Malaysia to gain significantly from RM6.5b UK economic reform fund

A ‘significant amount’ will be allocated to Malaysia for economic reform and growth

by ALIFAH ZAINUDDIN & NG MIN SHEN / pic by MUHD AMIN NAHARUL

MALAYSIA is poised to benefit significantly from the UK’s upcoming Cross-Government Prosperity Fund, an economic reform package worth £1.2 billion (RM6.53 billion).

UK Economic Secretary to the Treasury John Glen, who met with Finance Minister Lim Guan Eng yesterday, said a “significant amount” from the fund is set to be allocated to Malaysia.

Glen said both parties had discussed the fund, which is intended to be dispersed globally with focus on promoting economic reform and growth in developing countries.

“A significant portion of that (£1.2 billion) will be spent directly in Malaysia. What we’re keen to do is identify key institutions, key Islamic finance institutions, financial-technology (fintech) companies and regulators in Malaysia that we can work closely with to assist at this time,” he said during a media interview in Kuala Lumpur yesterday.

While specific numbers were not discussed, the “very friendly” meeting involved a high-level discussion that was constructive towards the execution of the programme in Malaysia.

“I do want to stress that this is not about us coming in as experts — it is about us using our experience in a constructive dialogue with Malaysian ministers and governments across the region to good effect,” Glen said.

First announced in 2015, the Cross-Government Prosperity Fund is an aid fund which aims to support economic development and poverty reduction in middle-income countries, as well as improve conditions for international business.

The UK has committed £1.2 billion to the fund, to be rolled out worldwide over the next five years. The fund is part of an Economic Reform Programme for South-East Asia.

The specific budget commitment to Malaysia under the programme remains unknown for now, pending the inception phase and detailed planning.

The programme is designed to improve the business environment, broaden and deepen financial markets, and promote financial inclusion and the provision of financial services in the region.

Among the beneficiaries of the programme are Malaysian capital markets, as the UK’s support will largely be in the form of technical assistance, training and workshops aimed at enhancing the capital markets. This includes broadening the use of fintech and Islamic finance to promote financial inclusion and economic development. Following the UK’s vote to leave the European Union (EU), commonly known as Brexit, Glen — who is responsible for financial services in the UK — said the country wants to be open to relationships in Asia, where it sees “great potential and deepening market opportunities” for UK companies investing in

Malaysia and vice versa. Brexit is set to take place on March 29, 2019, after UK Prime Minister Theresa May invoked Article 50 of the Lisbon Treaty — which gives the UK and the EU two years to agree on the terms of the break-up — on March 29 last year.

Should the UK and the EU agree on a Brexit deal, the UK will undergo a transition period from March 29 next year until Dec 31, 2020, which will allow for preparations to be made for the new relationship between the EU and a post-Brexit UK.

The UK will be able to negotiate its own trade deals during this time, although these will not come into effect until Jan 1, 2021.

Thus, talks of a potential UK-Malaysia free trade agreement (FTA) remain elusive pending the UK’s divorce from the EU.

“I see the future of our trading relationship with Malaysia to be a very positive one with lots of trading opportunities, but I don’t see it growing at the expense of our relationship with our European friends and neighbours.

“We want a model that can accommodate both,” Glen said.

As part of the Article 50 process, the UK cannot conclude an FTA with another country while it is still a member of the 28-member bloc.

The UK’s Minister of State at the Department of International Trade Baroness Rona Fairhead said an FTA may not be needed to expand ties between both countries.

“My view is the ones we have through the EU represent about 13% of our trade. Therefore, there is an awful lot that we can do to build a really deep relationship that’s good for Malaysia and the UK without a formal trade agreement, and then we’ll work towards that in due course,” she said.

However, preparatory works to gauge the feasibility of a UK accession into the Comprehensive and Progressive Agreement on the Trans-Pacific Partnership (CPTPP) are in place, Fairhead added.

The CPTPP is currently made up of 11 members, which account for 13.5% of the world’s GDP worth a total of US$10 trillion (RM41.36 trillion).

In addition to Brunei, Malaysia, Singapore and Vietnam, Thailand is also expected to join the CPTPP next year — making half of the 10 Asean member countries.

The UK’s accession would make it the second-largest economy in the group after Japan. This will effectively increase the CPTPP’s coverage of the global GDP to about 17%.

In the build-up to the deal, Fairhead said the UK government will allocate 14 weeks until end-October to conduct discussions with businesses and public think tanks on the matter.

“We recognise that the CPTPP has been signed and not ratified here yet. We also recognise that the rules of accession for new members have not been agreed.

“But we are starting the consultation because we want the process to begin. So, that’s where we are on formal trade agreements,” she said.