lease: Malaysia’s economic growth is expected to rebound by 5.6% in 2021 and continue to grow to 6.2% in 2022, against the backdrop of a low base effect and a strong rebound in global demand brought on by the vaccination efforts against Covid-19, according to ASEAN + 3. Macroeconomic Research Office (AMR).
Economic expert Diana Rose Del Rosario said that international travel and tourism activities are expected to gain momentum in 2022, as vaccines reach herd immunity in Malaysia and beyond. However, she cautioned that the course of the pandemic remains uncertain with the race to develop and deploy a vaccine against viral mutations.
“Malaysia is preparing to recover strongly in 2021 and 2022, against the backdrop of supportive domestic policies and sound overall fundamentals,” Del Rosario said at Amro’s virtual launch event for its annual advisory report on Malaysia today.
She indicated that the prospects for recovery may be unequal, but the rapid and large economic policies as well as easy monetary conditions were decisive in supporting the economy.
“These should go hand in hand with constant vigilance against re-emergence of infection and the rapid distribution of Covid-19 vaccines.”
Against this background, the economist explained that the supportive and proactive fiscal policy remains crucial to facing the massive economic loss caused by the epidemic. In this regard, the agency commended the government’s immediate deployment of the additional economic package after the application of movement restrictions in the period from January to February of this year.
It commended the efforts made to protect the well-being of vulnerable groups through targeted cash transfers, tax breaks, job retention and employment incentive schemes, as well as strengthening healthcare service initiatives in 2021.
Likewise, the extension of targeted repayment assistance, retirement savings and discounted contributions withdrawals, credit guarantees, and concessional loans from BNM (Bank Negara Malaysia) to small and medium enterprises have helped ease cash flow restrictions and support sustainable economic recovery in the future.
“As such, targeted loan repayment assistance and credit support for SMEs may remain in place and recalibrate as needed, but due consideration must also be given to recovering employee retirement savings after the pandemic,” Del Rosario said.
Regarding the country’s ballooning debt burden due to the massive fiscal stimulus, she highlighted the importance of restoring fiscal buffers once the economic recovery is on the right track. Amr indicated that the Malaysian fiscal stimulus is limited to 20% of the total stimulus package, which remains large and will leave the government debt much larger in the medium term.
However, it highlighted the need to broaden the tax base to achieve a faster reduction in the GDP-to-debt ratio, which had been raised to 60% to combat the pandemic. Even before the pandemic, the economist emphasized that there was a downward trend in the tax rate and offered to re-impose the Goods and Services Tax (GST) as a way to reverse this trend.
“In our estimates, re-introduction of the goods and services tax at 6% will increase the additional revenues needed to narrow the deficit and reduce government debt substantially towards the required level. However, new taxes or subsidy cuts should be carefully introduced, and this is only done when the economic recovery is on the right track. Solid foundations. There is a need to design and implement tax reforms to increase revenues that do not jeopardize the economic recovery. “
The report explained that such reforms can be implemented once the economic recovery companies recover and the uncertainty about the outlook has dissipated, to avoid the effects of the downturn.