100-day Timeframe to Implement Effective Changes to the Economy

We attended the Briefing by the Council of Eminent Persons on 15 May at Sasana Kijang Bank Negara Malaysia (BNM), which was chaired by Tun Daim Zainuddin, Head of the Council of Eminent Persons. During the briefing, Tan Sri Dr. Zeti Akhtar Aziz presented and highlighted that country’s economic fundamentals and financial market remains sound, but acknowledged that the change in Government has created some uncertainty to investors. As such, the purpose of the briefing with economists, analysts and fund managers was to address some of the issues raised, especially on the fiscal reform plan. Dr Zeti guided that the Malaysian economy is currently supported by steady global economic growth, as well as healthy domestic demand, where the new Government is able to go through the challenging fiscal tax reforms with minimal disruption, supported by the country’s financial market stability.

The Council of Eminent Persons already met with the three key sovereign rating agencies (i.e. Moody's Investors Service, S&P Global Ratings and Fitch Ratings) to also address their concerns raised, such as the country’s fiscal deficit position, after the abolishment of Goods and Services Tax (GST), as well as how Malaysia could meet its revenue requirements. Dr Zeti also indicated that the new Government will honour its debt obligations, even after the removal of GST. Dr Zeti guided that the new Government will provide further clarity on the country’s tax reform policies within the 100 days. The Sales and Services Tax (SST) will be reinstated to replace the GST. A suggestion was for the GST tax rate to be zerorise from the current rate of 6% to 0%. Dr Zeti highlighted that the clear understanding and ultimate objective of abolishing GST is to put money in the hand of consumers (especially in the middle to lower income segment). Earlier announcements of raising the minimum wage to RM1,500 from RM1,000 currently as well as providing target petrol subsidies are also intended to increase disposable income and thus, raising consumer spending.

Source: Affin Hwang Research - 16 May 2018