Anwarnomics for Malaysia!

The new PM, Datuk Seri Anwar Ibrahim, has many things to tackle. But the good point is anything he does will be positive. You can’t get any lower than the previous PMs.

Besides Cabinet, he has to stamp his mark on cost of living, inflation and tepid growth. Others will include FDIs, DDIs, reforms of institutions, reset education, huge debts at Prasarana and DanaInfra, revise MM2H, transparency on missing persons, deaths in custody, steps to reduce corruption and affordable housing. It seems an awful lot to do. The malaise is really over the last 20 years or so. Some may like to take it over 40 years, but that’s not fair to Tun Mahathir.

Source: https://majoriti.com.my

On cost of living, he has asked the civil service to devise a mechanism for targeted subsidies. This is not easy and perhaps difficult to implement. It is better to transfer under BR1M to the B40s that truly need support. Inflation seems to be on a downward trend and it is best for BNM to address with measured OPR increase that may reduce imported inflation. Electricity tariffs could be reduced to bring cost to businesses lower and also for households. TNB need not have over RM3 billion or more in net profit a year. It just doesn’t make sense, unless you are an analyst or an investor in TNB. Petronas could reduce its retail pump price for RON95 – that will help lower transport costs. Forget about Shell and the rest, leave them to devise their own prices.

On the supply side, look at “pinch points” for disruptions. Food items will be prioritised for exemptions, APs, or availability of land. If we could increase basic necessities and ensure food security, we will weather any storm in 2023.

A stable political climate is sine quo non for investments. Dialogue/engagement with the private sector especially SMEs will be helpful. FDIs will follow if there is local vibrancy and tempo. Get the infrastructure agenda on track and “level-up” the economy so that growth and distribution is widespread and not focused on the Klang Valley. To do so, find new revenue sources from windfall tax to transaction (forex) tax.

There are several other initiatives. But set a tempo that (many) others want to follow. A winning team will certainly gather more followers, just ask Liverpool or Manchester City!

Is China’s Economy Losing Steam?

China's factory output was slower than expected and retail sales unexpectedly dropped in October. The world's second-largest economy is losing momentum as it struggles with protracted Covid-19 curbs and a property downturn. Property investment also fell at its fastest pace in 32 months, pointing to further weakness in a sector that accounts for a quarter of the economy.

China's economy is facing a series of headwinds including its zero-Covid policy, a property slump and global recession risks. Recent moves to ease some Covid curbs and provide financial support to the property market have underpinned market sentiment, but analysts expect Beijing's strict Covid policy to continue to weigh on economic activity.

Source: https://www.omfif.org

Industrial output rose 5.0% in October from a year earlier, missing expectations for a 5.2% gain in a Reuters poll and slowing from the 6.3% growth seen in September, data from the National Bureau of Statistics.

Retail sales, a gauge of consumption, fell for the first time since May, when Shanghai was under a city-wide lockdown. Sales dropped 0.5%, against expectations for a 1.0% rise and compared with a 2.5% gain in September.

Covid outbreaks widened across the country in October, disrupting pandemic-sensitive service businesses, such as the restaurant industry. China's catering revenue slumped 8.1%, down sharply from a 1.7% drop in September, NBS data showed. November is shaping up to be even worse. 

Property investment fell 16.0% year-on-year in October — its biggest drop since January-February 2020, according to Reuters calculations based on NBS data. It slumped 12.1% in September. Property sales measured by floor area dropped 23.2% year-year in October, falling for a 15th straight month, with buyers reluctant to take on more debt as the economy slows amid protracted Covid restrictions.

China's property sector has slowed sharply as the government has sought to restrict excessive borrowing. A plan to shore up liquidity outlined by Chinese regulators on Sunday sent Chinese property stocks and bonds soaring on Monday.

However, China's financial regulator said in a notice published that it will allow property developers to access some pre-sale housing funds, as a means to relieve the liquidity crunch.

Fixed asset investment expanded 5.8% in the first 10 month of the year, versus expectations for a 5.9% rise and growth of 5.9% in January-September.

Hiring remained low among companies growing increasingly wary about their finances. The nationwide survey-based jobless rate stayed at 5.5% in October, unchanged from September. Youth unemployment stood at 17.9%, also the same level as September.

