Malaysia Institute Of Economic Research Forecasts Economy To Grow 4.5% In 2019

© Nikkei Markets

KUALA LUMPUR (Jan 30) — Malaysia Institute of Economic Research Wednesday forecast the country’s economy to grow 4.5% in 2019 and between 4.5% and 5.5% next year.

“We are on track to be a high-income economy. No doubt about it,” said MIER Executive Director Zakariah Abdul Rashid.

Meanwhile, Malaysia’s consumer sentiment index fell to 96.8 points in the final quarter of 2018 from 107.4 points in the preceding quarter, MIER said. 

– By Gan Pei Ling
– Edited By Abhrajit Gangopadhyay

World Bank Cuts Malaysia 2018 Economic Growth Aim On External Risks

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KUALA LUMPUR (Dec 18) — The World Bank Tuesday trimmed its 2018 economic growth forecast for Malaysia to 4.7% from 4.9% citing external headwinds arising from the U.S.-China trade tension and volatile commodity prices.

The multilateral agency, which forecasts the economy to expand at the same pace next year in its Malaysia Economic Monitor report, expects private consumption to drive growth through 2019, while exports growth rate is expected to stay modest at 3.0% next year compared with an estimated 2.8% in 2018.

“We revised down (the economic growth forecast) due to two developments: lower government spending and investments,” World Bank’s Malaysia Economist Shakira Teh Sharifyddin said at a news conference.

Since sweeping to power in a shock May 9 election, the new Alliance of Hope coalition government has scrapped several costly infrastructure projects and put others on review as Prime Minister Mahathir Mohamad seeks to mend Malaysia’s finances amid mounting government debt.

Gross fixed capital formation – a proxy for investment – is expected to expand “modestly” with lower-than-expected public spending dampening growth prospects, the World Bank said in East Asia and Pacific Economic Update report. It projects gross fixed capital growth to decelerate sharply to 2.1% this year from 6.2% in 2017.

The World Bank is the latest to downgrade its economic growth projections for the trade-dependent Southeast Asian nation. In September, the Asian Development Bank lowered its Malaysian economic growth forecast to 5.0% for this year and 4.8% in 2019 citing risks of sluggish exports growth and subdued domestic investment.

The recent downgrades mark a sharp turnaround from April when the World Bank had raised its forecast for Malaysia’s economic growth to 5.4% this year from a previous projection of 5.0% but had cautioned risks from shifts in external demand and financial market conditions.

Malaysia’s economic growth rate has decelerated for four straight quarters and expanded 4.4% in July-to-September. The central bank has said it is confident that the economy will likely grow 4.8% this year.

“With Malaysia’s economy tightly integrated with the global economy through financial and trade linkages, increased uncertainty in the external environment poses downside risks in the near term future,” the multilateral agency said. The country’s heavy reliance on oil-related revenue also pose challenge to the fiscal space in cases of price or supply shocks, it added.

The crude exporting Southeast Asian country counts hefty dividend from state-run oil explorer Petroliam Nasional, or Petronas to boost its non-tax revenue that is crucial for meeting budget deficit targets.

Still, the World Bank is “encouraged to see the Malaysian government taking measures to both preserve growth, restore fiscal buffers, and improve governance,” said Mara Warwick, World Bank’s Country Director for Brunei, Malaysia, Philippines and Thailand. “Such reforms will pay dividends over time, with efforts to improve not just the quantity of economic growth, but also of the quality of economic growth.”

The government has scrapped an unpopular but remunerative goods-and-services tax that netted some $10 billion in revenue last year and re-introduced a single-tier sales and services tax. It also plans to tax foreign service providers and adopt a more targeted fuel subsidy scheme to fix its strained finances. Still a narrower revenue base and dependence on fickle oil-related income could limit its flexibility to make fiscal adjustments against future macroeconomic shocks, the World Bank said.

– By Gan Pei Ling
– Edited By Abhrajit Gangopadhyay

Malaysia Cuts Development Spending, Growth Aim Through 2020 In Economic Roadmap

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KUALA LUMPUR (Oct 18) — Malaysia will cut development expenditure by 15% under a revised five-year plan and won’t meet a previous aim of balancing the budget by 2020 even as the government steps up fiscal consolidation efforts amid slower economic growth.

The government now plans to spend up to 220 billion ringgit, or about $53 billion, under the so-called 11th Malaysia Plan that ends in 2020, according to the Ministry of Economic Affairs’ report.

The economy is expected to expand 4.5%-5.5% between 2016 and 2020, lower than the 5.0%-6.0% growth target when the plan was unveiled in 2015.

Average public investment will contract 0.6% through 2020 although the government pledged to maintain ‘high-impact’ projects to boost economic growth, the report said. Robust domestic demand and resilient exports will continue to power growth in the third-largest Southeast Asian economy.

“Swift implementation of these difficult and crucial reforms is likely to have short-term impact on growth but the trade-off is necessary to maintain the economy on a sustainable growth path,” the report said.

Since sweeping to power in a shock May 9 election outcome, the new government has scrapped several costly infrastructure projects and put others on review as Prime Minister Mahathir Mohamad seeks to mend Malaysia’s finances amid mounting government debt.

The government has scrapped the unpopular goods-and-services tax that netted some $10 billion in revenue last year and re-introduced a single-tier sales and services tax. By 2020, fiscal deficit will remain at 3.0% of gross domestic product instead of a balanced budget as previously projected, the report said.

“The government is confident its fiscal position could recover at the end of 2020 with improvement in governance and increased revenue,” Mahathir told lawmakers in a nearly-two hour speech highlighting the mid-term review of the 11th Malaysia Plan.

Among others, the 93-year-old premier said the government will improve its procurement processes that will include enforcing open tendering to bring in more transparency.

The government will also review implementation of ‘unsustainable’ projects and scrap projects with “low priority,” Mahathir said. A special task force will be established to review roles of sprawling state-run agencies and government-owned companies, he added.

Economists said the revised targets are achievable although execution remains a key concern even as the government is backed by popular expectations for political and economic reforms.

“The plan is good, but the execution is equally critical,” Lee Heng Guie, executive director of think-tank Socio-Economic Research Center. “You can give a very good macro policy management, but without supported by good institutional reform, we may not see the desired result.”

To plug the fiscal gap, the government said it will undertake a “comprehensive review” of investment policies including incentives and lift indirect taxes and other non-tax revenue.

Still, Malaysia expects to achieve high-income status by 2024 when annual per capita income reaches $12,056, longer than the 2020 initial target set by the previous administration.

“The government will balance economic growth objectives and fiscal consolidation initiatives to ensure continuous and inclusive development without impairing growth prospects,” Minister of Economic Affairs Azmin Ali said in the report.

– By Jason Ng and Gan Pei Ling
– Edited By Abhrajit Gangopadhyay