Feeling the pinch of the transition (Part 1) ― Firdaos Rosli and Dwintha Maya Kartika

AUGUST 11 ― This article refers to a write-up by Syed Jamal Zahiid entitled “Feeling the pinch? It’s not just because of higher cost of living”.

To begin with, factors surrounding the cost of living is indefinite as they somewhat differ in one market than in another. According to the Worldwide Cost of Living Survey by The Economist in March this year, Kuala Lumpur was ranked at 100th position alongside Muscat, Colombo, Jeddah and Casablanca, while Singapore retained the top spot.

Does this mean that a RM5 bowl of noodle soup in Kuala Lumpur is “cheaper” than a similar good priced at SGD5 (RM15) in Singapore? What about other goods or services that you can maximise with SGD5 or RM5? Will your standard of living be any different with a paycheck of SGD5,000 in Singapore than one with RM5,000 in Kuala Lumpur?

In the Malaysian context, the authors can safely assume that the debate relating to the cost of living seem to gravitate only towards income and prices of goods perspectives. There is a whole range of issues that we need to consider before agreeing on a policy option.

Let us put on record that the Malaysian economy is now in transition. It aspires to be a high income nation by 2020 and a lot more must be done before that target can become a reality. From the government’s perspective, it essentially means that resources must be recalibrated to move in tandem with the global economy. For businesses, adjustments would have to be made so that being in business is no longer about minimising costs but maximising profits. Households, on the other hand, are forced to deal with a new normal that we can no longer live in a low-cost environment.

Our economy is dichotomous. On the one hand, the export sector is exposed to changes in the global economy. But on the other hand, the domestic economy has been heavily shielded from the global market through government control in prices of goods and services.

There are not many governments who are fiscally efficient in managing its subsidies.

Unfortunately, we are not the privileged few and the government has been restructuring its finances in a large scale. The Asian Development Bank’s 2012 report on Social Protection found that Malaysia spent more than poverty line expenditure (108 per cent of poverty line) on each beneficiary but its efforts stretched to only 14 per cent of eligible beneficiaries. In other words, some subsidy recipients benefited from overlapping subsidies while others had to take the hit on mounting prices. Clearly, there is a need to relook at how subsidies are given in entirety rather than focussing on a few big items.

In addition to overlapping subsidies, the government has introduced numerous initiatives to address the rising cost of living of urban areas but real impact is negligible. Most recently, specific measures were introduced in the 2016 Budget Recalibration but none of them are sustainable in the medium to long run.

Since the Global Financial Crisis 2007/2008, reforms in policies related to subsidies, public service salary scheme, the GST and an overall increase in various state-led services are the key factors that have been pushing prices (including median income) upwards. As a member of the Trans-Pacific Partnership, many of Malaysia’s decades-old policies will have to be reformed and this will ultimately push both prices and income to a much higher level.

Our economy has been shielded from the global environment for far too long. When policies are beginning to be aligned with the global standards in a relatively short period of time, a lot of us are feeling the burden of continuous adjustments due to the persistent changes in the Malaysian economy.

As Malaysia is transitioning, we may expect a rise in prices of goods and services on those which have been controlled by the government. The gap between the present state and a well-reformed Malaysia will continue to be filled with short-term policies for a smoother transition. These “policy fillers”, however, are not recommended to become a permanent policy.

The authors believe that policy options must be viewed holistically in three major areas; namely, one, factors affecting the prices of goods and services; Two, factors leading to spending patterns of Malaysians; and three, the value of ringgit. Let us explore some policy options in the upcoming article.

* Firdaos Rosli is a Fellow of Economics at the Institute of Strategic International Studies (ISIS) Malaysia.

** Dwintha Maya Kartika is an Economics analyst at the Institute of Strategic International Studies (ISIS) Malaysia.

*** This is the personal opinion of the writer or publication and does not necessarily represent the views of Malay Mail Online

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