He said the International Monetary Fund’s April 2018 “Fiscal Monitor” put Malaysia’s general government overall balance (deficit) at 2.9% of gross domestic product (GDP) in 2017 — one-third below the emerging market average of 4.4% deficit.
“Achieving this feat at a time when oil prices had collapsed was due to the implementation of the broad-based, internationally-accepted tax framework, including the GST,” the well-known former central banker said in an article published by the Asian Correspondent news website.
“This was a key policy reform that enabled Malaysia to diversify and broaden its revenue streams to ensure that the country will be able to transit into an advanced income status with a broader revenue base.”
Sheng also said there was also a misconception now that the Malaysian economy was not performing.
On the contrary, he said the World Bank in April upgraded Malaysia’s GDP growth forecast for 2018 to 5.4%, from 5.2%, on strong private sector spending and private consumption — the fourth upward revision since April 2017.
“Similarly, in line with global recovery and continued expansion in domestic demand, the Malaysian central bank’s forecast for 2018 has been revised upwards to 5.5-6%, from 5-5.5% previously.
“That trajectory would make Malaysia one of the faster growing middle-income economies in the world.”
Growth higher than Singapore
Sheng said Malaysia’s growth had consistently been higher than that of Singapore since 2012, more than double that of emerging markets in the Latin American countries and one-third faster than the Middle East, North America emerging markets.
“Part of the recovery has been due to rising oil prices as well as rebounding exports of commodities, such as natural gas and palm oil, but not all.
“Such sustained growth is a result of deliberate planning.
“Malaysia has learnt significantly post the 1997/98 Asian Financial Crisis, basing growth on prudent monetary policies, responsive fiscal policies and strong foreign reserves.
“Despite the meltdown in oil prices in 2014/2015, tighter fiscal discipline and anticipatory action have kept Malaysia’s economy adaptive to very complex challenges at the global and regional levels.”
Sheng said Malaysia’s debt currently stood at RM685 billion, or 51% of GDP, the lowest level since 2012.
The standard rule of thumb is for the government debt to GDP ratio to not exceed 60% (the level imposed on European Union Maastricht Fiscal Compact), he added.
“The most important point to note is that 96.7% of the federal government debts are in ringgit.
“Malaysia has a diversified debt profile, with more than 70% held by domestic investors such as the pension, insurance and provident funds. Foreigners hold only 28.5% of the debt papers.”