Editorial Notes

Keep up reforms while the going is good: The Star

Malaysia's economic growth in recent quarters has surpassed expectations, while the ringgit is improving.
Malaysia's economic growth in recent quarters has surpassed expectations, while the ringgit is improving.PHOTO: AFP

In its editorial notes on Dec 24, the paper says that Malaysia can continue to keep up its reforms as many major economies are expected to grow.

KUALA LUMPUR (THE STAR/ASIA NEWS NETWORK) - The going has been good for the Malaysian economy.

The World Bank and the International Monetary Fund have given us good reviews. International rating agencies are happy with the government's financial discipline and reforms in its economy.

Malaysia's economic growth in recent quarters has surpassed expectations, while the ringgit is improving.

The country's stronger economic position is evidenced by its ability to withstand structural and policy changes that took place on the global stage in the last two weeks.

In the past, when the United States announced major structural changes to its economic and monetary policies, Asian countries, especially Malaysia, would feel the effects.

As the saying goes, when the US sneezes, Asia catches a cold.

The US announced major tax reforms, cutting its corporate tax rate from 35 per cent to 21 per cent.

Another anchor to its tax reforms is incentivising companies such as Apple and Google to repatriate their overseas earnings.

US companies hold more than US$1.5 trillion (S$2 trillion) outside the country. Imagine if some or all of that money goes back to the US - the dollar would strengthen and the ringgit would suffer. But nothing happened.

Two weeks ago, three major central banks - the Federal Reserve of the United States, European Central Bank and Bank of England - made major policy changes towards increasing interest rates next year.

In the past, the mere mention of the US and other developed countries raising interest rates would have rattled currencies in developing economies.

The ringgit would have gone into a tailspin, while the stock market would have seen a major sell-off.

But Malaysia, like many other countries in the region, sailed through the period without upheavals. It is easy to see why.

Malaysia's exports are growing, contributing to a healthy trade surplus. Crude oil prices are trending higher, which means the government could potentially have more money at its disposal.

The ringgit, which is among the best-performing currencies in Asia, is stable and improving amid rising foreign international reserves.

Over the years, the government has kept its promise to the international rating agencies to reduce subsidies and reform the economy.

However, the reforms have also increased the cost of living. The average salaries are not enough to keep up with the higher prices of goods, especially in urban areas.

The common complaint is that while the headline numbers are glowing, the man in the street does not feel the impact.

This is because of uneven growth in the economy. Some industries such as exporters, manufacturers and companies dealing with the gig economy are thriving. People working in these industries are able to earn higher wages.

But other segments such as property developers, media companies and steel producers are suffering due to the structural changes in their operating environment.

Companies operating in these sectors have less financial flexibility to adjust wages of their workers.

The government, in recognising the situation, has announced measures such as a reduction in income tax in the Budget 2018 to put more money in the hands of households.

More such measures are needed and there is a window of opportunity in the next two years.

Malaysia, being an open economy, can continue with its reforms only as long as the global situation permits.

In the next two years, all the major economies such as the US, Europe and Japan are expected to see growth.

It is not often that we see synchronised growth among all developed countries. This is a window of opportunity to continue with the economic reforms despite the noises.

The Star is a member of The Straits Times media partner Asia News Network, an alliance of 23 news media entities.