Malaysian economy holds up well despite uncertainty after new reform

Although some reforms measures carried out by Malaysia’s new government led by Prime Minister Mahathir Mohamad raised uncertainty over the country’s fiscal situation, analysts are generally positive on the economic outlook in the first half of 100 days of its reform.

The economic reforms included the removal of government service tax (GST) and reintroduction of fuel subsidy, among others. “The long-term outlook could be looking positive after clearing some inefficient usage of government’s resources in the past, resulting in better governance,” said Hong Leong Investment Bank in a report Friday.

The victory by Pakatan Harapan in the 14th general election (GE14) took the market by surprise last month and triggered some sell-off by foreign investors in the country’s equities and bonds.

The country’s national debt, which is said to have spiked to 1 trillion ringgit ($247.6 billion), negative news on the 1MDB scandal, slowdown in construction sector after the new government review of construction of mega projects and lower revenue following GST “zeroization” have weighed on the market sentiment.

While abolishing the GST has led to a revenue loss of 21 billion ringgit, the Malaysian government has also announced series of expenditure rationalization measures projected to save 10 billion ringgit.

“We are of the view that the government is on the right path in addressing the country’s financial position and economic wellbeing, rather than by merely being a change in administration. We believe that legal and regulatory reforms will be addressed, and thus setting Malaysia on a right footing once again,” Affin Hwang Capital Research said in its recent report.

“On the whole, we nevertheless remain mid to longer term positive and believe that the ongoing reforms coupled with a more transparent government with the right policies will steer the country in the right direction,” it said.

It is also confident that the country’s economic growth could receive a boost in the long term while the positive changes could overall lead to an improvement in the investment climate.

“What we have seen from the new government is a push toward greater transparency and accountability, with the unraveling of the excesses of the previous administration,” said KAF Investment Bank in its recent report.

To the foreign research house, Malaysia’s new government has been moving fast to address market concerns by embracing greater fiscal discipline and tighter controls over government spending.

In addition to the public expenditure cut, the new government expects the reintroduction of sales and services tax (SST) in September to bring in revenue of 4 billion ringgit. It also expects higher dividends from government-linked companies of 5 billion ringgit, and extra income of 5.4 billion ringgit due to higher oil price.

“Malaysia’s near-term growth and economic fundamentals remain sound – and provide a solid foundation for the government to move forward with its agenda. Economic growth is expected to remain strong at a rate of 5.4 percent in 2018,” Mara Warwick, the World Bank’s country director for Malaysia, the Philippines and Thailand said recently.

As a highly open trade-oriented economy at the center of the world’s fastest growing region, Malaysia continues to benefit from robust global demand for its exports, she said.

To the foreign research house, Malaysia’s new government has been moving fast to address market concerns by embracing greater fiscal discipline and tighter controls over government spending.

The article is a commentary from the Xinhua News Agency. opinion@globaltimes.com.cn