Asia Pacific Investment Bank urges Putrajaya to expand fiscal deficit to revive economy

The Malaysian government needs to expand its fiscal deficit to revive its economy in the post-pandemic period. It would also need to attract foreign investment from countries that have quickly recovered from the pandemic, says Adam Ho.

Adam Ho, managing director of the investment banking department of Asia Pacific Investment Bank, says Covid-19 continues to wreak havoc across the globe. As at August 19, there were 22.27 million confirmed cases globally with a mortality rate exceeding 3.5 percent. Malaysia’s situation is relatively optimistic with 9,219 confirmed cases and a mortality rate of about 1.35 percent.

Ho says that the pandemic has caused businesses globally to cease operating for months and posted an enormous challenge to governments and the people.

“Some economists expect the economic recession caused by the pandemic is more severe than that of 2008 Global Financial Crisis. Its impact on Southeast Asia is more detrimental than that of the 1997 Asian Financial Crisis,” he says.

Ho expects the global economy would take two years or longer to recover, depending on the performance of the world’s major economies including the US, Europe, Japan and China.

Malaysia, like many other smaller countries, is expected to face an uphill battle to recover from the economic depression in the post-pandemic period. It does not have a huge population to attract a large amount of foreign capital. The ongoing US, China trade war is also hurting its ability to generate continuous growth through export trade and private consumption.

“However, it is rich in natural resources and has a unique geographical location. The government can leverage these advantages to revive its economies,” says Ho.

Ho says there are three steps the Malaysian government should consider revitalizing its economy post-pandemic. Firstly, it needs to widen its fiscal deficit target to ensure the resumption of businesses in various key sectors and infrastructure projects. This would reduce the unemployment rate, stabilise economic growth and retain talent in the country.

Secondly, it needs to tap into the capital market for financing and actively promote merges, acquisitions and restructurings activities among natural resources companies, industrial manufacturing companies and small and medium enterprises, especially those in the trading and plantation sectors.

Thirdly, the Malaysian government needs to attract foreign investment from countries that have recovered rapidly during the post-pandemic period. “Malaysian can position itself to become an international trading hub by catering to the needs of the world’s leading export countries, especially North Asia countries including China, Japan and South Korea,” says Ho.

Commenting from the perspective of individual investors, Ho says they should adopt a more conservative approach post-pandemic. They should opt for fixed income products with principal guaranteed features and avoid high risk, high-yielding products.

In light of higher credit risk, he recommend high-net-worth investors to invest in sovereign sukuk and US dollar bonds issued by China companies.

“Cash is king in the post-pandemic era. No one knows exactly whether the global economy will rebound or whether another nightmare is waiting,” says Ho.

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