KUALA LUMPUR - The market's positive early reaction to Malaysia's new government is proof of investor confidence that it is stable despite the fact that it is made up of the same parties that backed the immediate past prime minister, Finance Minister Tengku Zafrul Aziz has said.
Datuk Seri Zafrul - who was reappointed to the same portfolio in the new government - credited the uptick in several indicators to Prime Minister Ismail Sabri Yaakob's inclusive approach since assuming office on Aug 21.
"We must, like what the Prime Minister has said in his maiden speech, work together as a family, and the Prime Minister stressed as well that he has reached out to leaders of the opposition. In fact, the first week in office, there was a joint statement with all the opposition leaders.
"So, I'm optimistic that together with the other opposition politicians, we will work together to support the nation's recovery and build a more resilient, sustainable future," the former investment banker said in a special edition of The Straits Times Connect webinar on Thursday (Sept 2). Titled “Beyond The Pandemic: Malaysia’s Way Forward” and moderated by ST foreign editor Bhagyashree Garekar, the hour-long discussion focused on Malaysia’s economic recovery from the Covid-19 pandemic.
"I think these prospects have been reflected in recent positive sentiments in the capital and financial markets," said the Finance Minister.
Datuk Seri Ismail, an Umno vice-president, is backed by the same 114 MPs who supported his predecessor, Tan Sri Muhyiddin Yassin, 18 months ago, and the new Premier has been criticised for retaining most of the Cabinet members - and serving in the same portfolios - from the previous administration, which was the shortest-lived in Malaysian history.
But Mr Zafrul insisted that the re-appointments would allow for continuity in policymaking.
"The current public health challenges provide a short runway for our pandemic exit plans, and as such, maintaining the leadership in key ministries is the smart thing to do. In fact, over the past week, the markets appreciated the signs of stability: we saw the ringgit strengthening against the US dollar by 1.7 per cent, while our FBMKLCI (the benchmark index for the stock market) has increased by more than 5 per cent, with close to RM1 billion (S$320 million) in foreign net inflows," he said.
These bode well for Malaysia's economic outlook in the second half of the year.
Having suffered a contraction of 5.6 per cent last year, the first half of 2021 saw growth in gross domestic product rebound by 7.1 per cent.
Probably the most important decision for the new government will be to stick with that of the previous one and rule out a return of the unpopular Goods and Services Tax, which was repealed in 2018 just three years after it was introduced.
This is despite public finances coming under increasing strain from stimulus packages for an economy ravaged by the Covid-19 pandemic.
The Finance Ministry had, in an unprecedented "pre-budget statement" on Tuesday, said that it expects the government deficit to rise to as high as 7 per cent, reaching levels last seen during the 2008/9 global financial crisis. It was projected earlier to be 5.4 per cent.
"GST, yes, this is a favourite question whenever I meet the analysts and economists, and it's also something that we in the Ministry of Finance are looking at. We are still reviewing the feasibility of re-introducing GST, but I firmly believe that the timing is not right at this stage, not in the middle of an economic crisis, in the middle of a pandemic, given that we do not want to choke the already fragile growth prospects," said Mr Zafrul.
He was responding to OCBC Bank chief economist Selena Ling, a panellist at the webinar, who said: "Given 2022 is going to be a year of more stable recovery, I think there's going to be a lot of scrutiny on how governments are actually boosting their fiscal resources, even though expenditure needs to remain very high."
While the government remains committed to fiscal consolidation and bringing the deficit to "within three to four per cent" by 2025, the dynamic Covid-19 situation had taught Malaysia to be cautious about "pulling support" for the economy too soon, said Mr Zafrul.
"We understand that the Covid-19 situation is dynamic. We didn't realise in 2020 what will happen in 2021, and we hope that, with vaccination at least, we know that 2022 has to be, and can be and should be a recovery year. But the situation remains fluid and that's why we have to plan and pace ourselves," he added.
There will also be added fiscal pressure as Malaysia looks to "green" the economy by pivoting to environmental, social and governance issues such as reducing carbon emissions.
In the 11th Malaysia Plan - a five-year development blueprint that ended last year, the government "allocated about RM7.24 billion to enhance climate resilience and adaptation measures and this is something that we will pursue further in the 12th Malaysia Plan" to be tabled in Parliament this month, said Mr Zafrul.
