaran, among others.

On the economic front, the country is better off today than decades ago, but the income gap between the B40, M40 and T20 has actually grown. This underscores the fact that economic growth has not been equally distributed to all levels of society.

Of concern is whether there will be sustained income and unemployment growth for all segments of society, especially the lower and middle-income groups.

Then there is the issue of navigating the country’s economy to the right path towards new growth engines that is sustainable and inclusive.

This would mean addressing the various challenges facing the country such as low productivity growth and capital efficiency, continued non-optimal investment in capital-intensive and value-added industries and automation, skills gap for the future workforce, among others.

My aspirations for our 62nd Merdeka

SIXTY-TWO years ago in 1957, Malaya gained independence. The new nation was blessed with a multiracial and multi-religious society and abundant natural resources and natural beauty.

There were serious challenges facing the new nation then, but we were blessed with honest, strong, competent and dedicated founding fathers and able leaders who provided good governance, set up credible national institutions like parliament, the judiciary, security and civil services.

Most importantly, poverty, which was widespread at independence, was considerably reduced as we moved forward, thanks to assertive rural development policies.

The country was also blessed with high economic growth and dubbed a tiger economy. There was little corruption and cronyism for many years after Merdeka.

The economy has since grown faster and developed more strongly in the last 61 years, and the country has progressed in peace and harmony except for the aberration of the 1969 riots.

We were more united then and shared a strong national family spirit. We emphasised and enjoyed our commonality and universality as Malayan and then as Malaysians.

After 60 years of being governed by one political party, we realised that we had been going off the track with rising corruption, cronyism and fracturing national unity, religious intolerance, racism and widening income inequality.

That was when we as a nation said “enough is enough” and elected a new government in our uniquely democratic Malaysian way. Thank God for the fundamental change and transition towards greater socioeconomic, political and institutional reforms and revitalisation of our country under the Pakatan Harapan government.

But we have to work harder to stick to the straight and narrow path and not go off the rails again.

So, on this auspicious 62nd Merdeka Day anniversary, can we all resolve to develop a new national consensus and mould a New Malaysia Policy (NMP)?

To do this, we need to:

1. Apply the NEP to all Malaysians regardless of race or religion. Make the NEP a needs-based socioeconomic policy and end the race-based policy as practised now. This change in policy will remove the sense of alienation that most non-Malays and even many neglected bumiputra now feel;

2. Show greater priority in increasing the opportunities for the B40 groups of all races to earn higher incomes through better and more skills-based education and training programmes;

3. Reject compulsory training in some non-academic studies that are not directly related to improving the present generally low quality of education at almost all levels. Provide more technical and vocational training and use English to teach science subjects. This is essential to make our graduates more employable and get a more rounded education;

4. There should be equal business and employment opportunities in both the government and private sectors. The civil service and business sectors have to be more multiracial in their employment make-up. One way to encourage more multiracial ownership and balanced employment in the private sector in the context of the new policy of “Shared Prosperity” would be to provide new tax incentives in Budget 2020;

5. National schools could teach our mother tongues to encourage higher multiracial attendance. The current perception of national schools being Islamic schools needs to be corrected. They could then become schools of choice;

6. The present campaign against corruption, cronyism and money politics must be stepped up. Continuation of any elements of these very bad practices will undermine national interest and the public’s well-being and welfare;

7. The government must take a harder stand against hate speech and those who promote racial and religious conflict. Foreign speakers and external financing that promote social unrest should be dealt with more sternly and quickly. The government should not protect these undesirable troublemakers, both foreign and local, who can cause major disunity and instability;

8. Public institutions should be further strengthened and made more independent of any political interference. This is essential to safeguard the integrity and sustainability and, indeed, the very sovereignty of our nation;

9. With climate change and global warming becoming more critical, we must not look at short-term profits and neglect the longer-term devastation of Mother Earth; and

10. As far as possible, we should preach and practise universal human rights in a more sincere and serious way. We can always protect our religious and cultural values and adopt human rights at the same time.

