MAN­AG­ING RISKS

THE In­ter­na­tional Mon­e­tary Fund ac­knowl­edges Malaysia’s re­silience against head­winds and sug­gests that the gov­ern­ment pub­lish an an­nual list of con­tin­gent li­a­bil­i­ties to fur­ther build pub­lic con­fi­dence.

New Straits Times - - Business - RUPA DAMODARAN KUALA LUMPUR ru­pa­banerji@me­di­aprima.com.my

The bal­ance sheet’s strength, the flex­i­ble ex­change rate and cred­i­ble in­sti­tu­tions like Bank Ne­gara Malaysia can sup­port eco­nomic re­silience.

MITSUHIRO FURUSAWA Deputy man­ag­ing di­rec­tor, In­ter­na­tional Mon­e­tary Fund

THE In­ter­na­tional Mon­e­tary Fund (IMF), which is ex­pected to ap­plaud Malaysia’s re­silience against head­winds in an up­com­ing re­port, has sug­gested that the gov­ern­ment pub­lish an an­nual list of po­ten­tial risks to the na­tion’s fi­nances.

Such a list of con­tin­gent li­a­bil­i­ties had been ef­fec­tive in many coun­tries to help ap­pease pub­lic fears on the high pub­lic debt level and build pub­lic con­fi­dence, said IMF deputy man­ag­ing di­rec­tor Mitsuhiro Furusawa.

In ac­count­ing, a con­tin­gent li­a­bil­ity is recorded if the con­tin­gency is prob­a­ble and the amount of the li­a­bil­ity can be rea­son­ably es­ti­mated.

“Con­tin­gent li­a­bil­i­ties are rel­a­tively high for Malaysia, so it is im­por­tant that the au­thor­i­ties care­fully mon­i­tor the risks,” he told NST Busi­ness in a re­cent in­ter­view.

Furusawa said the list could be in­cluded in the gov­ern­ment’s fis­cal bud­get re­port prepa­ra­tions as an ap­pen­dix, or as sep­a­rate reports, and used to de­velop risk mit­i­ga­tion strate­gies.

He lauded the gov­ern­ment for set­ting up the fis­cal risk and con­tin­gent li­a­bil­ity tech­ni­cal com­mit­tee in May last year to eval­u­ate Malaysia’s fis­cal risks and con­tin­gent li­a­bil­i­ties as well as come up with ap­pro­pri­ate mea­sures.

IMF con­sid­ers con­tin­gent li­a­bil­i­ties as one of the largest sources of fis­cal risks and fis­cal dis­tress.

Malaysia’s cur­rent debt bur­den is around 53 per cent of the gross do­mes­tic prod­uct (GDP).

“(Malaysia’s) progress in fis­cal con­sol­i­da­tion ef­forts is good and it is quite im­por­tant the au­thor­i­ties, hav­ing an­chored that in the medium fis­cal pol­icy of achiev­ing near bal­ance fed­eral bud­get by 2020, con­tinue to make progress to­wards this ob­jec­tive,” said Furusawa.

He held a se­ries of meet­ings af­ter ar­riv­ing in Malaysia last Wed­nes­day be­fore leav­ing for Sin­ga­pore on Fri­day.

An IMF mis­sion had con­cluded its an­nual as­sess­ment of Malaysia in its an­nual Ar­ti­cle IV con­sul­ta­tion visit, and the re­port will be up for dis­cus­sion by the ex­ec­u­tive board in two weeks.

“De­spite the head­winds, Malaysia con­tin­ues to per­form well, sup­ported by the re­silience which I men­tioned ear­lier and by a di­ver­si­fied econ­omy, flex­i­ble ex­change rate, sound macro econ­omy poli­cies and cred­i­ble in­sti­tu­tions,” said Furusawa, who has served as spe­cial ad­viser to Ja­panese Prime Min­is­ter Shinzo Abe and the Ja­panese fi­nance min­is­ter pre­vi­ously.

IMF’s pro­jec­tions are for a mod­er­ate pick-up in Malaysia’s eco­nomic ac­tiv­i­ties this year, with the econ­omy ex­pected to grow by 4.5 per cent.

On risks, Furusawa said they also em­anated from global growth risks such as com­mod­ity prices, po­lit­i­cal ten­sions and un­cer­tainty, and the cur­rent in­ward-look­ing trend.

“Asia is right now a global en­gine and re­mains a growth cor­ri­dor. It is ex­cit­ing times to work with coun­tries in the re­gion,” said Furusawa, who over­sees 92 of the 189 IMF mem­ber coun­tries since he took of­fice two years ago.

The in­fra­struc­ture boom au­gurs well for the re­gion as in­vest­ments will boost pro­duc­tiv­ity and growth, while trade re­mains a sig­nif­i­cant en­gine of growth for coun­tries like Malaysia.

Asked about risks to emerg­ing mar­kets as the United States econ­omy got back on track, Furusawa said the de­tails and spe­cific pro­cesses of United States Pres­i­dent Don­ald Trump’s ad­min­is­tra­tion had to be stud­ied for their im­pli­ca­tions.

“For Malaysia, the bal­ance sheet’s strength, the flex­i­ble ex­change rate and cred­i­ble in­sti­tu­tions like Bank Ne­gara Malaysia can sup­port the re­silience of the econ­omy from ex­ter­nal shocks,” he added.

A flex­i­ble ex­change rate stands as the first line of de­fence while the in­ter­na­tional re­serves in cen­tral banks can be used in the case of dis­or­derly fi­nan­cial con­di­tions.

The in­fra­struc­ture boom au­gurs well for the re­gion as in­vest­ments will boost pro­duc­tiv­ity and growth, while trade re­mains a sig­nif­i­cant en­gine of growth for coun­tries like Malaysia.

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