Move past kitchen-sinking and provide clarity on policies to promote growth, govt told

PETALING JAYA: The government needs to be pro-growth as the risks of high debt and a narrower revenue base subside significantly with gross domestic product gaining momentum.
Affin Hwang Asset Management director of equity strategies and advisory Gan Eng Peng said in a note today that the key concern of the market now is whether the country can continue to grow amid all the "kitchen-sinking".
"Investors are very clear about what's wrong with the country; the 1MDB scandal, high debt levels, and the fiscal deficit. Where there is less clarity now, are policies the government has to promote growth.
"For this, we are waiting for the 100-day Government of Malaysia Symposium which will be held for the first time in September and Budget 2019 that will be tabled on Nov 2," he said.
Gan pointed that in order to allay the concerns on high debts and narrower revenue base, the government needs to show clear evidence of curbing wastage and leakages.
"We need to start to see this being reflected in better expense/capital expenditure control for government departments and government-linked companies (GLCs).
"If GLCs can demonstrate more efficient capex and strong expense/operating expenditure control, we think this would send a strong signal that Malaysia 2.0 is certainly different from Malaysia 1.0," he noted.
Meanwhile, Gan said the country may see some slowdown in fourth quarter growth after the tax holiday expires, but overall growth in 2018 should be intact.
He said the concern is more for 2019 as it remains to be seen if government expenditure can be cut without affecting growth, of which the consumer and export sectors need to fill the gap.
While the weakening of the ringgit does help to boost exports, he said, this sector is dependent on foreign labour, which makes it vulnerable to increases in minimum wages or a foreign worker clampdown.
"The other important issue for the market is earnings. Prior to 2017, the market experienced three years of contracting earnings. The recent results season was tepid and many analysts have been revising down their numbers.
"We could end the year with only 2% to 3% growth versus 7% to 8% expected at the beginning of the year," Gan said.