On our 62nd Merdeka Day anniversary, let us all pledge to protect our precious Constitution, live by the principles of the Rukun Negara and resolve to aspire for a better Malaysia.

May God continue to bless our beloved country and people. Selamat Hari Merdeka 2019.

TAN SRI RAMON NAVARATNAM, Chairman Asli Centre of Public Policy Studies - Source link

 
Read more:

 Yeoh: Money matters important for newlyweds 

Related posts:

Race and religion, the sorry state of our unity

It is sad that mistrust among the different races is rising even after 62 years of independence, with the various communities having

Let’s talk economy – the sequel of education

The pump-prime our financial situation, we need a massive investment to revamp and rebuild our education 

  https://youtu.be/FVnBpckzi5U.

Fitch affirms Malaysia’s rating at A- with stable outlook, but heed the economic warning

Fitch Ratings

KUALA LUMPUR: Fitch Ratings has affirmed Malaysia's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'A-' with a Stable Outlook.

According to a statement posted on the interantional rating agency's website on Thursday the key rating drivers were its strong and broad-based medium-term growth with a diversified export base.

However, it also was concerned about its high public debt and some lagging structural factor.

Main points:

* GDP to grow at 4.4% in 2019 and 4.5% in 2020

* Global trade tensions to impact economy

* Private consumption to hold up well, public investment to pick up

* Outlook for private investment is more uncertain

* Weak fiscal position relative to peers weighs on the credit profile

* General government debt to fall from 62.5% of GDP in 2019 to 59.3% in 2021

* Malaysia relatively vulnerable to shifts in external investor sentiment

* Fitch expects another 25bp rate cut in 2020 on the back of continued external and domestic uncertainty.

* Banking sector fundamentals remain broadly stable

Fitch said Malaysia's ratings balance strong and broad-based medium-term growth with a diversified export base, against high public debt and some lagging structural factors, such as weak governance indicators relative to peers.

The latter may gradually improve with ongoing government efforts to enhance transparency and address high-profile corruption cases.

Fitch expects economic growth to slightly decelerate in the rest of this year as a result of a worsening

external environment, but to hold up well at 4.4% in 2019 and 4.5% in 2020.

Malaysia is a small open economy that is integrated into Asian supply chains, but it also has a well-diversified export base, which helps cushion the impact from a potential fall in demand in specific sectors.

Global trade tensions are likely to have a detrimental effect on Malaysia's economy, as with many other countries, but this may be partially offset by near-term mitigating factors, such as trade diversion, in particular towards the electronics sector.

Private consumption is likely to hold up well and public investment should pick up again in the next few years after the successful renegotiation of some big infrastructure projects, most prominently the East Coast Rail Link.

However, the outlook for private investment is more uncertain. FDI inflows were strong in the past few quarters, but investors will continue to face both external trade and domestic political uncertainty.

The Pakatan Harapan coalition took office in May 2018 with very high expectations. It has set a number of policy initiatives in motion, but holds only a small majority in parliament and has seen its previously high public approval rates fall significantly.

Uncertainty about the timing and details of the succession of the 94-year old Prime Minister Tun Dr Mahathir Mohamad also continues to linger.

A weak fiscal position relative to peers weighs on the credit profile. The government's repeal of the Goods and Services Tax (GST) and replacement with the Sales and Service Tax (SST) soon after it took power has undermined fiscal consolidation.

The government aims to offset the revenue loss through measures to strengthen compliance, the introduction of a sugar tax and an increased stamp duty. Its fiscal deficit target for 2019 of 3.4% of GDP, which we believe will be met, includes a special dividend from Petroliam Nasional Berhad (PETRONAS, A-/Stable).

Political pressures and growth headwinds could motivate the government to increase its current spending, but we believe that if it does so, it would seek additional revenues or asset sales to contain the associated rises in the deficit and public debt.

Fitch estimates general government debt to gradually decrease from 62.5% of GDP in 2019 to 59.3% in 2021.

The debt figures used by Fitch include officially reported "committed government guarantees" on loans, which are serviced by the government budget, and 1MDB's net debt, equivalent at end-2018 to 9.2% and 2.2% of GDP, respectively.