The country is on track to miss its annual growth target of around 5.5%, say some analysts. What does that mean for Malaysia? It will be a dampener for our trade and investment numbers. China-Malaysia trade was USD131.2 billion in the first eight months of 2022. The growth was 21.1% on y-o-y basis. In 2021, a total of 43 manufacturing projects were approved from China worth USD3.98 billion and generated nearly 14,000 employment opportunities. A slowdown will therefore impact us in 2023.

Reference:

China’s economy loses steam as factory output, retail sales miss forecast, The Edge CEO Morning Brief, November 16, 2022

Is Malaysia’s Democracy Getting Better?

Amidst the post-election chaos, Malaysian democracy has matured to move forward. And unlike the Westminster convention, His Majesty and the Rulers were involved actively in the selection/confirmation of a leader and his acceptable coalition.

We may not all agree but we do have peaceful changes in Government. Changes in PMs, even with the Sheraton Move, was peaceful. This normality must be cherished, unlike some other countries. Even the U.S. faced unnecessary melodrama with Trump.

Source: https://theleaders-online.com

The integrity of the election process should not be taken for granted. Many volunteered and many others provided support for the whole process. Malaysians were aware of its (election) importance and went out to vote. We had the young people (above 18) voting for the first time – that was refreshing. Adequate security was present at all polling stations. So, thanks to the Election Commission and the police for their services. Of course, there were some hiccups, especially on closing times. This could be improved with better communication.

The political parties had manifestos that were reasonable and adequate. People could examine the content and decide for themselves. The hustings were lively and people could form an opinion as to who could serve them best. There were some disruptions and disgruntlement but that happens even in the U.K. and the U.S.

The result of a “hung” parliament was resolved by the King and his fellow rulers. That’s unique in the world. A government that serves everyone’s interests is the objective. The anti-hopping law also helped to keep the process from being too fluid and messy.

The rakyat are the real winners. They got to vote and decide the future of this nation. Many things can be said, but we all love Malaysia and we love each other  - no matter how different we look, worship or behave. I love Malaysia for its diversity... and unity on the essentials. So let us sow unity in essentials; liberty in non-essentials and charity (love) in all things (I have paraphrased St. Augustine).

Majulah Malaysia!

Has the Ringgit Regained Strength?

The ringgit is staging a strong rebound of 2.3% in recent days and more so with Anwar appointed as PM. The local currency strengthened past the 4.60 level, touching a high of 4.592 on Friday, Nov 11, driven by stronger-than-expected 3Q economic growth and a slight easing of the greenback after a milder expansion in the US Consumer Price Index (CPI) reading for October. Yesterday, (24 November) it hit 4.49, what a pleasant change!

The local currency also traded positively against a basket of other major currencies on Nov 14, with gains of 0.36%, 0.25% and 0.19% to 3.3405, 5.4187 and 4.7380 against the Singapore dollar, British pound and euro, respectively. It also strengthened 0.94% against 100 Japanese yen.  

Source: www.marketwatch.com

As the Fed is likely to pivot sooner than previously anticipated, MIDF Research expects the ringgit to end stronger by end-2022. The decline in oil prices has limited the ringgit’s appreciation, as Brent crude oil fell 1% to US$95.99 per barrel.

The greenback also depreciated against regional currencies on 14 November, including the Thai baht (-0.27%), the Chinese yuan (-0.21%) and the Taiwan dollar (-0.67%).

However, it appreciated against the Korean won (+0.58%), the Philippines peso (+0.02%), the Indonesian rupiah (+0.16%), the Indian rupee (+0.56%), as well as the Singapore dollar (+0.31%).

The easing of China’s stringent Zero-Covid-19 policy has sparked market optimism. 

• Beyond the Fed’s rate hikes, the factor which helped the ringgit rise in the past trading week had been the strengthening of the yuan following China’s support of the distressed property sector and signs of the country easing its zero-Covid rules.

• China has also rolled out some measures including the extension of repayment periods, facilitating finances for developers and lowering mortgage down-payments in support of its real estate market. The move by Beijing has helped the ringgit due to its strong correlation with the yuan.

• A stronger ringgit will help mitigate imported inflation if it is sustained.

