KUALA LUMPUR: Looking back at the eventful year 2022, when Malaysians voted for a new government, while on the other side, the world war between Ukraine and Russia continues to sow death and destruction to the people, April 1, 2022, although it was D-Day for Malaysia as its borders finally reopened after two years of closure due to COVID-19.
This means that the country has officially entered the “transition to the endemic phase” of COVID-19, and people and businesses can eventually return to near-normal pre-pandemic life after being embarrassed by on-again, off-again shutdowns since 2020. the entire pandemic.
The re-opening of borders is like a beacon sending light and hope at the end of a long, dark tunnel, even as Malaysia, like every country in the world, continues to face challenges brought about by external winds such as the war between Ukraine and Russia, volatility in global crude oil prices, China’s economic slowdown due to severe COVID restrictions and fears of inflation.
At home, the formation of a unity government comprising Pakatan Harapan (PH), Barisan Nasional (BN) and Gabungan Parti Sarawak (GPS) led by new Prime Minister Datuk Seri Anwar Ibrahim is aimed at reviving the confidence of the people and investors.
He assured that the unity government under his administration would ensure the stability of the country and its economy and preserve the spirit of the federal constitution.
Anwar also said that the 2023 budget will be reviewed and amended taking into account the views of the Ministry of Finance (MoF) and the newly appointed Cabinet of the Unity Government.
To recap, then Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz tabled a budget of RM372.3 billion for 2023 on 7 October 2022, the largest allocation in Malaysia’s history. Three days later, on 10 October, Parliament was dissolved to make way for the 15th General Election (GE15) on 19 November 2022.
Under the unity government, Zafrul is the Minister of International Trade and Industry (MITI).
On December 19, 2022, the 15th session of the DZ will give its consent to the salaries of civil servants.
Reopening borders boosts GDP growth
Malaysia’s economy started to see green shoots in the first quarter (Q1) of 2022 as its gross domestic product (GDP) grew by 5.0 percent year-on-year (y-o-y), attributable to the easing of measures to contain the COVID-19 that led to an improvement in domestic demand as economic activities normalized.
With the re-opening of borders coupled with a special one-off withdrawal of RM10,000 from the Employees Provident Fund (EPF) in April 2022, the country’s GDP continued to grow strongly at 8.9 percent year-on-year in the second quarter, outperforming several developed and regional countries including China ( 0.4 percent), the United States (1.6 percent), the European Union (4.0 percent) and Singapore (4.4 percent).
According to Bank Negara Malaysia (BNM), performance in the second quarter was underpinned by strengthening domestic demand, supported by a steady recovery in labor market conditions and continued policy support, despite the effect of a low base from the latest Full Movement Control Order (FMCO). year.
In the third quarter, Malaysia’s GDP maintained a higher rate of 14.2 percent, the fastest growth rate among ASEAN member states, as it was boosted by continued expansion in domestic demand, robust electrical and electronics (E&E) exports and non-E&E exports, current policy support and a robust labor market recovery, with the unemployment rate falling to a record low of 3.6 percent in September 2022 from a peak of 5.3 percent in May 2020 during the pandemic.
With healthy growth in the first nine months of 2022, of which GDP grew by an average of 9.4 per cent year-on-year, BNM Governor Tan Sri Nor Shamsiah Yunus expected full-year 2022 growth to exceed the target of 7.0 per cent, projected earlier, and the economy is expected to grow by 4.0-5.0 percent in 2023.
In terms of foreign direct investment (FDI), data from the Department of Statistics Malaysia (DoSM) showed that it increased to RM860.8 billion at the end of the third quarter of 2022, compared to RM763.20 billion in the third quarter of 2021, with the source of FDI mostly from Singapore (20.6 percent), USA (11.5 percent) and Hong Kong (10.7 percent).
In terms of exports, DoSM statistics showed that from January to October 2022, Malaysia’s exports increased by 28.5 percent year-on-year to RM1.29 trillion, compared to RM1.0 trillion in the same period last year, while imports up 35.4 percent y-o-y to RM1.08 trillion Previously RM801.0 billion, with trade surplus gaining 1.3 percent y-o-y to RM205.61 billion from RM202.91 billion.
Inflation, the culprit behind interest rate hikes
It all started in the United States (US), with its CPI rising sharply year-to-date and hitting a 41-year high of 9.1 percent in June 2022.
To curb stubbornly high inflation, the US central bank has aggressively raised interest rates six times in a row since March this year, with a total increase of 375 basis points. This caused the benchmark interest rate to touch a range of 3.75-4.00 percent in November 2022 from a range of 0-0.25 percent in March 2022.
Compared to the US, inflation in Malaysia was relatively mild, with headline and core inflation rising modestly to 2.8 and 2.5 percent in the second quarter from 2.2 and 1.7 percent in the first quarter, reflecting improving conditions demand in a high-cost environment, with price increases mainly due to food prices.
However, inflation continued to rise in the third quarter, with headline inflation rising to 4.5 percent, while core inflation increased to 3.7 percent. It was mainly due to the base effect of the reduction in electricity bills introduced in the third quarter of 2021, as well as a sustained increase in core inflation and price volatility.
Although the governor expected headline inflation to peak in the third quarter, she predicted that inflation would remain elevated until the end of the year and assured that Malaysia does not expect a recession in 2023, in line with improvements in economic growth.
As for the overnight policy rate (OPR), given the hawkish rate hike by the US Fed and rising inflation in Malaysia, BNM has inevitably tightened the benchmark rate by a quarter point at its May 2022 meeting to 2.0 percent.
This was the first increase in OPR since the central bank kept the interest rate at a historic low of 1.75 percent on July 7, 2020.
Subsequently, BNM continued to raise the OPR by 0.25 per cent in July, September and November to end 2022 at 2.75 per cent.
A subsidy of RM80 billion, the largest ever, likely to be awarded in 2022
To combat inflation amid rising crude oil prices, with benchmark Brent crude once hitting a 14-year high of $123.21 a barrel in March 2022, the government has provided various consumption subsidies that include petrol, diesel and liquefied petroleum gas. gas (LPG). , cooking oil, flour and electricity to reduce inflationary pressures on the people.
The total amount of subsidies is expected to reach RM80 billion in 2022, the largest amount in Malaysia’s history.
In addition, the Ministry of Finance said that by the end of June 2022, Malaysia’s external debt had risen to RM1.128 trillion or 65.9 percent of GDP, mainly due to higher interbank borrowings and the effects of foreign currency exchange rate appreciation following the depreciation of the ringgit, particularly in compared to the US dollar.
“In 2021, it was RM1.082 trillion or 70 percent of GDP,” the ministry revealed in its 2023 Fiscal Forecast and Federal Government Revenue Estimates report released in October 2022.
The finance ministry said that by the end of 2023, total debt is expected to be 65 percent of GDP and statutory debt 63 percent, as borrowings remain significant due to higher funds for development expenditure and high principal repayment obligations, which include redemptions. maturing 1MDB bonds.
As for the fiscal deficit, the MoF expects it to decrease to 5.5 percent of GDP in 2023 from 5.8 percent of GDP in 2022.
“The fiscal deficit is expected to consolidate gradually with a total balance averaging 4.4 percent of GDP for the medium-term fiscal framework period 2023-2025,” he added. – Bernama