IS MALAYSIA’s stronger than expected 2022 second-quarter growth of 8.9% due to the extraordinary increase in private sector consumption and investment of 18.3% and 6.3%, respectively, following the one-off Employees Provident Fund (EPF) special withdrawals of RM10,000 disbursed in April 2022?   

If so, then growth for the third and fourth quarters may not be so robust since the effect from the expenditure of the RM10,000 one-off EPF special withdrawals amounting to RM44 bil would have greatly dissipated. 

The Government has announced three special EPF withdrawal schemes since 2020 – i-Lestari, i-Sinar and i-Citra – with a total of RM101 bil withdrawn by EPF members to date.  

The one-off RM10,000 one-off EPF special withdrawals, commencing on 18 April, amounted to RM44 bil.  

Coupled with RM10 bil drawn from the employee share statutory contribution rate reduction programme, a total of RM155 bil was withdrawn from EPF during the past 27 months. 

As primary drivers of economic growth, private sector consumption and investment only grew by 5.5% and 0.4% in the first quarter of 2022. 

If the RM44 bil from the RM10,000 one-off special EPF withdrawal did not generate the 18.3% jump in private sector consumption for the second quarter, Bank Negara Malaysia (BNM) should determine the source of the increase.  

This is necessary to see whether the 18.3% private sector consumption increase can be replicated for the third and fourth quarters of the year to enable Malaysia to continue enjoying robust economic growth. 

BNM had conceded that the second quarter gross domestic product (GDP) growth was lifted up to some extent by the low base from the Full Movement Control Order (FMCO) in June 2021.   

This may explain why GDP spurted by a 16.5% growth in June 2022 as compared to June 2021, whereas GDP growth for April and May 2022 was more evenly sustained at 5.6% and 5%, respectively.     

“Not reflected in Bursa performance, ringgit value” 

Despite Malaysia’s GDP growing for the first half of 2022 by 6.9%, this is not reflected in the performance of Bursa Malaysia and in the value of the ringgit.   

The ringgit continues to decline against the Singapore dollar, falling to the lowest value on record of RM3.25 on Aug 11. It also fell to a five-year low of RM4.46 against the US, and has even weakened against the Indonesian rupiah. 

Despite high oil and palm oil prices, the ringgit continues to depreciate when it should be strengthening.  

BNM’s increase in interest rates by 50 basis points has no discernible effect. As a result of the weak ringgit, rising prices for imported materials have wreaked havoc for businesspersons. 

There is a concern on whether Malaysia’s second quarter economic growth is too reliant on firm domestic demand, particularly the RM44 bil one-off EPF special withdrawals.  

Since there is no more RM44 bill one-off EPF special withdrawal in the pipeline, Malaysia’s economic growth will depend on external demand, which is subject to slower global growth. 

While the Government continues to express optimism that Malaysia can achieve the 2022 projected economic growth of up to 6.3%, this sentiment is not shared by the International Monetary Fund (IMF), which lowered its growth target of Malaysia to, at best, 5.6% for 2022.  

To sustain robust economic growth, BNM should stop hiking interest rates, which has increasingly burdened businesses and housing loan borrowers. – Aug 13, 2022 

Lim Guan Eng is DAP national chairman, Bagan MP and a former finance minister. 

https://focusmalaysia.my/to-sustain-robust-economic-growth-bnm-must-stop-hiking-interest-rates/