• The ringgit may trade in a range of between RM4.40 and RM4.50 against the greenback over the next few weeks. The ringgit will see a sustained move to RM4.40 soon, and even RM4.16 over the next year if conditions continue to improve.

Hopefully, BNM will be mindful in raising OPR and assist in strengthening the ringgit to reduce imported inflation. But it is still far from RM3.80 to USD$1 under capital controls during Asian Financial Crisis. Although that (capital controls) is not something we should pursue!

References:

Ringgit regains strength days ahead of GE15 on positive macro factors, Priyatharisiny Vasu, The Edge CEO Morning Brief, November 15, 2022

Ringgit likely to retrace gains against the greenback, The Star, November 15, 2022 

The NEP: Now Everyone Prospers!

 We are a country with so much potential but constrained by political shenanigans of previous era. Why has Malaysia not met its full potential? Why has its development trajectory not led to the desired economic and social outcomes? And why is there a widely held belief that the country is somehow unable to change course for the better?

Malaysia has reached a critical juncture in its development: mounting pressures from within its own borders have been further exacerbated by Covid-19 and challenges associated with existential threats. These factors are compounded by widely acknowledged recognition of weak political leadership, insensitivity to the needs of the people and active engagement in exploiting the differences between classes and ethnic communities. Systemic corruption, weakening of institutions,  institutionalised racism and a neglected education system, you will have most of the answers.

With the polls, we can no longer shy away from the root causes of the deep economic and cultural challenges faced. We have to acknowledge how rent-seeking behaviour dominates an economy. The state lacks the institutional capacity and arguably the political will to reduce that. 

This is what basically the Global Institute For Tomorrow (GIT), an independent pan-Asian think tank explored.

The nation needs a new narrative – an NEP that is suited for the challenges of the 21st century. Now is the time for a much-needed national reset, including a rare opportunity to redesign our society. Thus, across five key pillars, the GIT report provides a fresh and bold national development manifesto to help Malaysia adapt to a new post-Covid-19 world, given the lessons the world should have learnt from the pain caused by the pandemic.

These are as follows:

• Reshaping Malaysia’s Economic Fundamentals: Valuing People and Environment – transitioning away from a focus on traditional indicators of development and economic growth, namely relentless overconsumption and unsustainable levels of debt creation, enabled by under-pricing resources and externalising true costs onto society and the environment. Instead, forging long-term economic health by revaluing Malaysia’s social and natural capital and building a society in which all citizens are equal, with a high quality of life measured by responsible citizenship, meaningful work for all, as well as wellness and health, not just gross domestic product (GDP) or income per capita.

• Prioritising Self-Sufficiency: Building True Resilience – recognising that the dominant pan-economic practice of exporting Malaysia’s resources (food, water, minerals, oil) and importing resulting deficiencies at high cost is not a sustainable model. Instead, the nation should nurture self-sufficiency without sacrificing competitiveness.

• Creating Shared Prosperity for All: Calling time on rent-seeking and race-based policies. Reinvigorating the government’s goal as providing means for gainful employment (both formal and informal) and quality of life improvements for all.

• GLC and GLIC Reform: From the Ashes of Business-as-Usual – altering the role of GLCs by realigning their mandates, including socio-economic objectives for the betterment of all Malaysian citizens. Tackling governance issues related to leadership and political appointees will be a key element.

• Education as a Right, not a Privilege: The Malaysians of Tomorrow – addressing the systemic discrimination that occurs in Malaysia’s education system, particularly at the tertiary level.

Now Everyone Prospers seeks to reshape modern Malaysia, helping the nation equip itself for the complexities of the 21st century and to secure its future. It is the bridge between what Malaysia is capable of and where it stands today.

The five pillars serve as an ambitious new manifesto to help political parties and their leaders offer a viable and much-needed pathway to long-overdue reform. Many of these issues are deeply entrenched in the country’s economic, political, societal and cultural systems. The need is urgent and the hard work of putting the country on a new trajectory must start now.

To put into action the recommendations of Now Everyone Prospers, the first step is to acknowledge the problems facing the country. However, decision-makers can no longer afford to ignore the elephant in the room; the risk of leaving them unaired only perpetuates the status quo and leads to national stagnation.

