MP SPEAKS | The recent uncertainty in global developments has created greater pessimism and increased downside risks in global economic growth, especially with the emerging markets. Malaysia, as a global trading nation, is not immune to these events.

However, it is necessary to note that the FTSE Bursa Malaysia Kuala Lumpur Composite Index is one of the best performers in the Asia Pacific year-to-date with a slight increase of 0.13 percent as of Sept 7.

In comparison, the Singapore Straits Times Index and the Nikkei 225 index decreased by 8.29 percent and 1.72 percent respectively over the same period.

Given our deep and open foreign exchange market, the ringgit was not spared from facing adjustments. Nevertheless, over the year-to-date, the ringgit remains one of the most resilient regional currencies against the US dollar, depreciating by 2.6 percent against the US dollar since the start of the year.

Despite all these headwinds, let us not forget that the Malaysian economy is fundamentally strong and resilient. Our strengths can be seen from eight factors:

First, steady growth. The Malaysian economy is expected to remain on a steady growth path, driven by both domestic and external demand. With the growth in 2018 expected to be around five percent, Malaysia will still be one of the fastest growing economies in the region.
Second, a highly diversified economy. Services account for 54.5 percent of GDP. Our exports are likewise diverse, with manufacturing exports accounting for more than 80 percent of our total exports.
Third, favourable labour market conditions which remain supportive of growth. This is evident from a low unemployment rate of 3.4 percent in July 2018 and firm private sector wage growth. The latter remains strong, registering a growth of 6.2 percent in the first half of 2018.
Fourth, we continue to have a healthy current account surplus. Malaysia’s current account surplus stood at 2.8 percent of GNI in 1H 2018 and is expected to remain in surplus going forward. Even more positively, the goods surplus will continue to be supported by a highly competitive and diversified export sector.
Fifth, a flexible exchange rate. The ringgit has evolved since the Asian financial crisis to become a fully flexible or a floating currency. It is one of the best-performing currencies in Asia. Having this flexibility is advantageous to Malaysia as it allows the ringgit to play its role as a shock absorber during times of stress. Nevertheless, it is highly important for businesses to recognise that exchange rate adjustments are unavoidable and they remain ready to manage their currency exposures prudently. In the medium-term, as the government continues to improve the country’s economic fundamentals, the ringgit will eventually reflect these positive developments.
Sixth, sufficient external buffers. Our international reserve position of US$104.4 billion is adequate to facilitate international transactions. Furthermore, international reserves account for only a quarter of Malaysia’s total external assets. Banks and corporations hold three- quarters of Malaysia’s external assets (as at end-2Q 2018: RM1.3 trillion), which can also be drawn upon to meet their external debt obligations (RM740.9 billion), without creating a claim on international reserves. Our financial institutions also remain well-capitalised with sufficient liquidity to support intermediation within the economy.
Seven, a low inflation rate of 0.8 percent for June and 1.1 percent in July will shield us from any imported inflation caused by the decline of the ringgit against the US dollar.
Eight, the trade conflict between China and the United States has also created a unique investment opportunity for Malaysia. The tariff wars between the two largest economies of the world have resulted in many companies, particularly large manufacturers, both from the US and China seeking to site their plants and factories in Malaysia, which is seen as a natural safe investment harbour.

The only way is up

Our education levels, quality of hard and soft infrastructure as well as the fluency in both English and Chinese give us the natural edge over our neighbouring competitors such as Thailand, Vietnam or Indonesia.

At the same time, we remain a significantly cheaper investment destination than countries such as Singapore and Hong Kong.

In addition, despite the global headwinds, both business and consumer sentiments have been incredibly positive since the general election, reflecting a positive outlook on the prospects of the domestic economy.

According to the Malaysian Institute of Economic Research (MIER), the consumer sentiment index breached the 100-point optimism threshold to a 21-year high of 132.9 in July 2018, which suggests that consumer spending in the next few months will remain strong.

Similarly, the MIER business conditions index also registered 116.3 points in July 2018, its highest level since 2015. Its survey of more than 350 manufacturing businesses found that both domestic and export orders had increased, production accelerated, investment spending had risen, and the rate of capacity utilisation had improved during the quarter in review.

Our government today has been scarred by the “global kleptocracy at its worst” episode, that is the 1MDB scandal, which has resulted in Malaysia attaining an RM1 trillion debt.

We are determined to put in all necessary measures to ensure that corruption and abuse of power are eradicated from our administrative system.

With strong economic fundamentals, good governance and fiscal responsibility, the only way is up.

In closing, my message to all of you today is Malaysia is a strong and prosperous country with great potential.

To realise this potential, we are committed to fiscal sustainability, strengthening our resilience and achieving a sustainable and equitable growth for Malaysia.

LIM GUAN ENG is finance minister and Bagan MP.

The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.