MANY factors which caused uncertainties in the global economy over the past two years are expected to continue. They include the United Kingdom leaving the European Union, or Brexit, Donald Trump as United States president, and the possibility of Italy, France and Greece following in the footsteps of the UK leaving EU (Quitaly, Frexit and Grexit).
Hence, coming up with a crystal ball and making predictions for this year appear to be more daunting than ever. How should we read all these vis-à-vis the Malaysian economy?
While external factors — which are to a greater extent beyond our control—must be acknowledged, there are things that we can control.
As the saying goes, “We cannot control the direction of the wind, but we can adjust the direction of the sails to reach our destination”. Setting clear and proper planning and how to execute them are what we can control and manage.
Malaysia has clear and sound economic policies, or Najibnomics. The focus of Malaysia’s economic planning is on capital economy, people economy and public happiness, whereby the short-term goal is to achieveahigh-income nation status by 2020.
And recently, the government had set a new direction for a long-term vision, the 2050 National Transformation, or TN50. In addition to that, during the inaugural town hall session of TN50, Prime Minister Datuk Seri Najib Razak also announced the medium-term target, which is to achieve gross domestic product (GDP) of RM2 trillion.
While TN50 is a work in progress, the final blueprint must map out clear strategies on how to execute them efficiently and transparently.
Regardless of how good the document will be, it is the execution that is important. There must be checks and balances and transparency when it comes to implementation. It must also be flexible enough so that adjustments can be made.
As for becoming a high-income country, Malaysia is at the final stage of implementing the New Economic Model and the Economic Transformation Programme, plus the Government Transformation Programme launched in 2010.
This year is also the second year of the implementation of the 11th Malaysia Plan (11MP) plus the kickstart of many measures spelled out under the 2017 Budget to invigorate the economy. All these should address two things: one is to boost growth which is sustainable and inclusive, and to uplift the well-being and happiness of the people.
As a result, instead of plunging into a recession, Malaysia is on the right track to becoming a high-income nation by 2020.
The Malaysian economy has managed to weather external economic storms and grew at a respectable rate of 5.6 per cent on average from 2010 until 2015.
And, based on the World Bank and the International Monetary Fund reports, the economy is expected to record an expansion for 2016 until 2018. Looking at the Gross National Income per capita, the number has also grown from US$8,280 in 2010 to US$10,570 in 2015, becoming closer to the threshold of a high-income nation category set by the World Bank at US$12,475.
Malaysia’s household income has also improved quite significantly between 2012 and 2014, especially for the Bottom 40 (B40) and the Middle 40 (M40) income categories. And because of this, Malaysia’s Gini Coeffient index, a measurement for income inequality, has improved from
0.441 in 2009 to 0.401 in 2014 (where 1 means absolute inequality and 0 for perfect equality).
Structurally and fundamentally, since 2009, the economy has been well diversified. It is now more a domestic-oriented, service-driven, and productivity-led economy compared to 15 years ago. The economy is now less dependent on oil and gas.
In 2008, for instance, oil and gas constituted almost 40 per cent of our total revenue but today, it stands at less than 25 per cent.
For so long, Malaysia had oversubsidised its economy unsustainably. Not only was that inefficient and unproductive, it had suppressed prices at artificially low levels. This is part of the root cause of the perceived notion that the economy is now experiencing a chronic high cost of living as we get used to price levels which were not real in the past.
Malaysia has significantly reduced its fiscal deficit level, as a percentage of GDP, from an all-time high of -6.7 per cent in 2009 to -3 per cent. Even the debt-to-GDP level is now at a downward trend and still below the self-imposed ceiling of 55 per cent of GDP. Poverty rate is at 0.6 per cent, the lowest ever recorded. Inflation rate remains stable since 2009 and the unemployment rate is at the full employment level.
The government is consistent in providing measures and initiatives to improve the well-being of the people and uplift their quality of life through yearly budgets since 2010. All these will make the economy more resilient and robust, and less vulnerable to events which we cannot control.
But, the question remains: Can Malaysia sustain this impressive track record moving forward with greater challenges expected ahead of us?
If the recent PricewaterhouseCoopers (PwC) report is any indication, the answer would be a resounding yes. Indeed, the PwC report has shown how Malaysia will become one of the economic powerhouses by 2030. And by 2050, with a projected GDP in terms of purchasing power parity (PPP) terms of US$1.5 trillion,
Malaysia is set to dominate global markets and play an important role in shaping the global economy 30 years down the road.
Of course, there are and will be challenges along the way. The idea is
ot to prevent any economic problems or issues, but rather to manage them well so that at the end of the day, whatever the direction the wind may come, we can adjust and sail through together as a nation and love towards our shared destination.
Dr Irwan Shah Zainal Abidin is director of the Asian Research Institute of Banking and Finance (ARIBF), Universiti Utara Malaysia