Second is to unlearn conventional wisdom with regard to the methods used to resolve the country’s crises. This means thinking beyond readymade solutions to economic and social challenges. Instead start reworking solutions to fit the Malaysian condition and the new era of existential threats and resource constraints.

There are no wholesale models to borrow from elsewhere. Malaysia could lead the charge in Asean if it is able to cut itself free from the crippling effects of its current malaise. Whichever economic or social approaches are pursued, they must be aligned with the cultural nuances of Malaysian society.

Finally, for everyone to prosper, a genuine commitment to transformation from leaders in government, the institutions of the state, and businesses on the forefront of seeking change. They will work to enact structural reform in Malaysia’s key public and private institutions. 

In coming together this way, “Malaysia Boleh” will no longer be a trite. It will be repurposed and reclaimed as a statement of pride, because together, we can forge a Malaysia in which Now Everyone Prospers and Not Elites Progress!

Reference:

Now everyone prospers-the NEP Malaysia needs, Chandran Nair, FMT, November 4, 2022

Will Domestic Demand Spur Growth?

Economists expect the gross domestic product (GDP) growth to ease from the fourth quarter of this year (4Q22) after a robust growth of 14.2% in the 3Q22. Economic strength going forward is buoyed by domestic demand.

Performance is 3Q22 was the strongest quarterly GDP performance since 2Q21 (growth of 15.9%). On a quarter-on-quarter (q-o-q) basis, the economy, however, grew at a slower pace of 1.9% q-o-q, compared with 2Q22’s growth of 3.5% q-o-q. In 2Q22, the economy is to advance by 8.9% y-o-y from a growth of 5% in 1Q22. Others have forecasted growth of 8.4% in 2022

Moving forward, economic growth in 4Q22 and into 2023 would depend on the strength of demand from advanced economies, risk of the higher interest rate environment, escalation of geopolitical conflicts and supply chain disruptions. The hike in interest rates and spending activities have remained resilient. The GDP for this year could be above 7.3% year-on-year (y-o-y), according to CGS-CIMB Research. And for 2023 forecast GDP growth is at 5%. Fitch Solutions’ growth forecast is 4% for 2023. A further two 25 basis points (bps) in rate hikes is expected in 2023 with OPR at 3.25%. Bank Negara expects the full-year 2022 growth to exceed the 7% projected due to healthy growth in the first nine months of 2022. Under Budget 2023, the GDP growth was expected to be between 4% and 5% for 2023 compared with between 6.5% and 7% 2022.

The current account balance would remain in substantial surplus, underpinned by the healthy economic fundamentals and supported by the diversified nature of exports as well as the robust tourism sector. The current account surplus was forecasted at 1.7% of GDP (2023: 2.1%).

But headwinds are expected to kick in from 4Q22. Signs of stress in the manufacturing sector, weaker trade activity will slow economic activity on the external front including from Malaysia’s major trading partner China. Private consumption will also slow down significantly from 11.5% in 2022 to 5% in 2023.

The key constraint on production (GDP) is labour – we need 1.2m workers to plug shortages in manufacturing, plantations, construction and services. The last government has been incompetent in resolving this. Will the next government be more accommodative and entrepreneurial to unleash spare capacity in the private sector and increase domestic demand for 2023?

Reference:

Domestic demand to spur growth, Daljit Dhesi, The Star, November 15, 2022

FIFA World Cup 2022 Qatar: Some Interesting Facts

For the first time, the Middle East will host the FIFA World Cup, the most important football tournament in the world, with Qatar serving as the venue. There are several factors that will make the 2022 World Cup one of the most distinctive tournaments in football history. Some of the most intriguing details that will make the 2022 World Cup special in every aspect include:

Reference:

FIFA World Cup 2022 Qatar Interesting Facts [Infographic], Go-Globe, July 28, 2022

Malaysia: Who Now Gets to Rule?

Malaysia has seen political instability over the last couple of years. The economy is struggling to recover from a pandemic-induced slowdown. Malaysians went to the polls on Saturday to elect a new government. More than 21 million people were eligible to vote.  A party or coalition has to win at least 112 out of 222 parliamentary seats to secure a simple majority and form the government. However none of the major parties achieved this and they must now enter into coalition talks.

