Photo: KUALA LUMPUR, MALAYSIA: Bukit Bintang retail cluster / CC BY SA 3.0
Despite an economic slowdown and a demotion in several global rankings, economists say Malaysia’s economy is relatively stable considering global challenges and outlook.
KUALA LUMPUR - Malaysia’s rankings have dropped in three global indexes: from 18th to 25th on the World Economic Forum’s Global Competitiveness Index (pdf), from 22nd to 23rd on the World Bank’s Ease of Doing Business, and from 32nd to 35th on the Global Innovation Index. Additionally, the country’s lead on the United Arab Emirates is fast narrowing, according to Thomson Reuters’ Global Islamic Economy Index.
While Malaysia is not the only country that has dropped in global rankings, local economists told Salaam Gateway the situation should not be overlooked and suggest that a comprehensive study is necessary to determine Malaysia’s move in the right direction.
Dr Rafiq Idris, an economist and senior lecturer at the faculty of business, economics and accountancy at University Malaysia Sabah, said the plunge in oil prices, the slowing of the world economy and the recent depreciation of the ringgit have all contributed to a challenging environment for the government.
“These may partially explain the drop in rankings. The weak demand for oil and some manufactured products are also contributing factors. Moreover, speculation that gives the wrong perception about the Malaysian economy may also have an impact,” he told Salaam Gateway.
In the National Budget 2017 announced two weeks ago, the government proposed a total allocation of 260.8 billion Malaysian ringgit ($62.15 billion), about 3.4 percent higher than the revised budget allocated in 2016. Total revenue is anticipated to grow by 3.4 percent, which is a rebound from an estimated 3 percent drop in 2016.
In its economic report in response to the national budget, rating agency Malaysia Rating Corporation (MARC) noted that while the government’s revenue target looks realistic, achieving a deficit target of 3 percent of GDP in 2017 will be challenging, especially at a time when nominal growth remains low.
“We think that the Ministry of Finance projection of a nominal growth of 7.4 per cent is slightly on the high side, especially when real growth remains within the range of 4-5 percent” MARC said in its report (pdf).
However, Idris said he believes the government has presented a responsible budget by incorporating prudent measures, balance and inclusiveness while keeping in mind the country’s aim to become a high-income and developed nation by 2020.
“The 2017 budget is formulated in an uncertain global environment but I foresee that generally Malaysia is able to sustain its economic growth,” he said.
This is based on the numerous measures proposed in the budget to help the lower income group and civil servants in the form of loan access, special payments and tax relief incentives, among others.
However, independent economist Azrul Azwar Ahmad Tajudin believes the National Budget 2017 could have been more dynamic and inclusive towards addressing current global issues.
“The world is facing a new reality today, what many have termed as the "new normal",” he told Salaam Gateway.
The challenges faced today are attributed to factors such as modest global growth due to sluggishness in the largest economies including the U.S., Euro zone, Japan, UK, Canada and China–plus economic challenges in huge emerging markets particularly Russia, Brazil and Saudi Arabia—push down global demand further.
Protectionist policies particularly in trade-reliant nations and the impact of low global commodity prices, especially Malaysia's major ones such as oil and gas, and palm oil and rubber, are among factors that should be addressed, said Ahmad Tajudin.
Other contributing issues like the rise of ethnocentrism, racism, xenophobia, and ongoing risks of terrorist acts and other geopolitical risks worldwide are also dampening factors that will influence Malaysia’s economic development, he added.
“I am of the view that Malaysia's Budget 2017 for instance could have been more ambitious and forceful in responding to these "new normal" phenomena by reinforcing the domestic economy while consolidating the nation's fabric and foundation,” said Ahmad Tajudin.
“A case in point is the official GDP growth forecasts of 4-5 percent for 2017, which is not a great improvement compared to the range of 4-4.5 percent estimated for 2016 and way below the ETP's (Economic Transformation Programme) growth target of at least 6 percent, which has been touted as a sine qua non for Malaysia to become a high-income, developed nation by 2020,” he said, adding that at present, industrial intensity in the country is also still inadequate to create enough high-paying jobs.
“I would argue that apart from these downside risks from the global perspectives, there are a couple of deep-rooted institutional and structural weaknesses in the whole system that Malaysia needs to address and find effective solutions without any delay,” he added.
According to Ahmad Tajudin, key issues still to be solved include a minimum wage for blue collar foreign workers, and lucrative government contracts with lopsided terms and conditions of concessions that are won by private sector companies.
“Bureaucracy like red tape, speed of getting approvals from relevant authorities, licensing requirements, transparency in doing business must all be continuously monitored for Malaysia to remain an attractive destination for investment,” he added.
According to MARC, the number of people unemployed has been rising at an average 12 percent, which is marginally higher than the 11.7 percent rise in 2015. Job replacements are expected to be a major hurdle next year as the number of vacancies available in the market shrank to an average of 43,500 per month from an average of 128,800 per month in the six years through to 2015.
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