Standing strong amidst volatilities

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Given the nation’s strong fundamentals, Malaysia is able to weather the volatilities impacting the economy.Given the nation’s strong fundamentals, Malaysia is able to weather the volatilities impacting the economy.Given the nation’s strong fundamentals, Malaysia is able to weather the volatilities impacting the economy.

While the economic climate is undeniably facing uncertainties as a result of external and internal challenges, the government is confident, that given the nation’s strong fundamentals, the country is able to weather the volatilities impacting the economy.

Earlier today at the Economic Update 2015 organised by the Economic Transformation Programme (ETP), top government officials and economic experts discussed at length the challenges facing Malaysia, both internal and external, but expressed confidence in Malaysia’s still-strong fundamentals.

Over 500 representatives from the business and financial community attended the event, where Minister of International Trade and Industry Dato’ Sri Mustapa Mohamed, Minister in the Prime Minister’s Department in charge of the Economic Planning Unit (EPU) Dato’ Sri Abdul Wahid Omar, the Governor of Bank Negara Tan Sri Dr Akhtar Zeti Aziz and PEMANDU CEO Dato’ Sri Idris Jala discussed the state of the Malaysian economy and investments.

Subsequently, a panel discussion comprising James McCormack, Managing Director/ Global Head of Sovereign and Supranational Group, Fitch Ratings; Christian de Guzman, Vice President/Senior Analyst, Sovereign Risk Group, Moody’s Investors Services; Phua Yee Farn, Associate Director, Sovereign and International Public Finance Ratings, Standard & Poor’s Rating Services; and Dr Yeah Kim Leng, Dean of School of Business, Malaysia University of Science and Technology, provided their views on Malaysia’s economic outlook.

In a much stronger position today

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According to Dato’ Sri Idris Jala, the government acknowledges the factors affecting sentiment and is realistically gearing up for some tough times.

“Regardless, we also see long-term, credible investors continue to place their trust in Malaysia as a competitive market committed to sustainable economic growth. We are not in any way the Malaysia of 1998 during the Asian Financial Crisis,” he assured.

“Sound fundamentals as a result of fiscal consolidation and public finance reforms put into motion five years ago augurs well today. We are in a stronger position to defend against the US dollar, falling global crude oil and commodity prices and shifting economic priorities in other major economies.

“We are cognisant of domestic issues and concerns around 1MDB and political funding that has led to some political risk affecting the business environment.

“But as a nation, we are a resilient lot. We will get past this as the administration is committed to its efforts in positioning Malaysia as one of the top investment and trade destinations in Asia,” he added.

Key economic indicators continued to underline the country’s solid fundamentals. For the first half of the year, GDP was at 5.3% and for the full-year, it is projected to grow between 4.5% and 5.5%.

Realised private investment has accelerated 2.5 times post-ETP, with CAGR of 13.6% between 2011 and 2014 compared with 5.5% between 2006 and 2010. For the first half of 2015, private investment stood at RM137.9 billion, contributing 71% to total investments.

The government’s tax base has increased, providing greater fiscal resilience. The CAGR of tax revenue is expected to clock in at 11.9% between 2011 and 2015, compared with 6.3% between 2006 and 2010. For 2015, total tax revenue is estimated to hit RM183.4 billion.

With fiscal deficit narrowing down to 3.4% of GDP (2014) compared to 6.4% (2009), and our debt to GDP ratio at 53.7% (end-June 2015), Malaysia remains in the fiscal safe zone.

Commenting on the 16.5% decline of the Ringgit against the USD between 1 January and 18 September this year, Idris pointed out that the plight of the ringgit is not isolated as the USD has appreciated relative to other currencies as well. Amongst others, the New Zealand dollar, Indonesian rupiah, Russian rouble and Australian dollar have depreciated by 17.9%, 13.8%, 8.7% and 12.1% respectively.

“We don’t like the depreciation but we belong to the global economy and are exposed to its vagaries, including dropping commodity and oil prices. However, we have reduced the government’s reliance on oil significantly since 2010, with the reduction from 35.4% of revenue in 2010 to 29.7%, as estimated by the EPU, in 2014. Had we not done so, we would have been harder hit today,” he said.

In July this year, Fitch maintained Malaysia’s long-term foreign currency issuer default rating (IDR) at A- and local currency at A, with the outlook revised to stable from negative previously and Standard and Poor’s Rating Services affirmed an A- rating with a stable outlook. Moody’s in January affirmed Malaysia’s A3 rating with a positive outlook.

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