The government guaranteed another 9.2% of GDP in loans it does not service. The greater clarity provided by the government last year on contingent liabilities negatively influenced the debt ratios, but this is partly offset by the improved fiscal transparency.

Significant asset sales, as intended by the government, could result in a swifter decline in the debt stock than its forecast in its base case.

Progress in implementing reforms that institutionalise improved governance standards through stronger checks and balances, and greater transparency and accountability would strengthen Malaysia's business environment and credit profile.

The World Bank's governance indicator is still low at the 61st percentile compared with the 'A' category median of 76th.

An important change is that all public projects are now being tendered, which increases transparency, creates a level-playing field and should bring down project costs. Prosecution of high-profile cases may also help reduce corruption levels over time.

Malaysia has been running annual current account surpluses for the past 20 years, and Fitch expects it to continue to do so in the next few years, even though the surplus is likely to narrow to below 2% of GDP.

Foreign-reserve buffers were US$102.7 billion (4.7 months of current account payments) at end-June 2019, while other external assets are also significant, including from sovereign wealth fund Khazanah.

Malaysia is nonetheless relatively vulnerable to shifts in external investor sentiment, partly because of still-high foreign holdings of domestic government debt, although these have fallen to 21% from 33% three years ago.

Moreover, short-term external debt is high relative to reserves, although a significant part of this constitutes intra-group borrowing between parent and subsidiary banks domestically and abroad, reflecting the open and regional nature of Malaysia's banking sector.

Monetary policy is likely to remain supportive of economic activity, after Bank Negara Malaysia's (BNM) reduced its policy rate by 25bp to 3.0% last May, which seemed a pre-emptive response to increased external downside risk.

Inflationary pressures are limited with headline inflation at 0.2% in May 2019, still low due to the repeal of the GST and lower domestic fuel prices.

Fitch expects another 25bp rate cut in 2020 on the back of continued external and domestic uncertainty.

Banking sector fundamentals remain broadly stable. Elevated, but slightly declining household debt at 83% of GDP and property-sector

weakness should be manageable for the sector, but present a downside risk in case of a major economic shock.

The sector's healthy capital and liquidity buffers, as indicated by the common equity Tier 1 ratio of 13.4% and liquidity coverage ratio of 155% at end-May 2019, help to underpin its resilience in times of stress.

SOVEREIGN RATING MODEL (SRM) and QUALITATIVE OVERLAY (QO)

Fitch's proprietary SRM assigns Malaysia a score equivalent to a rating of 'BBB+' on the Long-Term Foreign-Currency (LT FC) IDR scale.

In accordance with its rating criteria, Fitch's sovereign rating committee decided not to adopt the score indicated by the SRM as the starting point for its analysis because it considers it likely that the one-notch drop in the score to 'BBB+' since March 2018 will prove temporary.

Fitch's SRM is the agency's proprietary multiple regression rating model that employs 18 variables based on three-year centred averages, including one year of forecasts, to produce a score equivalent to a LT FC IDR.

Fitch's QO is a forward-looking qualitative framework designed to allow for adjustment to the SRM output to assign the final rating, reflecting factors within our criteria that are not fully quantifiable and/or not fully reflected in the SRM.

RATING SENSITIVITIES

The main factors that, individually or collectively, could trigger positive rating action are:

* Greater confidence in a sustained reduction in general government debt over the medium term.

* An improvement in governance standards relative to peers, for instance through greater transparency and control of corruption.

The main factors that could trigger negative rating action are:

* Limited progress in debt reduction, for instance due to insufficient fiscal consolidation or further crystallisation of contingent liabilities.

* A lack of improvement in governance standards

KEY ASSUMPTIONS

* The global economy and oil price perform broadly in line with Fitch's Global Economic Outlook (June 2019). Fitch forecasts Brent oil to average USD65 per barrel in 2019, USD62.5 in 2020 and USD60 in 2021.

