NCCIM National Economic Forum 2019
National Chamber Of Commerce And Industry Of Malaysia (NCCIM)
29 August 2019
3:30PM, KLCC Convention Center
Speech by Minister of Finance
YB Lim Guan Eng
Tan Sri Datuk Ter Leong Yap
President of NCCIM and ACCCIM
NCCIM council members
Good afternoon and Salam Harapan,
1. Thank you for having me today.It is an honour to be addressing you here and share my views on the Malaysian economy.
MALAYSIAN ECONOMIC RESILIENCE
2. Our GDP growth accelerated to 4.9% in the second quarter of 2019,from 4.5% in the firstquarter. Not only it is above market expectations,it also makes our country as among the few in the world that experienced faster growth.Furthermore, the Department of Statistics shows that wholesale and retail sales grew 6.1% in the second quarter in current prices. Such growth highlights the resilience of the Malaysian economy at a time when the global growth is going through a synchronized slow down.
3. Low and stable inflation has helped sustained our private consumption growth. Inflation for the second quarter was only 0.7% thanks to active government’s policy in managing living costs faced by the rakyat. In particular, RON95 and diesel prices have been capped by the government at RM2.08/litre and RM2.18/litre respectively. This policy plays a big role in keeping inflation low. Unemployment rate is also low at 3.3% in the same period.
4. On the supply-side, Malaysia experienced a sustained recovery in mining output after 6 quarters of contraction due to gas supply disruption. In the second quarter,the mining sector expanded 2.9% after shrinking 2.1% in the first quarter of 2019. The agriculture sector also did well so far this year, growing 4.2% in the second quarter after expanding 5.6% in the first quarter of 2019, in contrast to last year when it shrank for 3 quarters.
5. Moreover, Malaysia has a sizeable current account surplus. In the second quarter of 2019, our current account surplus was 3.9% of GNI, or RM14.3 billion
6. This along with sustainable robust economic growth have convinced global rating agencies Fitch, Moody’s and S&P to retain Malaysia’s sovereign credit rating high at A3 or A- with a stable outlook. This highlights the confidence the international investing community has in Malaysia.
REORIENTATION OF THE GLOBAL SUPPLY CHAIN
7. The trade war between China and the US is definitely a negative factor on global trade and economy. The International Monetary Fund(IMF) in July down graded its 2019 global GDP growth forecast to 3.2% from 3.3% out of concerns over the escalating trade war. Earlier this year, the IMF had projected the world’s GDP to grow faster at 3.5%.This is a reality of a globalised world.
8. Yet, Malaysia has been a beneficiary of a more integrated world,as demonstrated by our roles in the global manufacturing supply chain. This is a result from our export-led industrialisation, with the model peaking in year 2000 when total trade as a proportion of GDP reached 220%. It has come down since then as our domestic economy grew and matured, but total trade still formed 140% of our economy.
MALAYSIA IS RIDING ON THE REORIENTATION
9. The global supply chain reorientation caused by the trade war is real and permanent. So far, Malaysia is benefiting from business relocation, as well as investment and trade diversion caused by the tradewar. Bank Negara Malaysia’s recent analysis has confirmed this for multiple manufacturing products. For instance, between July 2018 and April 2019, Malaysia’s share of photosensitive semi conductor device and diode/transistor imports by the US rose by approximately 10% and 6% respectively. At the same time, Malaysia’s share of China’s imports of petrochemical products increased by nearly 25%.
10. We have seen a surge in approved foreign investment. MIDA numbers show that approved foreign investment for all sectors in the first half of 2019 rose 97.2% to RM49.5 billion from RM25.1 billion in the same period a year ago.
11. However, there are no winners in a trade war eventually,only losers.
12. Our medium-term plan is to capitalise on that permanent reorientation of the global supply chain by focusing and riding on the proliferation of Industry 4.0 technologies like automation, artificial intelligence, robotics and big data analytics. These are our new growth engine and we are doing so by providing Malaysian companies with incentives worth RM6.5 billion to adopt aggressive digitalisation, while laying down the necessary digital infrastructure to give Malaysia the first-mover advantage when it comes to 5G technology.
13. Malaysia is investing RM21.6 billion from 2019 to 2023 as part of its National Fiberisation and Connectivity Plan (NFCP) to raise the quality, increase the speed, widen the coverage and improve the affordability of high-speed broadband internet throughout Malaysia. A significant portion of the cost would be financed by the Universal Service Provision(USP) Fund and by private sources.