There were three major coalitions looking to lead the next government — the long-ruling United Malays National Organization-led Barisan Nasional of the incumbent PM Ismail; the Pakatan Harapan, led by opposition leader Anwar Ibrahim; the Perikatan Nasional, or National Alliance, led by former PM Muhyiddin Yassin. Realistically, it is only the last two. 

Pakatan Harapan won 82 seats while Perikatan Nasional alliance won 73 seats and the Barisan Nasional got 30. Political veteran and two-time former Prime Minister Mahathir Mohamed’s Pejuang was wiped-out and so was he!

GE15 has shown that the Malays in the north are increasingly rejecting the moderation practiced by BN and PH in favour of a more religious mindset which PAS preaches. Unfortunately, results from GE15 have shown that overzealous Islamisation, now offered by PN, is quickly gaining traction in the north.

It is bound to impact even further the country’s development, its attractiveness to foreign investment, economic viability, and the fundamental rights of non-Muslim Malaysians, as well those of women and children, in a significant way.

Malaysians need no reminding that countries which have gone down this path, especially Afghanistan and Iran, have suffered immensely. Malaysia cannot follow suit. In fact, there is no Islamic model that has been implemented successfully. Turkey suffers hyper-inflation and Pakistan is a “basket” case; while the Saudis are reversing all the Wahabbi’s have stood for. Hopefully some sense may prevail in this country.

The alternative offered by PN will have untold effects on Malaysia. Having already taken root in the north, PN will soon attempt to peddle its brand of Islamisation south. Malaysia’s political landscape is becoming increasingly fragile. Anwar and Zahid offer the alternative Malaysia needs. And, political parties and Malaysians must rise above their misgivings and accept the solution offered to build the economy back.

References:

Malaysia election results: What you need to know, Srinivas Mazumdaru, www.dw.com, November 19, 2022

PH, BN alliance offers Malaysia its best chance to build back, Ibrahim M Ahmad, FMT, November 20, 2022

Britain Into 2-Year Recession?

On November 3rd, The Bank of England (Boe) announced its biggest interest rate increase since 1989. This was to combat inflation. The BoE lifted borrowing costs by 0.75 percentage points to 3% – the highest level since the 2008 global financial crisis.  This was to cool inflation of near 11%. The latest rate increase mirrors aggressive tightening by central banks worldwide as food prices and energy bills soar.

The BoE said British inflation would peak at 10.9% in 2022. Some analysts believe the central bank rate could still hit around 5% in the coming months. Such a rate, could see the UK economy suffer eight quarters of contraction in a row. 

The BoE said the economy had shrunk since the third quarter, entering a technical recession that is forecast to last until the first half of 2024. The Bo's forecasts are especially hard to piece together given the government is unclear on its fiscal strategy. More details are due on November 17.

The Bank was forced to intervene in financial markets in September, launching an emergency bond-buying operation after then-prime minister Liz Truss' controversial mini-budget sparked economic chaos.

With recently installed Prime Minister Rishi Sunak now in office, and Finance Minister Jeremy Hunt having walked back most of his predecessor's proposed tax cuts, fiscal and monetary policy no longer seem to be pulling in opposite directions.

The pound tumbled 2% against the dollar on expectations of a long-lasting recession and BoE expectations that its key rate may not rise much further.

London's FTSE 100 shares index fared better, rising about half-a-percent. However the second-tier FTSE 250, which is less internationally-focused, retreated.

The BoE rate increase is set to worsen a cost-of-living crisis for millions of with retail lenders pushing up interest rates.

As the Covid-19 pandemic began in early 2020, the BoE slashed its key interest rate to a record-low 0.1% and also pumped massive sums of new cash into the economy. It started raising rates last December, while the November 3rd increase was the eighth increase in a row.

For Rishi Sunak, this is the moment. He has to navigate inflation and cost of living first, then set growth policies to reverse the downturn. If he doesn’t succeed then Labour wins the next election.

References:

UK faces longest recession since records began, Bank of England says, Karen Gilchrist, CNBC, Nov 3, 2022

Bank of England warns UK may face 2-year recession, raises rate, The Sunday Daily, Nov 4, 2022

Elon Musk Cuts Twitter Workforce by Half!

