OF late, there seems to be growing concern about the Malaysian economy. Seeing what has transpired in Sri Lanka, some have been trying to juxtapose Sri Lanka's economy with the Malaysian economy, implying that the Malaysian economy is on the verge of bankruptcy.

Others would pick and choose economic variables to justify and conclude their analysis that the Malaysian economy is now way behind her neighbours.

For instance, there is an analysis which suggests that the Malaysian economy is now way behind Indonesia's because of "bad" fiscal management in the past 20 years.

Another concern would be the decline in the value of the ringgit against the greenback, where there is a talk about re-pegging the ringgit. 

The spike in cost of living is another variable used by some analysts to infer that the Malaysian economy is now not moving in the right direction.

Let me first elaborate on the Malaysia-Sri Lanka comparison. The main issue in the Sri Lankan economy is the inability of the country to pay its external debts. Indeed, more than 50 per cent of Sri Lankan debt or US$52 billion are foreign currency debts.

For Malaysia, more than 98 per cent of its debts are from domestic sources, so it is highly unlikely to default as Malaysia has high degree of monetary sovereignty, and hence, can pay its debt obligations.

The other aspect of the Sri Lankan economy is that it experienced twin deficits — budget and current account deficits. Malaysia, on the other hand, recorded a surplus of US$60.1 billion in the international trade balance and hence, a twin deficit scenario for Malaysia is highly unlikely at this time.

It comes as no surprise that this argument about the Malaysian economy on the verge of bankruptcy has popped up just as the 15th General Election (GE15) is looming. A similar narrative arose even before GE14. It was clearly a hoax as Malaysia has not fallen into bankruptcy even until today.

This leads me to the second analysis, that is Malaysia has had "bad" fiscal management in the past 20 years when comparing our economy with Indonesia.

In the past decade, Malaysia managed to reduce its fiscal deficit to three per cent in 2017, from 6.7 per cent in 2009.

This cannot be classified as bad fiscal management, what more with Malaysia's fiscal consolidation exercise from 2009 to 2017, which was praised by many independent and credible international institutions, including the International Monetary Fund.

As Malaysia's ringgit depreciated recently against the greenback, one should remember that the value of the ringgit sometimes may not reflect the strength or performance of an economy.

In Malaysia's case, the ringgit depreciation appears to be temporary. There is nothing unusual about the weakening of the ringgit as it is in line with the regional trend as well.

In this sense, the decision by Bank Negara Malaysia to increase the Overnight Policy Rate by 25 basis points is correct. There is no need to peg the ringgit.

Pegging will weaken and worsen our monetary sovereignty over time, and can reduce our ability to manoeuvre our monetary policy tools and direction in the future.

Finally, the spike in cost of living and food supply inadequacy are real. But, this is not an indicator of the economy being mismanaged.

The impending cost of living crisis is now undeniably a global phenomenon, which is caused by something beyond our control, like the conflict in Ukraine and global supply chain disruptions as post-pandemic effects.

But, the government is doing its best to control the situation, like introducing subsidies, price ceiling mechanisms, price controls, cash assistance, and recently, the abolishment of approved permits for food imports.

As of now, short- and long-term measures and plans are needed, especially in dealing with both food inflation and food shortages.

While highlighting the issues above, not many have noticed Malaysia's latest first quarter economic data.

The data tells us that the Malaysian economy is not going in the direction of Sri Lanka, growth momentum is stable, the movement of the ringgit is well monitored, and inflation is under control.

A five per cent gross domestic product rate is one of the best performance in this region.

Even the labour market condition has been improving — the number of employed persons has increased, unemployment is reduced and thus, an overall improvement in the labour force participation rate by 0.4 percentage point to 69 per cent.

While global uncertainty remains, the prospect of the Malaysian economy for the rest of 2022 seems bright.

With borders reopening and economic and social activities returning to normalcy, the Malaysian economy is on track towards a recovery path momentum for this year.

The writer is Associate Professor at the School of Economics, Finance and Banking, Universiti Utara Malaysia

https://www.nst.com.my/opinion/columnists/2022/05/798888/track-better-economic-performance-rest-year