The World Bank has slashed its GDP growth projection for Malaysia for the 2nd time to 4.5% in 2021

by NUR HANANI AZMAN / pic by MUHD AMIN NAHARUL

ONGOING domestic political uncertainty could continue to affect investment sentiment, weaken institutional reforms and hinder the progress of the recovery effort in the near term.

World Bank Group senior economist for macroeconomics, trade and investment Shakira Teh Sharifuddin said the closure of Parliament at this current juncture slowed down and put a temporary halt to address the country’s immediate measures.

“To revisit certain fiscal rules to create additional space for fiscal support at the moment such as the debt limit which needs to be done at the Parliament.

“We have seen the tabling of 12th Malaysia Plan has been pushed back or deferred until the reconvening of Parliament — that is also put us on question mark on the tabling of the 2022 Budget,” she told a virtual media conference after the launch of 24th Malaysia Economic Monitor: Weathering the Surge yesterday.

The World Bank has slashed its GDP growth projection for Malaysia for the second time to 4.5% in 2021 from 6% estimated in March and 6.7% in December 2020 given the dramatic resurgence Covid-19 infections and slower than expected vaccine rollout.

Malaysia’s foreign direct investment (FDI) recorded a net inflow of RM14.6 billion, a decrease by 54.8% in 2020 compared to RM32.4 billion in the previous year, while investment abroad registered RM11.9 billion.

According to the Department of Statistics Malaysia, FDI registered a higher value of RM698.8 billion at the end of 2020. Chief statistician Datuk Seri Dr Mohd Uzir Mahidin said the country’s FDI in 2020 is the lowest since 2009.

Meanwhile, World Bank Group Finance, Competitiveness and Innovation senior economist Smita Kuriakose said any measures that will require amendment or legal legislation will have an impact on parliament reconvening.

“However, a lot of measures that can be put in place and should be put in place right now will look at the medium-to-long term agenda. For example, a lot of issues around the increased clarity of investors regulations or greater intellectual property rights and issues on competition.

“These are things the government is working on and should continue to work on. Once Parliament reconvenes, this can be swiftly adopted,” she added.

According to Shakira, the current resurgence of the Covid-19 pandemic and the reimposition of the Movement Control Order is expected to have a significant impact on private consumption.

“With recovering global demand, export growth is likely to gain momentum. In the near term, it is projected that investment activities will be driven by these continuing increases in export-related activities.

“The movement restrictions would affect those who are employed in the services sectors and SMEs (small and medium enterprises), those with little or no assets or savings, informal workers, those who have lost their jobs, been placed on unpaid leave, or experienced pay cuts,” she added.

Shakira stressed the need for Malaysia to introduce short-term measures that focus on saving the lives and livelihoods of rakyat by providing additional targeted assistance to vulnerable households and businesses.

“The current pandemic underscores the importance of undertaking strong reforms including rebuilding fiscal buffers by increased revenue collection and enhanced spending efficiency should remain a key policy priority.

“Provide at least the minimum level of protection appropriate to all those in need,” she said.

One of the ways to expand fiscal space temporarily, she said, is to revisit some of the fiscal rules including the country’s debt limitation to GDP of 60%.

“There is a capacity at the moment to increase the final deficit given the severity of the situation the Malaysia is in.

“When it comes to consumption taxes, there is a need to look at the exemptions given to a number of goods, particularly those that are not part of the bottom 40% consumption,” she said.

In the case of Malaysia, efforts to increase revenue collection through a more progressive tax framework needs to be accelerated. Measures to improve spending efficiency should also be introduced alongside revenue enhancing measures.

“Other avenues, current taxation can be more progressive for example personal income tax collection as Malaysia has low personal income tax compared to other countries.

“Relief and rebates given mostly benefit the high-income group. Capital gains tax currently is only limited to property but certainly there are ways the government can explore to expand it and also considering wealth tax going forward,” she said.