Prime Minister Datuk Seri Najib Razak must be one of the luckiest prime ministers around. With the 14th General Election (GE14) beckoning before Aug 24, the ruling Barisan Nasional (BN) coalition has been handed a virtual open goal, not by a weak and divided opposition, Pakatan Harapan, but by none other than the gatekeeper of the global economy and financial system, the International Monetary Fund (IMF).
IMF, in its latest Article IV Consultation published last week, which is effectively an annual report card on the state of the economy of member countries, has given the Malaysian economy and its management by the BN government a thumbs up, stressing that it has continued to perform well, showing resilience in recent years despite external shocks.
Malaysia’s economic fundamentals remain strong, and have passed the expectations of even IMF.
The strong real gross domestic product (GDP) growth, which is estimated at a peak of 5.8 per cent for last year, driven largely by domestic demand, boosted by strong employment and productivity and robust exports, especially electronics, has pleasantly surprised the executive directors of IMF, who project it to “remain above potential at 5.3 per cent in 2018, and converging to its potential rate of close to five per cent in the medium term”.
While headline inflation went up to 3.8 per cent last year due to higher oil prices, core inflation and credit growth are contained, which means that inflation is projected to decline to 3.2 per cent this year, translating into lower consumer prices for Malaysian households.
While the overall message from IMF is “steady as she goes”, the biggest plaudit is that “Malaysia’s economy is getting closer to achieving high-income status”, a dream that successive BN governments have aspired to achieve, primarily by 2020 as implicit in the 11th Malaysia Plan, the Government Transformation Programme and Economic Transformation Programme.
The outperformance of the Malaysian economy has nothing to do with luck, but considered economic, monetary, tax and financial management policies implemented by key government agencies led by the Treasury in cooperation with Bank Negara Malaysia (BNM) and the Securities Commission Malaysia. The IMF directors commend the above agencies for the performance of the Malaysian economy, but they threw in a shopping list of consolidatory measures necessary to push Malaysia over the line to that coveted high-income status.
Buried in the usual economic techno jargon, the defining message from IMF is that as Malay-sia’s public debt continues to decline, the government should shift towards raising revenues, rather than achieving its goals through continued cuts in public spending.
The introduction of the Goods and Services Tax in 2015, which is an accepted global tool to boost government revenues, together with a cut in subsidies and Putrajaya’s success in reining in government debt from 3.4 per cent of GDP in 2014 to three per cent last year, has helped contain government expenditure.
But, the IMF is too aware that revenue and tax consolidation must be tempered with continued social and development spending. A prime objective of BN is to raise the income and prosperity of those in the B40 low-income group and M40 middle-income group, in line with making the country a high-income nation.
BNM gets a special commendation for its independent handling of monetary policy and its willingness to increase interest and profit rates as and when the situation requires, especially in stimulating further domestic demand.
“BNM’s monetary policy framework,” IMF noted, “has served the country well.” Malaysia’s banking sector remains sound with good bank profitability, liquidity and low non-performing loans.
The Malaysian economy, says the IMF, has made remarkable strides in areas such as productivity, employment and attracting strong inward investments. Achieving high-income status remains a “work in progress”, but is eminently achievable.
firstname.lastname@example.org Mushtak Parker is an independent London-based economist and writer.