The full list of rating actions is as follows:

Long-Term Foreign-Currency IDR affirmed at 'A-';

Outlook Stable

Long-Term Local-Currency IDR affirmed at 'A-';

Outlook Stable

Short-Term Foreign-Currency IDR affirmed at 'F1'

Short-Term Local-Currency IDR affirmed at 'F1'

Country Ceiling affirmed at 'A'

Issue ratings on long-term senior unsecured local-currency bonds affirmed at 'A-'

Issue ratings on global sukuk trust certificates issued by Malaysia Sukuk Global Berhad affirmed at 'A-'

But heed of Fitch’s economic warning

Fitch Ratings has affirmed Malaysia's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'A-' with a Stable Outlook.

The international Fitch Ratings has given us a warning on the outlook for the Malaysian economy, which we should not ignore.

In preparing for the 2020 Budget, the government’s economic and financial planners should take heed of this friendly warning and act sooner rather than later. We should not let this warning pass, without having more consultations with Fitch, on how serious their constructive criticism could turn out to be.

Fitch Ratings has affirmed Malaysia’s long-term foreign currency issuer default rating at A-, with a stable outlook. But we must seriously take note of the several reservations that Fitch has made, and consider and monitor them, to remain on even keel and progress further.

What are these warnings?

High public debt

The national debt is now confirmed by Fitch to be high. By whatever standard of measurement used – by us, the IMF or the World Bank and other agencies – there is now consensus that our debt is indeed high, although still not critical.

However, the debt has to be watched closely. We have to ensure better management of our budget expenditures and strive to strengthen our budget revenues, to reduce the pressure to borrow more in the short to medium term.

Some lagging structural factors

The structural factors would refer to our need to raise productivity, increase our competitiveness and meritocracy and strengthen our successes, in combating corruption and cronyism.

How far have we advanced to deal effectively with these longstanding structural issues? In the minds of our foreign and even domestic investors, how successful have we been compared to the previous regime?

Fitch expects the economy to slow down to 4.4% this year and 4.5% in 2020. With the US -China trade war looming large and the general world economic uncertainty, investors can get even more jittery and hold back their investment plans. Thus, the low economic growth rates for this year and ahead should not be ruled out.

If the economy softens further to around 4% per annum, the implications of unemployment, and especially for our graduates, could be worrisome. The small and medium businesses and farmers and fishermen and smallholders in our plantation industries could suffer much from any slowdown.

But we are still slow and are struggling in trying to restructure the economy. We have not yet adopted major changes of transformation of the economy, which is largely raced-based to the vital requirement, to become more needs-based in our policies and implementation.

We need a New Economic Model but it has been difficult to adopt it as soon as possible.

Weak governance relative to peers

To be fair, many measures have been taken to strengthen the institutions of government. We have seen this in the parliament select committees, the Election Commission, the MACC and the civil service and other institutions.

We cannot do too much too soon, as good governance takes much longer to restore and build, after several decades of neglect in the past. But our people and investors are somewhat impatient for more rapid changes for better governance.

Fitch has, however, subtly warned us to compare our “weak governance relative to our peers”. Thus, we have to take note of the more rapid progress made by our neighbouring countries in Asean, like Vietnam, Thailand and Indonesia and, of course, Singapore, to measure our real success in good governance.

Investors have the whole world to choose from, to put their money where their mouth is. They also need not look at the comfortable physical climate and tax incentives alone to be attracted to invest in Malaysia.

Racial harmony, religious understanding and political stability are also major considerations for both domestic and foreign investors and professionals. This is where the reduction of the brain drain is important. But we continue to have strong outflows of brain power, which is debilitating.

Fitch warns that the PH government holds only a small majority in Parliament and has seen its previously high public approval rates fall significantly. Fitch’s assessment is quite correct. This has been due to too much politicking and allegation of sex scandals. All this does not give confidence to investors and even consumers who will be dampened in their enthusiasm to increase consumption and investment.

Fitch Ratings has subtly and politely warned us of the challenges we are facing. It has also emphasised in its usual guarded fashion the essential need for us to take heed of their advice and warnings, to make the necessary socio-economic and political adjustments, changes and even transformation, without undue delays.

