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Are red lights flashing for our economy?

  • The struggle to achieve the budgetary deficit target of 2.8% of GDP could be very challenging.

By Tan Sri Ramon Navaratnam

Moody's Investors Service, the reputed international rating agency, has flashed red lights about the likely emerging weaknesses in our economy.

This warning has come so close on the heels of our Budget 2018 speech by our prime minister last Friday.

Moody's has given us a rating of A3 with a stable outlook. This is good except for the fact that it also highlights the following warning red lights:

1. Moody's is not optimistic that the Budget forecast of 5 -5.5% growth will be achieved, and instead thinks that 5% growth is more likely.

This lower rate of growth projected by Moody's means that there will be some slowdown in economic activities, with implications of lower incomes and higher unemployment.

Let's take heed of this red light!

2. Moody's cautions that our Budget revenues as a share of our gross domestic product (GDP) is among the lowest in its rating category of A3. It highlights the fact that the 2018 Budget has no new tax proposals, and we are thus depending on just natural growth of revenues estimated to continue to decline to 16.6% in 2028 from 21.4% in 2012.

This is not healthy. Should we tax the higher income groups more?

Even this lower proportion of tax to GDP may not be realized, as commodity prices and the world demand for our exports may not rise as much as expected . What if commodity prices decline to lower than our projections, like for oil and gas and palm oil?

3. On the other hand, the Budget expenditures have been significantly raised in the so-called election budget, especially the operating expenditures, while still maintaining the high development expenditures.

4. The Budget could therefore come under considerable strain. The struggle to achieve the budget deficit target of 2.8% of GDP could therefore be very challenging. This would be a red light signal for the not only the health of our budget but the economy as well.

5.The debt which is now estimated at 51.5% of GDP for 2018 could rise further to finance a worsening budgetary current account deficit. Already, Moody's has warned that this debt rate is much higher than the A- rated median of 40.9 %for 2017.

Is this another red light warning to caution us to be more careful lest we get downgraded by Moody's from the current rating of A3?


The Moody's report on our economy is analytical and frank. It highlights some red light warnings as to what our budget and economic weaknesses are and the challenges we face.

It is good that we have independent and competent international rating agencies, the World Bank and IMF, to give us objective, though sometime subtle, advice.

Hopefully we will take heed and be guided by their views, taking into account our own concerns which only we can fully appreciate and act accordingly.

But red lights must not be ignored, or we will run the risk of serious accidents!

(Tan Sri Ramon Navaratnam is the Chairman of ASLI Center for Public Policy Studies.)


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