Fund com­mends re­silience of na­tional econ­omy

New Straits Times - - Opinion - The writer is an in­de­pen­dent Lon­don-based econ­o­mist

AS far as mid-term re­ports go, the Ar­ti­cle IV Con­sul­ta­tion on Malaysia, which the In­ter­na­tional Mon­e­tary Fund (IMF) re­cently re­leased, is an en­cour­ag­ing re­port card.

This sug­gests a stu­dious stu­dent who is cop­ing with ex­ter­nal shocks and steadily man­ag­ing the home front.

In­deed, the medium-term out­look is “steady as she goes” with the usual caveats of “con­tinue the hard work” and “room for im­prove­ment” to head off po­ten­tial ex­ter­nal head­winds, and to sus­tain sound man­age­ment and mon­i­tor­ing of in­ter­nal chal­lenges. All this is aimed at lay­ing the plat­form for the cov­eted prize of Trans­for­masi Na­sional 2050 (TN50), the 30-year flag­ship of na­tional de­vel­op­ment ini­tia­tive of Prime Min­is­ter Datuk Seri Na­jib Razak which spans the pe­riod 2020-2050.

The TN50 pol­icy doc­u­ment will only be pub­lished in early 2020, but con­sul­ta­tions on the eco­nomic, so­cial, cul­tural and en­vi­ron­men­tal tar­gets that Malaysia aims to achieve by 2050, thus trans­form­ing it into a higher in­come pro­duc­tiv­ity-driven and knowl­edge-based econ­omy, have al­ready be­gun.

The IMF ex­ec­u­tive board of di­rec­tors can be highly opin­ion­ated, in­trin­si­cally tech­no­cratic, top-down pre­scrip­tive and ob­ses­sively mar­ket-ori­ented al­most at any cost, in the pur­suit of its sur­veil­lance of its mem­ber coun­try gov­ern­ments, es­pe­cially in their stew­ard­ship of their re­spec­tive economies and fi­nan­cial sec­tors.

This re­la­tion­ship, how­ever, is oft tem­pered by the ex­tent of fi­nan­cial and po­lit­i­cal clout (dis­played through tantrums) of any given mem­ber coun­try.

IMF di­rec­tors com­mended the re­silience of the Malaysian econ­omy, “which re­flects sound macro-eco­nomic pol­icy re­sponses in the face of sig­nif­i­cant head­winds and risks”.

“While Malaysia’s eco­nomic growth is ex­pected to con­tinue this year, weaker-than-ex­pected growth in key ad­vanced and emerg­ing economies or a global re­treat from cross-bor­der in­te­gra­tion could weigh on the do­mes­tic econ­omy.”

While real gross do­mes­tic prod­uct (GDP) growth slowed down, Malaysia is still among the fastest-grow­ing economies among peers.

Real GDP growth is pro­jected at 4.5 per cent in 2017, ris­ing to 4.7 per cent in 2018 and up to 5 per cent in the medium term.

IMF poli­cies are not a panacea for solv­ing the prob­lems of its mem­ber coun­tries, es­pe­cially emerg­ing coun­tries.

If it were, then we would be liv­ing in a global eco­nomic nir­vana, with IMF serv­ing as the ul­ti­mate or­a­cle of knowl­edge.

In­deed, IMF had it badly wrong on sev­eral oc­ca­sions in the past — the 2008 fi­nan­cial cri­sis, the near col­lapse of the Eu­ro­zone, the Asian fi­nan­cial cri­sis of 1998, the struc­tural ad­just­ment pro­grammes (SAPs), which the World Bank/IMF used to foist on hap­less de­vel­op­ing coun­tries with the threat of no as­sis­tance if they re­fused to agree to them.

In the ab­sence of any im­me­di­ate al­ter­na­tives (al­beit one may be on the hori­zon in the form of the Asian In­fra­struc­ture In­vest­ment Bank, which was launched in 2014 and is al­ready dubbed as Bei­jing’s at­tempt at cre­at­ing a “new World Bank”, the IMF/World Bank has dom­i­nated as the gate­keeper/po­lice­man of the global econ­omy and fi­nan­cial or­der since its es­tab­lish­ment in July 1944 from the ashes of World War II as the so-called Bret­ton Woods In­sti­tu­tions.