We could face a real slowdown all round if we don’t consolidate our strengths to overcome our lingering weaknesses to forge ahead for a better Malaysia in the future – for all Malaysians.

By Tan Sri Ramon Navaratnam, chairman of the Asli Centre for Public Policy.

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Fitch affirms Malaysia’s rating at A- with stable outlook, but heed the economic warning

Fitch Ratings

KUALA LUMPUR: Fitch Ratings has affirmed Malaysia's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'A-' with a Stable Outlook.

According to a statement posted on the interantional rating agency's website on Thursday the key rating drivers were its strong and broad-based medium-term growth with a diversified export base.

However, it also was concerned about its high public debt and some lagging structural factor.

Main points:

* GDP to grow at 4.4% in 2019 and 4.5% in 2020

* Global trade tensions to impact economy

* Private consumption to hold up well, public investment to pick up

* Outlook for private investment is more uncertain

* Weak fiscal position relative to peers weighs on the credit profile

* General government debt to fall from 62.5% of GDP in 2019 to 59.3% in 2021

* Malaysia relatively vulnerable to shifts in external investor sentiment

* Fitch expects another 25bp rate cut in 2020 on the back of continued external and domestic uncertainty.

* Banking sector fundamentals remain broadly stable

Fitch said Malaysia's ratings balance strong and broad-based medium-term growth with a diversified export base, against high public debt and some lagging structural factors, such as weak governance indicators relative to peers.

The latter may gradually improve with ongoing government efforts to enhance transparency and address high-profile corruption cases.

Fitch expects economic growth to slightly decelerate in the rest of this year as a result of a worsening

external environment, but to hold up well at 4.4% in 2019 and 4.5% in 2020.

Malaysia is a small open economy that is integrated into Asian supply chains, but it also has a well-diversified export base, which helps cushion the impact from a potential fall in demand in specific sectors.

Global trade tensions are likely to have a detrimental effect on Malaysia's economy, as with many other countries, but this may be partially offset by near-term mitigating factors, such as trade diversion, in particular towards the electronics sector.

Private consumption is likely to hold up well and public investment should pick up again in the next few years after the successful renegotiation of some big infrastructure projects, most prominently the East Coast Rail Link.

However, the outlook for private investment is more uncertain. FDI inflows were strong in the past few quarters, but investors will continue to face both external trade and domestic political uncertainty.

The Pakatan Harapan coalition took office in May 2018 with very high expectations. It has set a number of policy initiatives in motion, but holds only a small majority in parliament and has seen its previously high public approval rates fall significantly.

Uncertainty about the timing and details of the succession of the 94-year old Prime Minister Tun Dr Mahathir Mohamad also continues to linger.

A weak fiscal position relative to peers weighs on the credit profile. The government's repeal of the Goods and Services Tax (GST) and replacement with the Sales and Service Tax (SST) soon after it took power has undermined fiscal consolidation.

The government aims to offset the revenue loss through measures to strengthen compliance, the introduction of a sugar tax and an increased stamp duty. Its fiscal deficit target for 2019 of 3.4% of GDP, which we believe will be met, includes a special dividend from Petroliam Nasional Berhad (PETRONAS, A-/Stable).

Political pressures and growth headwinds could motivate the government to increase its current spending, but we believe that if it does so, it would seek additional revenues or asset sales to contain the associated rises in the deficit and public debt.

Fitch estimates general government debt to gradually decrease from 62.5% of GDP in 2019 to 59.3% in 2021.

The debt figures used by Fitch include officially reported "committed government guarantees" on loans, which are serviced by the government budget, and 1MDB's net debt, equivalent at end-2018 to 9.2% and 2.2% of GDP, respectively.

The government guaranteed another 9.2% of GDP in loans it does not service. The greater clarity provided by the government last year on contingent liabilities negatively influenced the debt ratios, but this is partly offset by the improved fiscal transparency.

Significant asset sales, as intended by the government, could result in a swifter decline in the debt stock than its forecast in its base case.