"There is a lot at stake, not just the ecological impact of climate change, also the repercussions towards trade and business. Being a trading nation, Malaysia can ill afford this adverse impact on our reputation. So as we grapple with economic recovery post-pandemic, we are presented with an opportunity to strengthen our policy framework on environment, climate change and sustainability," he added.
Malaysia’s Finance Minister Tengku Zafrul Aziz touched on a wide range of topics during the ST ST Connect webinar on Thursday (Sept 2). Here’s a sampling of his remarks:
On tackling Covid-19
“Malaysia’s economy is expected to gradually recover under the national immunisation programme. It’s being accelerated as we speak. Globally, Malaysia is currently one of the fastest nations in administering vaccines, averaging 400,000 doses daily. ... We are confident that at least 80 per cent of the adult population will be fully vaccinated earlier than the target of end of October this year.”
“Our efforts to help the vulnerable groups and generate new jobs, opportunities will continue to be prioritised. Tourism and retail, obviously, the most badly affected economic sectors that the Ministry of Finance will prioritise right up there with generating new jobs, which has thus been far tackled through the National Employment Council, which was set up a year ago.
“We will also focus on helping the vulnerable and disadvantaged segments of society, women, indigenous people, and the disabled to ensure no one is left behind in the nation’s development and recovery agenda.”
On political stability
“We’re engaging all parties not just on the budget, but he’s (Prime Minister Ismail Sabri Yaakob) also mentioned that he has officially invited opposition members to join the National Recovery Council and various other important councils that’s under the government.
“The Prime Minister stressed as well that he has reached out to leaders of the opposition. In fact, the first week in office, there was a joint statement with all the opposition leaders. So I’m optimistic that together with the other opposition politicians, we will work together to support the nation’s recovery and build a more resilient, sustainable future for.”
On the GST
“ We are reviewing, we’re still reviewing the feasibility of reintroducing GST, but I firmly believe that the timing is not right at this stage, not in the middle of an economic crisis, in the middle of a pandemic, given that we do not want to choke the already fragile growth prospects due to the pandemic.”
On ties with Singapore
“Singapore’s is our dear neighborhood, I hope I can go back there one day to Singapore once this Covid situation improves. Our bilateral relations will continue to flourish under the new prime minister. And you know, you’ve seen it by the recent phone call after our prime minister was sworn in, as well as a call by Prime Minister Lee to the former prime minister as well.
“So we will continue to work closely and strategically across all economic fronts.
“We’ve got many friends there, myself, in Singapore. We’ll continue to enhance trade ties, and we welcome the strong flow of investments by Singapore into Malaysia. And we’ve seen this. Singapore being consistently one of the top contributors of FDI, especially in the first quarter this year, where with total approved investments, we saw Singapore committing to RM43.1 billion.”
On tackling climate change
“...We have always been saying that we must find ways to green the financial system and finance the green. And this is something I would personally like to see through in Malaysia in my tenure as the Minister of Finance. So the fiscal costs of transition.. obviously is immense.
“We have to start somewhere. And it’s better to start sooner rather than later.
On closing the gaps
“As we are fighting Covid-19, we have proven again and again through the government’s actions that no one is left behind. So the budget will still maintain policies to assist targeted ethnic groups in line with our national development agenda, as it is the fundamental tenet of our social economic fabric. But we are also working towards building a fairer and more equitable future for all Malaysians. It is all about growing the pie so everyone will have a larger share of the pie, and the distribution is more even. So we close the gap between the rich and the poor, the haves and the have-nots, and also closing the income gaps within geographies.”
On 5G plans
“We aim to launch 5G by end of the year, especially in KL, Putrajaya and Cyberjaya. And then we will aim to launch the 5G services in five major cities and districts in Selangor, Johor, Penang, Sabah, Sarawak by next year. If you look at the 5G benefits, 5G coverage stands to create a potential GDP uplift of some RM100 billion and a further 100,000 new jobs by the year 2030. The GDP and jobs growth will be driven primarily by the digital transformation due to the 5G coverage cutting across various industries in the country.”