In re­sponse to the con­sul­ta­tion and the ob­ser­va­tions of the IMF di­rec­tors, the Malaysian au­thor­i­ties, while agree­ing to many of the rec­om­men­da­tions, re­it­er­ated that IMF has an im­por­tant role to play, but called on it to be more flex­i­ble and di­ver­si­fied in its ap­proach.

Asian coun­tries re­mem­ber the 1998 fi­nan­cial cri­sis was, in part, pre­cip­i­tated and ex­ac­er­bated by the spec­u­la­tive ac­tiv­i­ties of for­eign fund man­agers in­clud­ing the likes of Ge­orge Soros, which put lo­cal cur­ren­cies un­der se­vere pres­sure.

Re­cent ring­git volatil­ity, es­pe­cially to the US dol­lar, re­mains a con­cern, and is ex­pected to per­sist in the im­me­di­ate fu­ture.

Bank Ne­gara Malaysia’s pol­icy is aimed at act­ing as a shock ab­sorber, but Putrajaya has blamed this volatil­ity partly on the spec­u­la­tive ac­tiv­ity in the ring­git off­shore non-de­liv­er­able for­ward (NDF) mar­ket which had a dis­pro­por­tion­ate and detri­men­tal im­pact on the ring­git on­shore mar­ket.

Not sur­pris­ingly, di­rec­tors urged vig­i­lance and con­tin­ued ef­forts to strengthen pol­icy buf­fers and boost long-term eco­nomic growth.

They agreed that Malaysia’s medium-term fis­cal pol­icy is well an­chored on achiev­ing a near-bal­anced fed­eral bud­get by 2020, and noted that the bank­ing sec­tor is sound over­all and that fi­nan­cial sec­tor risks ap­pear con­tained, while in the cor­po­rate sec­tor, there are emerg­ing vul­ner­a­bil­i­ties in some sec­tors.

Al­though the house­hold debtto-GDP ra­tio is likely to de­cline, house­hold debt re­mains high, with debt-ser­vic­ing ca­pac­ity grow­ing only mod­er­ately.

They sup­ported the em­pha­sis on in­creas­ing fe­male labour force par­tic­i­pa­tion, im­prov­ing the qual­ity of ed­u­ca­tion and English pro­fi­ciency, low­er­ing skills mis­match, boost­ing pro­duc­tiv­ity growth, en­cour­ag­ing re­search and in­no­va­tion, and up­hold­ing high stan­dards of gov­er­nance.

Malaysia, said the IMF, led the world in Is­lamic fi­nance.

The govern­ment has in­creased the use of Is­lamic debt in­stru­ments for fund­ing pur­poses.

The to­tal out­stand­ing stock of govern­ment Is­lamic se­cu­ri­ties is ap­proach­ing that of Malaysia govern­ment se­cu­ri­ties.

Sukuk is­suance is driven by healthy de­mand and a de­sire to de­velop the mar­ket.

The in­clu­sion of Is­lamic debt se­cu­ri­ties in some global bond in­dexes has pro­vided a boost.

Cover ra­tios and yields of govern­ment Is­lamic se­cu­ri­ties are con­sis­tently hold­ing their own com­pared with con­ven­tional equiv­a­lents.

One area of con­tention is GST (Goods and Ser­vices Tax). Di­rec­tors would like Putrajaya to widen its tax base with GST col­lec­tion ex­pected to in­crease by 3.9 per cent to ac­count for 18.2 per cent of to­tal rev­enue this year.

The IMF’s rec­om­men­da­tion that the six per cent GST be in­creased to the higher re­gional av­er­age and to de­crease the num­ber of ex­emp­tions, is a non­starter and has been re­jected, es­pe­cially this side of a gen­eral elec­tion.

Malaysia is still among the fastest-grow­ing economies among peers, say the In­ter­na­tional Mon­e­tary Fund di­rec­tors.

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