The Star
24 Dec 2017
THE going has been good for the Malaysian economy.
The World Bank and the International Monetary Fund have given us good reviews. International rating agencies are happy with the Government’s financial discipline and reforms in its economy.
Malaysia’s economic growth in recent quarters has surpassed expectations, while the ringgit is improving. The country’s stronger economic position is evidenced by its ability to withstand structural and policy changes that took place at the global stage in the last two weeks.
In the past, when the United States announced major structural changes to its economic and monetary policies, Asian countries, especially Malaysia, would feel the effects. As the saying goes, when the United States sneezes, Asia catches a cold.
In the last two weeks, the United States and other advanced countries made structural changes to their policies, but these did not affect Malaysia and other countries in the region.
The United States announced major tax reforms, cutting its corporate tax rate from 35% to 21%. Another anchor to its tax reforms is incentivising companies such as Apple and Google to repatriate their overseas earnings.
US companies hold more than US$1.5 trillion (RM6.1 trillion) outside the country. Imagine if some or all of that money goes back to the United States – the dollar would strengthen and the ringgit would suffer. But nothing happened.
Two weeks ago, three major central banks – the Federal Reserve of the United States, European Central Bank and Bank of England – made major policy changes towards increasing interest rates next year.
In the past, the mere mention of the United States and other developed countries raising interest rates would have rattled currencies in developing economies. The ringgit would have gone into a tailspin, while the stock market would have seen a major sell-off.
But Malaysia, like many other countries in the region, sailed through the period without upheavals. It is easy to see why.
Malaysia’s exports are growing, contributing to a healthy trade surplus. Crude oil prices are trending higher, which means the Government could potentially have more money at its disposal.
The ringgit, which is among the best performing currencies in Asia, is stable and improving amidst rising foreign international reserves.
Over the years, the Government has kept its promise to the international rating agencies to reduce subsidies and reform the economy.
However, the reforms have also increased the cost of living. The average salaries are not enough to keep up with the higher prices of goods, especially in urban areas. The common complaint is that while the headline numbers are glowing, the man on the street does not feel the impact.
This is because of uneven growth in the economy. Some industries such as exporters, manufacturers and companies dealing with the gig economy are thriving. People working in these industries are able to earn higher wages.
But other segments such as property developers, media companies and steel producers are suffering due to the structural changes to their operating environment.
Companies operating in these sectors have less financial flexibility to adjust wages of their workers.
The Government, in recognizing the situation, has announced measures such as reduction in income tax in the Budget 2018 to put more money in the hands of households. More such measures are needed and there is a window of opportunity in the next two years.
Malaysia, being an open economy, can only continue with its reforms as long as the global situation permits. In the next two years, all the major economies such as the United States, Europe and Japan are expected to see growth.
It is not often that we see synchronized growth among all developed countries. This is a window of opportunity to continue with the economic reforms despite the noises.