Elon Musk has fired as much as half of Twitter’s 7,500-strong workforce. This is a major cost-cutting overhaul.

Musk’s vision for Twitter is not particularly complex. He views it as a software platform first, and only then as a social network.

The company should care about the plumbing that lies behind the posts, not the posts themselves and how they connect to each other. The obvious corollary is that Twitter’s halls should filled with coders, all the “content” people are superfluous to the company’s mission.

Musk has already stamped his mark on Twitter since closing the acquisition a week ago, asking staffers to work around the clock on select projects. Twitter plans to offer a premium $8 a month subscription service that will verify users, boost the visibility of their posts and allow them to see fewer advertisements.

Source: https://upload.wikimedia.org

He had overhauled the management team, firing executives including Twitter chief Parag Agrawal. He brought in a small group of trusted advisers, including his personal lawyer Alex Spiro and venture capitalist David Sacks, to help him assess how to run the company.

The cost-cutting measures come as Musk faces concerns from advertisers, the source of a majority of Twitter’s revenues, who worry that his plans to loosen content moderation rules on the platform will lead to a rise in inappropriate content. Musk told brands he planned to offer different tiers of content. moderation, similar to a film rating system, according to three people familiar with the conversation Half of the company’s ad revenues come from the United States but over 80% of its users live elsewhere – most of them in countries that don’t have the constitutional and legal protections for speech that Americans such as Musk take for granted.

Musk might think the Twitter he bought crimped free speech. But governments from Turkey to Nigeria to India disagree. They worry that Twitter brings American notions of what constitutes free expression into their societies, reducing their ability to police speech.

Cutting staff is one step. Increasing revenue is the other. The latter is more difficult than the former. But for Musk the quickest way to pay down his USD44 billion acquisition is his major concern. So, who cares if some (staff) have to go. That’s capitalism!

References:

Elon Musk plans to cut up half of Twitter workforce, Hannah Murphy and James Fontanella-Khan, Financial Times, Nov 3, 2022

Twitter layoffs will shrink free speech globally, Mihir Sharma, The Star, 9 Nov 2022

MSMEs Produce More Heat Than Light?

THE Malaysian micro, small, and medium enterprises (MSMEs) are the bedrock of the economy. They account for 37.4% of the nation’s economic output and account for 47.8% of the country’s employed persons. This is based on data from the Statistics Department.

In 2020, MSMEs' GDP contracted by 7.3% against the 5.5% contraction in the nation’s economy, while in 2021, the MSME registered economic growth of just 1% against the overall economic growth of 3.1%.

The key drag was within the services and construction sectors as MSMEs struggled to cope with the pandemic. Those involved in the construction sector contracted  15.4% and 4.6% in 2020 and 2021 respectively, while those in the services sector experienced negative growth of 9% and 1.2% for the same period respectively.

According to data from the Statistics Department, in 2021, Malaysia had 1,226,494 registered businesses that are defined as MSME and they account for 97.4% of total overall business establishments. Of this, some 964,495 businesses are defined as micro and they represent 78.6% of the total number of MSMEs in the country.

SMEs totalled 242,540 and 19,459 businesses and they account for 19.8% and 1.6% of total MSMEs respectively.

In terms of sector, 83.8% of our MSMEs are in the services sector, while construction and manufacturing represent 8.0% and 5.8% of total businesses respectively.

For the manufacturing sector, a medium MSME is one with an annual sales turnover of more than RM15mil but less than RM50mil per annum or having 75 employees or more but less than 200. A small MSME is defined as a business that has an annual sales turnover of more than RM300,000 but less than RM15mil or has a total number of employed persons of more than five but less than 75.

For the services and other sectors, a medium MSME is a business with more than RM3mil but less than RM20mil annual turnover or employs between 30 and less than 75 persons. A small MSME in the services or other sectors is a company with a sales turnover of between RM300,000 to RM3mil per annum or has a total number of employees of between five and not more than 30. 

A micro MSME in any sector is a business with an annual turnover of less than RM300,000 per annum or employs less than five persons.

Funding issues, not having enough workers, compliance costs and meeting new legislative and regulatory changes are the key challenges faced by MSMEs, in particular for the small and micro MSMEs.

