PETALING JAYA: The government’s continued commitment towards strengthening fiscal governance under the 12th Malaysia Plan (12MP) and reorganising Malaysia’s development priorities amid the Covid-19 pandemic is commendable, says Malaysian Rating Corp Bhd (MARC).

       In the 12MP, the government targets to cut its fiscal deficit to between 3% and 3.5% by 2025 compared to 6.2% in 2020. The success in achieving the target, said the rating agency, would hinge on how the pandemic and the economic restructuring efforts pan out amid an evelated unemployment rate scenario.

       “It nevertheless reflects continued commitment towards strengthening fiscal governance. According to the 12MP document, efforts to strengthen fiscal governance will include enhancing revenue by exploring new sources, reviewing tax incentives and strengthening overall tax administration,” the rating agency said in a report yesterday..

       MARC said the 12MP gross domestic product (GDP) growth target can be achieved should the economy enter a sturdier recovery path by the second quarter of next year.

       “The government expects real GDP growth to come in at between 4.5% and 5% per annum during the 12MP period, compared with 2.7% in the previous plan period when it did not have to contend with the aftermath of lockdowns.

       In the 12MP, the government targets to cut its fiscal deficit to between 3% and 3.5% by 2025 compared to 6.2% in 2020. The success in achieving the target, said the rating agency, would hinge on how the pandemic and the economic restructuring efforts pan out amid an evelated unemployment rate scenario.

       “It also expects the gross national income (GNI) per capita to increase to RM57,882 at the end of the 12MP period, up from RM42,503 previously. We believe that the 12MP’s aim to bring the average household income to RM10,065 will push the present minimum wage to a much higher level,” it added.

       The rating agency is cautiously optimistic about the government’s high tolerance for inflation, as the average inflation during the 11MP stood at 1.3% versus the expected range of between 2.5% and 3%.

       It added that a successful economic reset would lay the foundation for the country’s resilience and development for the next five years and beyond.

       “We think the three themes running through the 12MP document – resetting the economy; strengthening security, well-being and inclusivity; and advancing sustainability – are appropriate. Malaysia had required an economic reset, and the Covid-19 pandemic has upped the ante and heightened the sense of urgency,” it said.

       However, should there be a failure to reset, it could lead to dire developmental consequences in the post-pandemic environment, given the ageing population of the country, it added.

       “The downside to policy continuation remains, as the 12MP will witness another general election between now and July 2023,” it said.

       While the 532-page document is comprehensive, MARC said the 12MP lacks details on how the government expects to address the unprecedented challenges and the long-term scarring brought about by the pandemic.

       “The reforms should be also impactful in terms of action plans in ensuring effective policy enforcement, monitoring and evaluation.

       “Greater clarity to development planning is not only necessary to reshape the economy in the post-pandemic era, but more importantly, to tee up the private sector of things to come. Until we see greater details in the 12MP, we expect the private sector to remain timid, taking a wait-and-see stance,” it added.