KUALA LUMPUR: It is still too early to assess the impact of the new government’s policies on the Malaysian economy, according to Moody’s Analytics Economist, Katrina Ell.
She said the Malaysian financial market had been volatile to the downside in view of the more uncertain policy pipeline.
“Barisan Nasional was in power for 60 years so this is a significant changing of the guard. It will take time to reveal the economic implications,” she said in an email interview with Bernama News Channel from Australia.
PH recently won the 14th general election, which ended the six-decade rule of the Barisan Nasional coalition in a landmark shift for Malaysia.
On the proposed abolition of the Goods & Services Tax (GST), Ell said: “Removing the GST would increase the government’s reliance on oil-related revenue and narrow the tax base.”
Malaysia would revert to the Sales and Services Tax that was in place before the GST’s introduction in 2015, which collected relatively lower revenue as a share of GDP than the GST, she said.
“It’s unlikely that the multiplier effect from higher consumption due to lower taxes will offset the drop in government revenue. One temporary saving grace for Malaysia is rising oil prices. The nation is a net oil exporter, so higher oil prices will lift government tax revenue, production and exports.
“Time will tell whether the regime change is a success, and the scrapping of the GST and subsequent impact will be the first real test,” Ell said.
The economist said it appeared a sensible strategy for the PH government to form the Council of Eminent Persons comprising well-respected individuals to advise the government and allay fears on the future economic management being markedly different from the past in terms of broader strategy.
Dr Mahathir has also promised to review foreign investments, including those that are part of China’s One Belt, One Road project.
She cautioned that if some of these projects were scrapped and the infrastructure bottlenecks were not addressed, it would hurt longer-term productivity.
In 2017, Malaysia’s GDP growth surged to 5.9 per cent, the fastest pace since 2014 and well up from the 4.2 per cent in 2016 – thanks to the upbeat global environment and Malaysia’s large exposure to the sustained upswing in the global tech cycle.
“The lift from buoyant global demand is less assured in 2018 and downside risks are heightened, not least due to the elevated trade tensions between the United States and China that threaten to significantly reduce trade flows,” she said, adding that Malaysia’s GDP growth was forecast at 5 per cent for 2018.
During the week prior to the 14th general election, Moody’s Investors Service raised Malaysia’s GDP growth forecast for the year to 5.4 per cent from 5.2 per cent projected earlier, supported by a pipeline of large infrastructure projects that were expected to stimulate public and private investments.
– BERNAMA