Malaysia’s Finance Minister Tengku Zafrul on the ‘Bendera Putih’ campaign, job losses and standing for election

• With Malaysia’s health care system heaving from the rise in Covid-19 cases, the soaring vaccination rate is giving hope that things can be brought under control
• But can Malaysia’s ‘less than ideal’ political dysfunction be overcome to get the country out of an unprecedented crisis?

Bhavan Jaipragas, SCMP

Malaysia’s Finance Minister Tengku Zafrul Abdul Aziz spoke to the South China Morning Post on a wide range of issues concerning the National Recovery Plan, a four-phase road map for the country to progressively reopen its economy by the end of the year.

While Malaysia’s heaving health care system is under pressure as the daily Covid-19 caseload remains stubbornly near record levels, a soaring vaccination rate is giving hope that the situation can be brought under control in months.

Prime Minister Muhyiddin Yassin meanwhile is also heading off political troubles, with key allies the United Malays National Organisation (Umno) recently indicating it no longer backed his ruling Perikatan Nasional alliance.

Zafrul, 48, was the former group chief executive of Malaysia’s CIMB Bank, before he was roped in by Muhyiddin last year as finance minister.

Below is an edited transcript of highlights from the interview. Some sections have been edited for clarity.

With the current political dysfunction, will the government last beyond 2021?

If you look at where we are today, if you want me to be very honest, it is of course, politically less than ideal. But the focus of this government, myself included, is to win the war against the current Covid-19 pandemic. We are facing a health crisis and an economic crisis. So the continued focus of the government is towards achieving what we intended to achieve under the National Recovery Plan.

For practical terms, does the government have parliamentary support to pass supply bills, including the upcoming budget?

Stability is important. We have shown that for the past decades since independence, Malaysia politically has been very stable. This has obviously opened Malaysia for investments to come in. But going forward, the challenges that we face today, politically, like I said, are less than ideal.

We need stability and I hope that going forward, the political parties can work together, especially during this pandemic where we are, like I said, facing a dual crisis. An economic crisis as well as a health crisis. What we don’t need is a political crisis.

Do you think you have to address a trust deficit among the public before you are able to execute the National Recovery Plan?

About a trust deficit, I think at the end of the day, it’s how we execute the plans that we have announced. To give an example: people were also very sceptical when we first announced our vaccination strategy. We said that we can go up to 200, 300, 400,000 [doses per day] in a matter of weeks, and we have achieved that, but when we first announced that, obviously, people were sceptical, and you know, people thought that we couldn’t achieve it.

Similarly when we talk about trust deficit, the other initiatives are also similar. We need to prove that we can execute. So let’s wait and see. I’m quite optimistic, although cautiously optimistic, that we can achieve what we set out to do, especially in combating the pandemic of Covid-19.

Have you been too cautious with direct fiscal injections?

I don’t think we are too cautious. When you look at the deficit, the highest ever was in 2008-2009, the deficit at the time was 6.7-6.9 per cent. And even during the parliament session last year, I announced that the deficit target will be around 5.4 per cent. And today, in February, I announced again it will be 6 per cent. And with the recent stimulus packages that we have announced, I believe the deficit will go up to 6.5 to 7 per cent. So it shows the government is ready to increase fiscal space should we need to support the economy and the people.

The direct fiscal injection is something like 6 per cent of GDP. Some of your critics say this is too low as you have a lot more fiscal head space and can borrow more. Are you being incrementalist in your approach? What’s the thinking behind your current approach?

Well, you have to look at it holistically. You must understand the fiscal position of the country. Today we have a deficit that is going to reach 7 per cent. It’s also not about the size of the deficit. It’s the ability to borrow and the size of the reserves. So Malaysia as you know, although we are A-rated, we in terms of our fiscal reserves smaller than many other A-rated countries. The only difference is that we have strong growth prospects.

So when we look at where we are today, we do tap into other parts of the government’s ecosystem. We get assistance from the central bank, EPF [national provident fund], the banks giving moratorium. If you look at the moratorium that we have offered to Malaysians today, both private and companies, you can’t get it anywhere in the world. It is so streamlined and so focused. We have a strategy there.

And at the end of the day, what’s important is whether it’s adequate and I feel that what support the government has given, given the fiscal constraints that we have, is adequate. You must also look at our debt service coverage ratio and you must also look at the liquidity of the domestic institutions today.

Does the White Flag or Bendera Putih campaign aimed at helping those who are in economic despair suggest the government’s stimulus packages are not working?

No, I don’t believe so. If we look at this, we have addressed some of those issues by ensuring that all the elected representatives are given allocation to support their constituency. In fact the government has itself launched a food programme and has been with all segments of society, the NGOs, the opposition, because it is tough times and you must remember there will be pockets of our community, especially the vulnerable segment of society, that still need help.

And we will focus on that. We have got another 10 billion ringgit of fiscal injection, of cash support, directly to Malaysians. We have seen 5.8 million Malaysians receive this aid. I am not saying that there might be pockets of people who we may miss out but we are there to learn from our mistakes and make sure that everyone does get the support that is required.

Official figures show unemployment dropped from 5.3 per cent in May last year to 4.5 per cent 12 months later. How do you square that off with reports of massive job losses?

OK, I will be very brutally honest here. The 5.3 per cent was the peak in the first lockdown [last year], which was a total lockdown. Our GDP in that second quarter of last year went down by 17.1 per cent. It was the highest unemployment rate ever for Malaysia. And then we also had various initiatives in our packages, reskilling, upskilling. Wage subsidies also helped – 2.8 million Malaysians actually benefited from this directly through the subsidy for their wages. Then we can see the economy improve in the third quarter, fourth quarter of 2020. And in the first quarter of 2021 as well, was a negative 0.1 per cent GDP number, which is really a flat number. It was a big swing from where we were at, negative 17.1 per cent.

So of course unemployment was going down. So [4.5 per cent unemployment] was actually in May, that was before the [current] total lockdown. I don’t know for sure, but looking at what’s happening on the ground, I believe that number will go up because that was as of May.

Another point you need to factor in is that [the official unemployment rate] refers to the formal economy. Malaysia as you know has a big informal economy where the numbers [may not capture] those employed in these sectors. These are the mom and pop stalls out there. In short, I think the numbers will go up even in the formal sector and the current figures don’t take into account the informal sector.

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