Bank Negara Malaysia (BNM) held interest rates steady in the first monetary policy committee meeting for 2024. This is the right policy in line with expectations and consistent with a new and welcome period of economic stability.
Economic growth has been positive but will be slower now than in the past because of the hit from the pandemic as the economy continues to make the transition to a new post-Covid era of lower underlying growth.
Headline inflation has slowed and will remain low, core inflation is slightly higher than normal but is falling thanks in part to the good monetary policy stance by BNM.
Prices remain high and there is very little that can be done to bring them down. The cost of living has been a big challenge for everyone below the T20 threshold and so the focus must be on raising incomes.
Unemployment is low but under-employment remains stubbornly high. Labour market reforms must be a priority.
Investment approvals have been high but actual investments in the private sector, both domestic and foreign direct investment, remain moderate after a trend of decline since around 2016.
The low level of investment is holding back growth potential and is a structural problem that needs to be addressed.
External factors have held down exports but imports have also fallen so net trade is still positive albeit lower than normal. It is likely that exports have benefited from the weaker ringgit during the year.
Fiscal policy has been hampered by legacy issues from the previous finance minister during 2023 as it readjusted to the post-Covid era. So the interim budget and Budget 2023 were uninspiring.
In the next year overall fiscal policy looks better with spending in Budget 2024 only slightly higher, revenues expected to be higher and the deficit lower in total and percentage terms. This is the real Madani Economy budget.
The sectors that have benefited are those in domestic retail and tourism which are recovering now, although not fully back to pre-Covid levels.
The sectors that have suffered are those dependent on exports or supplying to exporters.
In the local economy, food and beverage outlets have suffered lower demand because they passed on price rises to consumers.
Higher education and especially private higher education have continued to suffer because of the impact of Covid-19 policies and the cost of living which is deterring students.
The policies of the previous government caused many of the problems that we are experiencing now.
There is significant structural damage due to the policy choices they made,where many companies closed and will not reopen and savings and pensions have been wiped out for millions of people.
The new unity government has inherited this legacy but PM Anwar Ibrahim has done a good job as finance minister in stabilising the situation and setting the groundwork for reforms.
Looking ahead to 2024 the anticipated challenges and opportunities for Malaysia’s economy, are clear and so are the policy recommendations.
Monetary and fiscal policy should be managed conservatively with no major changes.
Tax reforms should be analysed to find better revenue sources, such as an e-payments tax as an alternative to GST which is a bad option.
Continued emphasis on good governance to reduce wastage, leakages and corruption is essential.
Beyond that we look forward to reforms including the new Padu database to allow targeted subsidy rationalisation, a focus on raising incomes and better job prospects and focus on improving investment and supply-side reforms.
We must also focus on pensions, long-term care for the ageing population and also abolishing student loans. This can be achieved now that the macroeconomic environment is stable. - FMT
The views expressed are those of the writer and do not necessarily reflect those of MMKtT.
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