(Bloomberg) -- Malaysia is on track for faster economic growth, a narrower fiscal gap and steady prices, setting the stage for sustained currency strength and increased investment, Second Finance Minister Amir Hamzah Azizan said.
“The ringgit will find the natural level commensurate to the growth prospect of the country” and be aided by a decline in interest rate differentials with the US, Amir said in an interview in Washington on Thursday. “Malaysia will look more attractive and the ringgit should strengthen along the way.”
The Malaysian currency is the best performer in emerging markets this year, even after paring gains following its best quarter in 50 years. Investors have been lured by economic growth that’s surpassed estimates and the prospect that the key interest rate will stay on hold longer than many of its neighbors.
“Just because everybody has cut, doesn’t mean we have to cut,” Amir said on the sidelines of the IMF and World Bank annual meetings, describing current settings as “still very accommodative.” The economy doesn’t need any stimulus at this point, he said, commending Bank Negara Malaysia’s handling of inflation.
Prime Minister Anwar Ibrahim’s administration is seeking to fire up “multiple engines of growth” while delivering on its commitment to bring the budget deficit below 3% of gross domestic product by 2028, he said. Restoring fiscal health is key for Malaysia to retain Southeast Asia’s highest credit score and keep investors’ faith as Anwar looks to develop it into a global tech hub.
Anwar, who doubles as finance minister, unveiled his third annual budget last week with a record spending plan for 2025 that relies on higher taxes, accelerating growth and lower subsidies to help him cut the deficit to 3.8% of GDP in 2025, from 4.3% this year.
The government plans to end blanket subsidies to RON95, the country’s most popular fuel, by May, said Amir, in a move that will enable it to save about 8 billion ringgit ($1.8 billion) a year. The minister is looking at an initial 5 billion ringgit windfall in 2025 from the move.
That adds to the 6 billion ringgit in estimated savings this year from removal of a diesel subsidy beginning in June, he said. Amir said the inflation impact from ending the broad support for RON95 will be contained.
The government is considering a two-tiered price system so that the nation’s wealthiest 15% pay the market rate while the rest of the population continues to enjoy subsidies. The government is treading cautiously to ward off any public backlash and inflation. Malaysia expects consumer price gains will average within a range of 2% to 3.5% next year, from a projected 1.5% to 2.5% in 2024.
Malaysia’s nascent stability hinges on how well the government navigates fiscal and economic reforms. Anwar’s rise to power in late 2022 capped five years of political volatility, and now he must juggle competing interests in his unity government while appeasing an electorate quick to punish leaders for higher living costs.
Tech giants including Microsoft Corp., Nvidia Corp. and Amazon.com Inc. have pledged to invest billions of dollars in the country’s infrastructure as Anwar bets on Malaysia’s non-aligned stance and resilient economy to insulate it from geopolitical and market volatility.
Malaysia’s economy is on track to meet the government’s revised annual growth forecast of between 4.8%-5.3% in 2024.
The government expects GDP to grow by about 4.5% to 5.5% next year, largely exceeding the 4.6% expansion predicted by analysts surveyed by Bloomberg. Higher salaries for civil servants, as well as plans to increase the minimum wage in the private sector, are poised to boost domestic demand in 2025.
The trade-reliant economy is also watchful of external risks including the US election and the continuing rivalry between Washington and Beijing. China’s slowdown has also weighed on Malaysia’s exports.
Amir said the government is reviewing whether China has been dumping some of its products in Malaysia’s market, and is open to fending it off with “whatever is available in our tool kit.”
Malaysia’s neutrality has served it well as it benefits from a supply chain realignment, according to Amir. “It gives us the best chance to ride it out,” he said of escalating geopolitical tensions and trade disputes roiling the world.
--With assistance from Enda Curran.
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