14. With improved digital infrastructure, together with stronger rule of law, reformed institutions, skilled multilingual workforce, excellent physical infrastructure and business-friendly policy,we would be in the right position to fully capitalise on the next global growth upswing.
15. The Ministry of Finance and the Ministry of International Trade and Industry recently have formed a joint-ministerial committee to speed up decision-making while simplifying approval processes at the highest level, especially when it relates to high-tech and high-value investments. The committee co-chaired by YB Darrell Leiking and I demonstrate the Government’s seriousness in attracting the highest quality investment that will provide jobs of the future for all Malaysians. We held the first meeting yesterday and the committee has approved 3 projects with the combined worth approximately RM2.2billion.
FISCAL AND INSTITUTIONAL REFORMS
16. Fiscal and institutional reforms with a focus on Competency, Accountability and Transparency, along with fiscal consolidation are already bearing fruits despite legacy financial difficulties we inherit. This year, we are confident of reducing the Government’s fiscal deficit from 3.7% of GDP in 2018 to 3.4% this year.
17. One of many reforms we are undertaking is the shift from cash-basis accounting to accrual-based accounting that will be completed by 2021. The shift will give all stakeholders a clearer view of the Government’s financial obligations, and significantly cut down on the opportunity for abuse. Fiscal Responsibility Act that will in culcate greater accountability in the public sector is expected to be table in 2021 too. Wider open tender system has been implemented and its processes will continued to be improved.
SELECTED INITIATIVES FROM BUDGET 2019
18. In the meantime, as promised the Government is paying out all GST and income tax refunds unpaid by the previous administration, financed by the one-time Petronas special dividend. As of end-June 2019,the Government has returned approximately RM24.7 billion to various tax payers.We expect to completely pay off the RM37billion unpaid refunds and this is only possible because there was a change of government. There funds made has eased cashflow issues faced by businesses, and acted as an implicit economic stimulus.
19. Other on going initiatives I would like to highlight is the Home Ownership Campaign where the Government and developers collaborate to lower the cost of home ownership. Under the campaign, buyers enjoy stamp duty exemptions on the first RM1 million of the house value, 100% stamp duty exemption on the loan agreement, and at least 10% discount on the house salep rice. All homes priced from RM300,000 up to RM2.5 million offered by eligible developers qualify for this campaign. The campaign lasts until the end of the year.
20. This complements efforts by Bank Negara to make housing more affordable, among others through its RM1 billion fund called Dana Rumah Mampu Milik. Effective 1 September 2019, anybody earning up to RM4,360 monthly purchasing homes costing up to RM300,000 per unit will qualify to apply for the fund.
PREPARING FOR BUDGET 2020
21. We are in the midst of preparing the 2020 Budget, which will be tabled at the Parliament on 11 October 2019. While we will carry on with our medium-term fiscal consolidation, it will be done gradually to not affect the growth of the economy in line with the goals of “Shared Prosperity” espoused by Prime Minister Tun Dr Mahathir Mohamad.
22. While we wish to consolidate our debt, we do need an expansionary budget to mitigate the negative effects of the trade war.This is important to preserve as well as to raise our living standards. At the same time, Budget 2020 unlikely to see any new taxes and we definitely have no plan to introduce inheritance tax.
23. There will be multiple thrusts in the Budget, but one of them will be to support Malaysian efforts to capitalise from the permanent reorientation of the global supply chain through the application of new technology as mentioned earlier. These measures will bring about new opportunities, jobs and dignity for Malaysians.
24. In the spirit of greater collaboration, the Government is running a series of budget focus groups where we discuss with the private sector of various ideas we should adopt and implement like affordable housing and business access to credits.This is administration is open to views on how to lessen financial burdens and increase financing access to businesses.
25. Malaysia is already one of the most competitive economies in the world.The IMD ranks Malaysia as the 22nd most competitive economy out of 6 6countries in its 2019 World Competitiveness Year book.The World Bank places Malaysia 15th out of 190 countries as the easiest place to do business in its Doing Business 2019 Report.
26. But there is much more to be done and we have no choice but to improve further.To succeed, the Government needs the supporto f the business community and the rakyat. We are in this together and I am sure all of us would like to see Malaysia regain its status a proud Asian Tiger.