Malaysia: Building A Resilient Nation

By Christine Lim KUALA LUMPUR, Aug 29 (Bernama) -- After experiencing six consecutive quarters of slow growth, Malaysia will be aggressively pursuing its capital development projects and growth agenda, in shifting the economic trajectory to a higher gear. There is no doubt that 2016 will be a challenging year for the country amid the fragile global economic environment. But, it has to remain resolute and stride towards the finish line to achieve the goal of becoming a high income and resilient nation by 2020. Even in these challenging times, Malaysia has to hold its head high and stay focused on building its pillars of strength. This is, even while, raising governance standards, competitiveness, to ensure the country’s growth story of confidence and resilience remains intact. Malaysia’s Gross Domestic Product (GDP) growth of 4.0 per cent for the second quarter (Q2) of 2016 as compared to 4.9 per cent in Q2 last year, reflects the increasingly challenging global economic conditions with higher downside risks. Still, Fitch Ratings stated that Malaysia's "A-" rating reflected its strong net external creditor position with GDP growth that remained stronger than the median of "A" rated peers, and a current account that is still in surplus, though narrowing. The rating house forecasts Malaysia’s real GDP to increase 4.0 per cent in 2016 from a 5.0 per cent growth last year. Fitch stated that private consumption demand and continued spending on strategic projects by the government and state-owned enterprises is likely to support growth to counter some of the downside pressure from weak external demand. However, it has been reported that Malaysia’s structural indicators, especially income levels and standards of governance, are still a concern, in garnering a lot of negative attention. Other pressing issues include concerns of rising household debts and cost of living and expenses that are pressuring the people. Many, have to incur high level of debts to cover and sustain assets and expenses, such as housing and other living expenses. The weakening ringgit and slump in crude oil prices has also constrained the purchasing power of household income and restrained the government’s efforts at stimulating the economy. The government derives 20 per cent of its income from energy-based sources. According to the 2015 National Transformation Programme (NTP) Annual Report released by the Performance Management and Delivery Unit (PEMANDU), Malaysia’s Gross National Income (GNI) per capita is estimated to drop to US$10,110 in 2015 from US$10,760 per capita in 2014. The lower GNI per capita is also due to an average exchange rate in 2015, factoring currency devaluation against the US dollar in the second half of 2015. In the report too, the World Bank defined a high-income nation as having a minimum GNI of US$12,475 for the year 2015. To gain its status as a fully developed and high-income nation, Malaysia has to embrace innovation and boost competitiveness. It is especially crucial to seek other sources of income and effectively reduce the dependence on oil-based resources. This is to enable the economy to move in a sustainable pace, in view of the downside risks of falling crude oil prices. Private sector activity, which has expanded at a steady pace, is also expected to remain the key driver of growth. This is because investments will be supported by implementation of infrastructure projects and capital spending in the manufacturing and services sectors. The NTP annual report pointed that despite the need to review the country’s Budget 2016 and buffer against the possibility of a global recession, the 1government is not cutting back on capital development projects. Some of the larger projects such as the Mass Rapid Transit (MRT) development and Pengerang Integrated Petroleum Complex (PIPC), are expected to continue even with the slowing economy. The iconic Malaysia-Singapore High Speed Rail (HSR) project signed recently between Malaysia and Singapore, is also expected to spur cross-border investment between the two Southeast Asian cities when it becomes operational in 2026. The government has been commended for taking the right measures in building fiscal resilience and effectively diversifying the economy. From a commodities-based resource nation, Malaysia has raised its stature prominently in the manufacturing industries, namely, the electrical and electronics (E&E) sector which has propelled it towards an upper-middle income nation. Malaysia is now known to be one of the world’s leading exporters of semi-conductor components as well as information, communications and technology (ICT) products. It has also successfully crafted its niche in the finance sector, namely, as a premier hub for Islamic Finance. It was indeed known as a Tiger economy of Asia until the onset of the 1997/98 Asian Financial crisis, caused mainly by currency speculators and an exodus of credit which led to a financial meltdown. Malaysia took steps to insulate the economy during the crisis through the implementation of capital controls, including the ringgit peg, which provided some level of certainty and stability to investors. International rating agencies acknowledged that Malaysia would maintain a steady growth path, underpinned by exports of manufactured products and private consumption and investment. Since 2013, Malaysia has remained in the fiscal safe zone with the fiscal deficit reduced to 3.2 per cent of GDP as of last year from 5.4 per cent in 2010, in line with the target. Malaysia’s public debt at 54.5 per cent of GDP, is below the 55 per cent threshold. In April 2015, the Goods and Services Tax (GST) was implemented, providing a buffer for the government in view of lower revenue from oil-related income with the persistently weak crude oil prices. Subsidy rationalisation has also provided greater fiscal resilience, while the government remained focus on its commitment to boost economic growth and support for local businesses. "As markets liberalise and the Trans-Pacific Partnership looming into view, local businesses must find ways to build top notch products and services that can stand the test of competition. "On its part, the government will continue to facilitate and create a conducive environment for businesses to thrive," said to the NTP report. Another challenge involves putting in place a good framework to govern political funding in Malaysia as part of efforts to ensure a level-playing field in politics. "The setting up of the National Consultative Committee on Political Funding in August 2015 provides some assurance, but more work has to be done and this effort continues," the report stated. Thus, it is now crucial for structural policies to be adopted that can spur Malaysia's growth story. Malaysia needs to have the mettle to accomplish this. For the 59th Merdeka (Independence) Day celebration, let's wave the flag high for a resilient and prosperous nation. Let's keep our hopes high for a successful nation! -- BERNAMA