COMMENT | Recessions are usually defined as two continuous quarters of economic contraction. It has been some 30-odd years since Malaysia has had that, the last being in 1985. Not bad for a country of 20 million then which has since grown to have a population of 32 million.

Although the World Bank affirmed that Malaysia's economic growth will be 4.9 percent in 2019, what is less said is that this is two to three times higher than the anaemic growth rate of all the 27 member states of the European Union (EU).

When Britain is out of the EU by March 2019, the total number of member states will become 26. It will also be led primarily by France and Germany.

The latest election in Germany shows that Chancellor Angela Merkel is no longer the favourite leader of Germany. More and more Germans are reacting harshly against her decision to accept one million Syrian refugees in 2015.

Given such a mood across Europe where the far right has gained the ability to win at least 30 percent of the votes in France, it will be a long time coming before EU can become a strong and stable economic regional grouping; the far right used to get only one per cent of the votes in 1970.

Malaysia does not have a large demography like Indonesia. The latter has close to a quarter of a billion people now. But with reserves of US$101 billion which can sustain imports of up to seven months, Malaysia is not without the means to defend its ringgit. What Malaysia should be careful of is a twin deficit.

A twin deficit happens when imports exceed exports while concurrently we are unable to balance our annual budget. But the Pakatan Harapan government seems ready to balance the budget by 2020 or at the latest by 2021.

Without a twin deficit, the revenue obtained through exports and various revenue streams cannot flow out easily. The commitment to repay the debt of 1MDB as well as the national debt of RM1.09 trillion appear sufficiently good enough to pacify the three leading credit rating agencies in the world.

Moody's, Fitch and Standards and Poor's have not shown any sign of reducing the credit rating of Malaysia. With an A3 rating from Moody's, Malaysia fiscal standing appears solid.

It helps to have seen a bloodless transition on May 9 too, with Prime Minister Dr Mahathir Mohamad's economic philosophy not drastically different from his future successor Anwar Ibrahim's. The synergy and continuity remain there.

The fundamentals of the Malaysian economy remain sound but they were spooked by the sudden change in government on May 9 as there was a pull out of some US$200 billion from the Kuala Lumpur Stock Exchange. That process has now stopped, if not totally reversed.

Time to buck-up

What Malaysia needs to do now is to overcome the over-leveraged position of some of the government-linked investment companies (GLICs).

With seven of them to date, they have spawned some 900 government-linked companies (GLCs). All 900 of them affect some 70 percent of the public-listed companies of the Kuala Lumpur Composite Index.

Indeed, there are another 94 bumiputera development agencies that have spawned yet another 1,170 companies under the federal government and the various states. These agencies need to be lean and mean without which they cannot be useful to the agenda of bumiputera empowerment.

If the business of government is to "get out of the business" as asserted by Finance Minister Lim Guan Eng, then the future privatisation process in Malaysia has to be guided by strict e-procurement where artificial intelligence alone will decide the fairness and the legitimacy of a tender.

In this sense, the role of Parliament, as a check and balance to the executive arm of the government, is extremely critical.

Without the various parliamentary select committees to look into the intricacies of each ministry, the excessive powers of the secretaries-general and their directors-general cannot be checked and curtailed.

When government civil servants, either at the tail end of their service or soon after retirement can game the whole Malaysian economy in their favour, then Malaysia will not have an authentic economy to adapt to the new demands of the global economy.

The new global economy is driven by artificial intelligence - apps, algorithms, automation and big data analytics. Unless Malaysia is well-equipped in all of the above (which it isn't), any perturbation in the global economy is bound to have a huge impact on us.

The Sino-US trade war will result in a tit-for-tat. While some Chinese companies can relocate themselves to Malaysia and Asean, the process of relocation will take time. Come what may, as a trading state, Malaysia can and will be bushwhacked in the future by a full-scale global economic recession.

Thus it is vital that Putrajaya keep its eye on financial and fiscal reforms. Malaysia cannot avoid a recession if there is a global one. But Malaysia can cushion the scale and intensity of future government debt.

Indeed, the world has piled up on its debts over the last 10 years alone. According to the Geopolitical Futures, the entity believes that global debt has reached US$47 trillion. At US$280.6 billion, the national debt of Malaysia insignificant relative to the global debt. But it can still be lashed by the deflationary forces of global recession.

Granted that four in 10 persons will retire without any pension at a time when Malaysia begins to age in 20 years, policymakers need all the urgency they have to avert a national disaster.

As things are, 80 percent of the Malaysian GDP is already controlled by the top 20 percent of the people on the food chain. If this income chasm continues to widen, the Malaysian economy will have pockets of relative and absolute poverty across the country.

It is time to buck up before the economy buckles.

PHAR KIM BENG is a multiple award-winning head teaching fellow on China and the Cultural Revolution at Harvard University.

The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.