Economist: Malaysian economy healthy now, but murky long term

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KUALA LUMPUR: With strong gross domestic product growth, steady foreign direct investments and sound macroeconomic fundamentals, Malaysia’s economy is healthy, an economist says.

However, Selena Ling, head of Treasury Research and Strategy at OCBC Bank, told an ST Global Forum panel discussion yesterday that certain factors were likely to pose risks in the long term.

Signs that all may not be well in the long run include possible tax hikes, the government’s contingent liabilities and Malaysia’s slippage in world competitiveness rankings, according to a report in The Straits Times (ST).

It will also depend on how the government handles borrowings to carry out its planned massive infrastructure projects, and there is a possibility that the goods and services tax might go up after the next general election.

Ling also noted another warning sign: Malaysia’s foreign reserves were now lower than Indonesia’s a reversal of the situation just three years ago. As at May 31, Indonesia had US$125 billion in reserves against Malaysia’s US$98 billion (RM417 billion), said the ST report.

Among the good signs, Ling said, was the first quarter GDP growth of 5.6% over the same period last year, which, she noted was way above market expectations of 4.8%.

Foreign direct investment held steady at 8.8% of GDP, slightly up from 8.7% last year.

The ST report quoted Ling as saying that while household and government debts were on the high side, inflation was manageable and unemployment was low.

She added that this strong growth set a “very nice economic backdrop for an election if it were to be called later this year or even early next year” .

Noting the concern of Malaysians about the fast increasing cost of living and how it might affect the general election which must be held by August 2018, Ling, added that this was a result of “GDP growth not filtering down to the lower-income households”.

If the government was unable to meet its target of a balanced federal budget by 2020, it would likely take more tough measures, including tax hikes, the ST quoted her as saying.

That, she noted, would affect the average Malaysian’s ability to make ends meet.

“If you believe some speculation that at some stage they (the government) will have to pay for all these infrastructure projects, then GST (now at 6%) may go up again after elections,” she was quoted as saying by the ST.

She said an indication of what could happen could be gleaned by watching how the government handled its loan guarantees to entities that were financing infrastructure projects, which, she said, added up to roughly 15% of GDP.