Progress in implementing reforms that institutionalise improved governance standards through stronger checks and balances, and greater transparency and accountability would strengthen Malaysia's business environment and credit profile.

The World Bank's governance indicator is still low at the 61st percentile compared with the 'A' category median of 76th.

An important change is that all public projects are now being tendered, which increases transparency, creates a level-playing field and should bring down project costs. Prosecution of high-profile cases may also help reduce corruption levels over time.

Malaysia has been running annual current account surpluses for the past 20 years, and Fitch expects it to continue to do so in the next few years, even though the surplus is likely to narrow to below 2% of GDP.

Foreign-reserve buffers were US$102.7 billion (4.7 months of current account payments) at end-June 2019, while other external assets are also significant, including from sovereign wealth fund Khazanah.

Malaysia is nonetheless relatively vulnerable to shifts in external investor sentiment, partly because of still-high foreign holdings of domestic government debt, although these have fallen to 21% from 33% three years ago.

Moreover, short-term external debt is high relative to reserves, although a significant part of this constitutes intra-group borrowing between parent and subsidiary banks domestically and abroad, reflecting the open and regional nature of Malaysia's banking sector.

Monetary policy is likely to remain supportive of economic activity, after Bank Negara Malaysia's (BNM) reduced its policy rate by 25bp to 3.0% last May, which seemed a pre-emptive response to increased external downside risk.

Inflationary pressures are limited with headline inflation at 0.2% in May 2019, still low due to the repeal of the GST and lower domestic fuel prices.

Fitch expects another 25bp rate cut in 2020 on the back of continued external and domestic uncertainty.

Banking sector fundamentals remain broadly stable. Elevated, but slightly declining household debt at 83% of GDP and property-sector

weakness should be manageable for the sector, but present a downside risk in case of a major economic shock.

The sector's healthy capital and liquidity buffers, as indicated by the common equity Tier 1 ratio of 13.4% and liquidity coverage ratio of 155% at end-May 2019, help to underpin its resilience in times of stress.

SOVEREIGN RATING MODEL (SRM) and QUALITATIVE OVERLAY (QO)

Fitch's proprietary SRM assigns Malaysia a score equivalent to a rating of 'BBB+' on the Long-Term Foreign-Currency (LT FC) IDR scale.

In accordance with its rating criteria, Fitch's sovereign rating committee decided not to adopt the score indicated by the SRM as the starting point for its analysis because it considers it likely that the one-notch drop in the score to 'BBB+' since March 2018 will prove temporary.

Fitch's SRM is the agency's proprietary multiple regression rating model that employs 18 variables based on three-year centred averages, including one year of forecasts, to produce a score equivalent to a LT FC IDR.

Fitch's QO is a forward-looking qualitative framework designed to allow for adjustment to the SRM output to assign the final rating, reflecting factors within our criteria that are not fully quantifiable and/or not fully reflected in the SRM.

RATING SENSITIVITIES

The main factors that, individually or collectively, could trigger positive rating action are:

* Greater confidence in a sustained reduction in general government debt over the medium term.

* An improvement in governance standards relative to peers, for instance through greater transparency and control of corruption.

The main factors that could trigger negative rating action are:

* Limited progress in debt reduction, for instance due to insufficient fiscal consolidation or further crystallisation of contingent liabilities.

* A lack of improvement in governance standards

KEY ASSUMPTIONS

* The global economy and oil price perform broadly in line with Fitch's Global Economic Outlook (June 2019). Fitch forecasts Brent oil to average USD65 per barrel in 2019, USD62.5 in 2020 and USD60 in 2021.

The full list of rating actions is as follows:

Long-Term Foreign-Currency IDR affirmed at 'A-';

Outlook Stable

Long-Term Local-Currency IDR affirmed at 'A-';

Outlook Stable

Short-Term Foreign-Currency IDR affirmed at 'F1'

Short-Term Local-Currency IDR affirmed at 'F1'

Country Ceiling affirmed at 'A'

Issue ratings on long-term senior unsecured local-currency bonds affirmed at 'A-'

Issue ratings on global sukuk trust certificates issued by Malaysia Sukuk Global Berhad affirmed at 'A-'

But heed of Fitch’s economic warning

Fitch Ratings has affirmed Malaysia's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'A-' with a Stable Outlook.

