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Malaysian economy to rebound strongly: Amro

Malaysian economy to rebound strongly: Amro

04 May 2021

Malaysia’s economic growth is projected to rebound by 5.6% in 2021 and continue its growth to 6.2% in 2022, on the back a low base effect and a strong pickup in global demand induced by Covid-19 vaccination efforts, according to the Asean+3 Macroeconomic Research Office (Amro).

Its economist Diana Rose Del Rosario stated that international travel and tourism activities are expected to gain traction in 2022, as vaccinations reach herd immunity in Malaysia and abroad. However, she cautioned that the pandemic’s trajectory remains uncertain as vaccine development and deployment race against virus mutations.

“Malaysia is poised to rebound strongly in 2021 and 2022, on the back of supportive domestic policies and sound macro fundamentals,” Del Rosario said at Amro’s virtual launch of its Annual Consultation Report on Malaysia today.

She noted that recovery prospects could be uneven but the swift and sizeable economic policies as well as easy monetary conditions have been crucial in supporting the economy.

“These should continue together with sustained vigilance against a resurgence of infections and the speedy roll-out of Covid-19 vaccines.”

Against this backdrop, the economist outlined that a supportive and proactive fiscal policy remains critical to counter the severe economic loss wreaked by the pandemic. In this respect, the agency commended the government’s prompt deployment of the additional economic package following the implementation of movement restrictions in January-February this year.

It lauded the effort to protect the welfare of vulnerable groups via targeted cash transfers, tax reliefs, job retention and hiring incentives schemes as well as enhanced healthcare services initiatives in 2021.

“Likewise, the extension of the targeted repayment assistance, withdrawal of retirement savings and reduced contributions, credit guarantees, and BNM’s (Bank Negara Malaysia) soft loans to SMEs, have helped to ease cash flow constraints and support a sustained economic recovery going forward.

“As such, the targeted loan repayment assistance and credit support to SMEs may remain in place and recalibrated as needed, but due regard must also be given to the restoration of employees’ retirement savings post-pandemic,” said Del Rosario.

With regard to the country’s ballooning debt burden due to sizable fiscal stimulus, she highlighted the importance of restoring fiscal buffers once the economic recovery is firmly on track. Amro pointed out Malaysia’s fiscal stimulus is limited to 20% of the total stimulus package, which remains sizable and would leave the government debt considerably larger over the medium term.

With that it highlighted the need to broaden the tax base to achieve a faster reduction of GDP-to-debt ratio which has been raised to 60% to combat the pandemic. Even before the pandemic, the economist highlighted that there is a declining trend in tax ratio and offered the reintroduction of the goods and services tax (GST) as means to reverse the trend.

“In our estimates, reintroducing the 6% GST would raise the additional revenue needed to narrow the deficit and substantially lower the government debt toward the desired limit. That said, new taxes or reduction of subsidies, should be introduced carefully and only be done when the economic recovery is on a firm footing. There is a need to design and implement revenue-raising tax reforms that would not jeopardise the economic recovery.”

The report outlined that such reforms may be implemented once the economic recovery firms up and the uncertainty over the outlook dissipates, to avoid cliff effects.

Source: The Sun Daily