Malaysia's exports to get boost in the next 12 months, says chief economist

Published: Friday October 4, 2013 MYT 12:00:00 AM 

Updated: Friday October 4, 2013 MYT 8:58:06 AM

BY LIZ LEE

IHS Global chief economist for Asia-Pacific Rajiv Biswas(pic) said Malaysia 

could afford to introduce moderate measures to narrow its fiscal deficit over several years.

PETALING JAYA: Malaysia is in a strong fiscal position, backed by the country’s stable growth forecast against a backdrop of improving global economy.

The country should, however, look at ways to broaden its tax base as a long-term economic strategy.

IHS Global chief economist for Asia-Pacific Rajiv Biswas said Malaysia could afford to introduce moderate measures to narrow its fiscal deficit over several years.

“However, Malaysia needs to reform when it’s in a strong position because when the global economy weakens, it is harder to introduce changes,” he said after speaking at the World Chinese Economic Forum 2013 yesterday.

On expectations for Malaysia’s Budget 2014, Rajiv added that with global economy on the mend, it was timely for the Government to do some gradual fiscal consolidation to stabilise its debt. One such move was the recent reduction of oil price subsidy.

“Malaysia doesn’t have to take drastic steps because it has got strong growth and an improving global environment backing it,” he said.

“This is a good time to take gradual steps over a number of years to narrow fiscal deficit and to rebalance its revenue streams as I think one of the weaknesses is an over-dependence on oil and gas.”

Rajiv opined that the implementation of goods and services tax (GST) would be economically favourable over the long term.

“The GST reform is a very important strategy as it broadens the tax base,” he said, adding that he was not concerned about the public adjusting poorly to it.

“I think the growth momentum and domestic consumption is strong in Malaysia right now although, of course, there will be introductory impact.”

He noted that countries that had implemented GST also had some transitional measures for its people to soften the blow, in particular on the lower income group.

“In the long term, we will see a strategic positive change as Malaysia needs to broaden its tax base and reduce its dependency on oil and gas (which exposes the country to oil price fluctuation risks).”

The economist added that GST meant global tourists would be contributing more to the local economy.

Rajiv believed that it was not a big challenge for the Government to get its books in order.

With domestic and external economic strength, he noted that the Government’s debt level (at 53%) as a share of the gross domestic product (GDP) was relatively moderate, compared to Europe or even some Asian countries.

He said Malaysia’s GDP growth was estimated at 4.6% this year and 5% in 2014, driven by improving exports as the United States and the eurozone economies gradually picked up, while China remained a strong market.

“I think in the next 12 months we can expect a rebound in the United States and Europe which will help Malaysia in its exports,” he said.

Rajiv also said China’s steady growth heading towards being the largest economy in the world by 2022 would result in positive impact on the world. He said China’s GDP growth forecast in the next decade was 7% to 8% which, although slower than its 10% growth in the previous decade, was still considered strong.

Rajiv believed that with China’s continuing growth food products, property and tourism-related investments would flow into Malaysia.

“Historically, the China economy has been driven by domestic investments but we are going to see the rise of Chinese consumerism,” he said, adding that this meant huge opportunities in sectors like food, education, property – especially holiday homes and the second home segment – as well as tourism.