Malaysian economy relatively resilient — IMF

by **Cals** Tue 08 Dec 2015, 01:22

Malaysian economy relatively resilient — IMF

By Supriya Surendran / The Edge Financial Daily | December 7, 2015 : 9:36 AM MYT

This article first appeared in The Edge Financial Daily, on December 7, 2015.

[size=12][You must be registered and logged in to see this image.]Furusawa: Structural reforms are key for all emerging markets, and not just Malaysia, to improve the strength and competitiveness of these economies. Photo by Abdul Ghani Ismail

KUALA LUMPUR: The Malaysian economy is relatively resilient, despite the adversities thrown at it, namely the decline in commodity prices and the impact of the slowdown in the global economy in particular China, said International Monetary Fund (IMF) deputy managing director (DMD) Mitsuhiro Furusawa.

Furusawa, who was in Kuala Lumpur last week for the Asean+3 Finance and Central Bank Deputies’ Meeting, said the IMF is projecting that the Malaysian economy will grow by 4.5% in 2016, from a projected growth rate of 4.7% in 2015.

“The slower growth rate projected for Malaysia in 2016 compared to 2015 is due to the [continued] decline in commodity prices in particular crude oil prices and its effect on the country’s revenue, as well as the slowdown in China. Nevertheless, we believe that an economic growth rate of 4.5% is healthy and that the Malaysian economy will remain relatively resilient,” he told The Edge Financial Daily in an interview.

He said Malaysia being part of the Trans-Pacific Partnership trade pact is a positive element to its economy, as it provides a boost for international trade.

On what efforts Malaysia as an emerging market needs to take in its road towards becoming a developed nation, Furusawa said that structural reforms are key.

“Structural reforms are key for all emerging markets, and not just Malaysia, to improve the strength and competitiveness of these economies. Having a flexible exchange rate policy is also vital and for those emerging markets relying on oil exports, they would need to adjust their fiscal policy to adjust the decline in revenue.

“Macroprudential policies also need to be put in place to avoid excessive credit and rising leverage,” he said.

However, he added that performance of the economies in 2016, in particular of Asian emerging markets would still pretty much be dependent on China.

On China’s growth, the IMF has also projected a slower growth rate for the world’s second largest economy at 6.3% in 2016, from an estimated growth of 6.8% this year.

“The slowdown of China’s economy is reflective of the country’s transition of its growth model, from an investment-led growth to a consumption-led growth, and we believe that this transition is necessary towards a more sustainable growth for China,” he said.

Last Monday, the IMF announced that the yuan will be included in the IMF currency basket, known as the special drawing rights (SDR) effective Oct 1, 2016 and will join the likes of the US dollar, euro, pound sterling, and yen in the basket.

“The inclusion of the yuan in the SDR is an important milestone for the inclusion of China’s economy in the global financial system, and we think it gives a very positive implication towards the Chinese economy, and at the same time it enhances the value of the SDR,” said Furusawa.

He added that China had taken appropriate measures to fulfil the criteria for the inclusion of the yuan in the SDR, including the export criterion which ensures that currencies that qualify for the SDR basket are those issued by members or monetary unions that play a central role in the global economy, and that it has a currency that is “freely usable” or in other words widely used to make payments for international transactions and widely traded in the principal exchange markets.

On whether the inclusion of the yuan in the IMF currency basket would not imply the strengthening of the currency, Furusawa said no.

“There is no correlation between the two events,” he said.

Furusawa assumed office as IMF DMD in March this year. Prior to that, he had served the Japanese government as a special adviser to Prime Minister Shinzo Abe and special adviser to the finance minister.

On Japan’s economic growth in 2016, the IMF is predicting a 1% growth rate in 2016, from a projected growth rate of 0.6% in 2015.

“The Abe administration is very strong in Japan, and we expect the Japanese government to implement all the three arrows of Abenomics, not only the sound monetary and fiscal policies, but the structural policies as well,” said Furusawa.
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