More economic reforms needed to lift currency
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More economic reforms needed to lift currency
Saturday, 2 April 2016
BY M. SHANMUGAM
THE ringgit has strengthened and Bursa Malaysia has come off its lows of January to be at the 1,700-point level.However, the economy is still a worry, although Malaysia is in a much better shape and position compared with other oil-exporting countries.
Unlike Brazil, Venezuela and Russia, where the currencies have taken a beating over the last one year and have yet to recover, Malaysia is better off.
Fortunately, the goods and services tax (GST), which was implemented in April 2015, had become a major source of revenue for the Federal Government that would have otherwise faced an acute funding shortfall this year in the face of a steep drop in the price of oil.
One dreads to think about the predicament of the economy had we not have the RM39bil expected from the collection of the GST this year.
Businesses are majorly affected during a slow economy. Companies are forced to make painful adjustments to cope with the rising cost of doing business.
Unemployment is creeping up due to cost-cutting and the private sector is cautious about its spending, as many are not certain about how long the painful adjustment process would go on.
In the meantime, Malaysians are still making foreign currency deposits, indicating the lack of confidence in the local currency.
This trend has been happening since January 2007, where the foreign currency deposits held by Malaysians within the local banking system have been on the increase every month, except in December 2009.
As of the end of last year, the amount of foreign currency deposits stood at RM139bil.
In January 2007, it was only RM21.4bil.
The continuing trend of the growing foreign currency deposits is a clear sign that Malaysians are lacking in confidence in the ringgit in the longer term.
The GST is an example of political dependency. It had been talked about since former Prime Minister Tun Abdullah Ahmad Badawi’s first Budget in 2004. It became a reality in 2015 after the politicians were convinced that it was a way of diversifying the Federal Government’s revenue.
Further upside in the ringgit and the stockmarket will only come if there are clear signals of reforms to restructure the economy. And in the case of Malaysia, economic reformation cannot take place if there is no political resolve to do it.
One aspect that is of concern is the rising cost of labour. Stabilising the increase in labour cost is the right thing to do to help restructure the Malaysian economy.
The move comes as cigarette manufacturers complain that the high tax regime has come to a tipping point for the industry, as it is facing competition from illegal cigarette distributors.
British American Tobacco (M) Bhd has said that shutting down its plant and the strategy to source tobacco products from the region are part of its business model to sustain operations in an increasingly challenging environment.
For years, the cigarette manufacturers had a tireless campaign against contraband, but with little success.
The biggest reform challenge that the country continues to face is the lack of accountability and transparency in the handling of public funds.
There is nothing to suggest any wrongdoing in the process of awarding a tender.
However, the non-transparent process allows for complacency, inefficiency and corruption.
Only a few are aware of the jobs tendered and the entire procedure is controlled by a select group of people in the respective ministries.
In connection with the misappropriation of government funds involving RM107mil in the Youth and Sports Ministry, the minister has come out to say that the official had exploited some shortcomings in the system and they were working to rectify it.
The question is: how many more “Youth and Sports Ministry” cases are there in the system?
More economic reforms needed to lift currency
BY M. SHANMUGAM
THE ringgit has strengthened and Bursa Malaysia has come off its lows of January to be at the 1,700-point level.However, the economy is still a worry, although Malaysia is in a much better shape and position compared with other oil-exporting countries.
Unlike Brazil, Venezuela and Russia, where the currencies have taken a beating over the last one year and have yet to recover, Malaysia is better off.
Fortunately, the goods and services tax (GST), which was implemented in April 2015, had become a major source of revenue for the Federal Government that would have otherwise faced an acute funding shortfall this year in the face of a steep drop in the price of oil.
One dreads to think about the predicament of the economy had we not have the RM39bil expected from the collection of the GST this year.
Businesses are majorly affected during a slow economy. Companies are forced to make painful adjustments to cope with the rising cost of doing business.
Unemployment is creeping up due to cost-cutting and the private sector is cautious about its spending, as many are not certain about how long the painful adjustment process would go on.
In the meantime, Malaysians are still making foreign currency deposits, indicating the lack of confidence in the local currency.
This trend has been happening since January 2007, where the foreign currency deposits held by Malaysians within the local banking system have been on the increase every month, except in December 2009.
As of the end of last year, the amount of foreign currency deposits stood at RM139bil.
In January 2007, it was only RM21.4bil.
The continuing trend of the growing foreign currency deposits is a clear sign that Malaysians are lacking in confidence in the ringgit in the longer term.
The GST is an example of political dependency. It had been talked about since former Prime Minister Tun Abdullah Ahmad Badawi’s first Budget in 2004. It became a reality in 2015 after the politicians were convinced that it was a way of diversifying the Federal Government’s revenue.
Further upside in the ringgit and the stockmarket will only come if there are clear signals of reforms to restructure the economy. And in the case of Malaysia, economic reformation cannot take place if there is no political resolve to do it.
One aspect that is of concern is the rising cost of labour. Stabilising the increase in labour cost is the right thing to do to help restructure the Malaysian economy.
The move comes as cigarette manufacturers complain that the high tax regime has come to a tipping point for the industry, as it is facing competition from illegal cigarette distributors.
British American Tobacco (M) Bhd has said that shutting down its plant and the strategy to source tobacco products from the region are part of its business model to sustain operations in an increasingly challenging environment.
For years, the cigarette manufacturers had a tireless campaign against contraband, but with little success.
The biggest reform challenge that the country continues to face is the lack of accountability and transparency in the handling of public funds.
There is nothing to suggest any wrongdoing in the process of awarding a tender.
However, the non-transparent process allows for complacency, inefficiency and corruption.
Only a few are aware of the jobs tendered and the entire procedure is controlled by a select group of people in the respective ministries.
In connection with the misappropriation of government funds involving RM107mil in the Youth and Sports Ministry, the minister has come out to say that the official had exploited some shortcomings in the system and they were working to rectify it.
The question is: how many more “Youth and Sports Ministry” cases are there in the system?
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