The former second finance minister told FMT: “Malaysia’s economy needs a great reset, and it will not be determined by one annual budget as some structural economic issues have been around even before the Covid-19 crisis hit us.”

Ahead of the tabling of Budget 2022 this afternoon by finance minister Tengku Zafrul Aziz – his second so far – Johari suggested a tempering of expectations.

The Umno Supreme Council member also advised the government to provide sound leadership and a clear direction to overcome the structural problems dragging down the economy.

Otherwise this budget will turn out to be just another exercise that promises much and delivers little.

One of the biggest issues that needs to be addressed – the elephant in the room – is operating expenditure.

Johari observed that the government’s ability to introduce new programmes and initiatives was limited because more than 90% of the operating expenditure remained committed expenditure – such as civil servants’ salary and pension, government debt servicing charges, government supplies and services, and subsidy spending.

“With fiscal deficit expected to reach as high as 7%, higher than the previous forecast of 5.4%, the fiscal room for the government to manoeuvre, is constrained and limited due to the fiscal rules where operating expenditure can only be financed by revenue and government borrowings can only be used to finance development expenditure.”

While government expenditure keeps increasing, its revenue has been flatlining. Revenue raised last year, for instance, was RM225 billion, similar to what the government raised in 2017.

With limited space to introduce new taxes, Johari said, the government would have to resort to more borrowings as evidenced by the level of debt to GDP which had been raised to 65%, and the total increase in government debt from RM680 billion in 2017 to RM975 billion last year – an increase of RM295 billion in a span of three years.

This excludes off balance sheet debts that are estimated to be around RM300 billion.

He also noted a troubling indicator of the state of the economy: the private sector, often touted as the engine of growth, has been spluttering, more so after the Covid-19 pandemic.

For instance, on average the private sector creates around 100,000 jobs every year, at the same time about 300,000 graduates enter the labour market each year and they have to compete for the limited opportunities.

Malaysia, Johari lamented, used to be the preferred destination for foreign direct investments (FDI) in the Asean region but today neighbours such as Indonesia and Vietnam had left Malaysia trailing behind.

FDI inflow into each of the countries was more than US$15 billion last year, whereas Malaysia only managed to secure US$3.5 billion.

Johari said Malaysia was the third largest economy in Asean behind Indonesia and Thailand post the global financial crisis of 2008 but today the country had been surpassed by even the Philippines and Vietnam. Malaysia’s annual average GDP growth of 3.9% between 2008 and 2020 was the slowest in the region.

“Malaysia is also lagging in terms of GDP per capita growth, with average annual growth at only 1.9% between 2008 and 2020, whereas other countries in this region enjoyed a robust average growth.”

Indonesia had average growth of 6.5%, Thailand 5.3%, Philippines 5.5%, Vietnam 11.9%, Myanmar 10%, Cambodia 8.6% and Laos 16% during the same period.

Johari said Malaysia’s GDP per capita was more than double that of China’s 12 years ago but last year China’s GDP per capita stood at US$10,500 whereas Malaysia’s was US$10,400.

“This is very impressive considering that they have a population of 1.4 billion compared to Malaysia’s population of just 32.4 million,” Johari said.

Domestically, key economic indicators such as unemployment show that total unemployed persons rose from 500,000 before Covid-19 struck to as high as 825,000 in 2020, meaning 325,000 people lost their jobs.

The current number of unemployed stands at 750,000 persons, which means only 75,000 persons re-entered the workforce and the rest remain unemployed.

Johari said 202,400 graduates were unemployed in 2020 compared with 165,200 in 2019, suggesting that unemployment among graduates was a structural issue because it was already high before the Covid-19 crisis.

Covid-19 has hit the household hard as the poverty rate increased from 5.6% in 2019 to 8.4% in 2020, with the income of more than 200,000 households falling below the national poverty line of RM2,280.

Household debt to GDP in 2020 hit a record high of 93.3% compared with 82% in 2017, indicating that low-income households remain stretched financially.

“All these structural issues need a reset in strategies that one annual budget cannot solve and the government needs to provide a clear leadership to overcome this,” he added.