The international Fitch Ratings has given us a warning on the outlook for the Malaysian economy, which we should not ignore.

In preparing for the 2020 Budget, the government’s economic and financial planners should take heed of this friendly warning and act sooner rather than later. We should not let this warning pass, without having more consultations with Fitch, on how serious their constructive criticism could turn out to be.

Fitch Ratings has affirmed Malaysia’s long-term foreign currency issuer default rating at A-, with a stable outlook. But we must seriously take note of the several reservations that Fitch has made, and consider and monitor them, to remain on even keel and progress further.

What are these warnings?

High public debt

The national debt is now confirmed by Fitch to be high. By whatever standard of measurement used – by us, the IMF or the World Bank and other agencies – there is now consensus that our debt is indeed high, although still not critical.

However, the debt has to be watched closely. We have to ensure better management of our budget expenditures and strive to strengthen our budget revenues, to reduce the pressure to borrow more in the short to medium term.

Some lagging structural factors

The structural factors would refer to our need to raise productivity, increase our competitiveness and meritocracy and strengthen our successes, in combating corruption and cronyism.

How far have we advanced to deal effectively with these longstanding structural issues? In the minds of our foreign and even domestic investors, how successful have we been compared to the previous regime?

Fitch expects the economy to slow down to 4.4% this year and 4.5% in 2020. With the US -China trade war looming large and the general world economic uncertainty, investors can get even more jittery and hold back their investment plans. Thus, the low economic growth rates for this year and ahead should not be ruled out.

If the economy softens further to around 4% per annum, the implications of unemployment, and especially for our graduates, could be worrisome. The small and medium businesses and farmers and fishermen and smallholders in our plantation industries could suffer much from any slowdown.

But we are still slow and are struggling in trying to restructure the economy. We have not yet adopted major changes of transformation of the economy, which is largely raced-based to the vital requirement, to become more needs-based in our policies and implementation.

We need a New Economic Model but it has been difficult to adopt it as soon as possible.

Weak governance relative to peers

To be fair, many measures have been taken to strengthen the institutions of government. We have seen this in the parliament select committees, the Election Commission, the MACC and the civil service and other institutions.

We cannot do too much too soon, as good governance takes much longer to restore and build, after several decades of neglect in the past. But our people and investors are somewhat impatient for more rapid changes for better governance.

Fitch has, however, subtly warned us to compare our “weak governance relative to our peers”. Thus, we have to take note of the more rapid progress made by our neighbouring countries in Asean, like Vietnam, Thailand and Indonesia and, of course, Singapore, to measure our real success in good governance.

Investors have the whole world to choose from, to put their money where their mouth is. They also need not look at the comfortable physical climate and tax incentives alone to be attracted to invest in Malaysia.

Racial harmony, religious understanding and political stability are also major considerations for both domestic and foreign investors and professionals. This is where the reduction of the brain drain is important. But we continue to have strong outflows of brain power, which is debilitating.

Fitch warns that the PH government holds only a small majority in Parliament and has seen its previously high public approval rates fall significantly. Fitch’s assessment is quite correct. This has been due to too much politicking and allegation of sex scandals. All this does not give confidence to investors and even consumers who will be dampened in their enthusiasm to increase consumption and investment.

Fitch Ratings has subtly and politely warned us of the challenges we are facing. It has also emphasised in its usual guarded fashion the essential need for us to take heed of their advice and warnings, to make the necessary socio-economic and political adjustments, changes and even transformation, without undue delays.

We could face a real slowdown all round if we don’t consolidate our strengths to overcome our lingering weaknesses to forge ahead for a better Malaysia in the future – for all Malaysians.

By Tan Sri Ramon Navaratnam, chairman of the Asli Centre for Public Policy.

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