Funding aside, MSMEs today are faced with other challenges too and this includes environmental, social, and governance (ESG) issues as well as climate change while the introduction of any new legislation increases the cost of doing business in terms of compliance cost. As MSMEs are part of the entire ecosystem of product or services supply chain or are producers of the end products or services themselves, there is now a greater need for them to adopt ESG practices and to conform to demands made by stakeholders.

For micro businesses, lack of manpower is one of the biggest challenges due to the small nature of the business itself. With an annual turnover of less than RM300,000 a year, how does one expect nearly one million businesses to adhere to ESG best practices? What will be the implication if they do not meet the demands of what ESG entails?

In 2023, all micro-SMEs (excluding professional enterprises) would also need to adopt a minimum wage policy of RM1,500 per employee. Some of them are not ready for this and are struggling to stay afloat.

Sometimes the noise cancels out the music. We make grand plans, create Government organisations and propose great schemes for MSMEs. But the reality is some can’t avail to the facilities. It is as if there are two songs being played simultaneously. And no one is listening. There is need for more engagement with the Associations and more proactive thinking to keep them afloat. Many still need a moratorium – a further 6 months at least, to keep them above water. Can we do that?

Reference:

One size does not fit all, Pankaj C. Kumar, The Star, 5 Nov 2022

EVs: Do We Have a Roadmap?

Electric vehicles (or EVs), are the buzzword the world over. Locally, a growing number of listed companies have announced plans to get involved in the sector. Some are looking at building charging points, while others intend to distribute imported EVs in the Malaysian market.

There are also listed companies indirectly involved in the sector via manufacturing components for EVs.

Globally and at home, the push for EVs is led by governments providing support in the form of policies based on the idea of reducing carbon emissions and increasing the use of renewable energy.

In Malaysia, there are import and excise duty exemptions for EVs. The exemptions will last until Dec 31, 2025 for locally assembled models, but only until the end of 2023 for completely built-up (CBU) vehicles. In the recently tabled Budget 2023, there was a proposal to extend the exemptions for CBUs by another year.

Thailand has a policy to move 30% of total automotive production to EVs by 2030, while the Indonesian government has set a goal for EVs to make up 20% of all domestic cars manufactured by 2025. Singapore is targeting to cease new diesel car registrations from 2025 and requiring all new car and taxi registrations to be of cleaner-energy models from 2030.

The take-up rate of EVs in Malaysia remains low. In 2021, it was reported that only 274 EVs were sold from a grand total of 508,911 units, which is just 0.05%. From January to May this year, 390 EV units were sold in Malaysia, with the percentage of EV to internal combustion engine or ICE cars increasing to 0.17%.

Globally, sales of EVs doubled in 2021 from 2020 to a new record of 6.6 million, a steep rise from the 120,000 units sold in 2012. In the first quarter of this year, two million EVs were sold, up 75% from the same period in 2021. China, the biggest maker and user of EVs, saw EV sales hitting 3.7 million units from January to August this year. In comparison, in the United States about 520,000 EVs were sold this year up to September. EVs made up 6.1% of total car sales in the American market in the third quarter of 2022 as compared to only 2.2% in the corresponding quarter of 2020.

Thailand recorded a 223% increase in EV sales for the first nine months of 2022 to 13,298 units, compared to the period of January to September 2021. In China, the motivation to move to EVs comes from its intention to cut its dependence on oil, as the country imports more oil than it exports. That and coupled with the fact that it has an abundance of the natural materials used to produce EV batteries.

Since 2009, US$14.8bil (100 billion yuan or RM70.2bil) in subsidies were provided to EV consumers in China. To help EV sales rebound in 2020 in the midst of lockdowns, the central government extended incentives as well as prolonged the purchase-tax exemptions of EVs throughout 2022.

For Malaysia, industry players say that a specific roadmap from the government is essential.

Challenges related to the charging of EVs remain a problem. There are not enough charging stations and it takes too long to charge EVs.

Home charging also requires homes to have three phased electricity wiring. Older apartment blocks do not have charging facilities, unlike newer developments.

Tenaga Nasional Bhd (TNB) has pledged to invest RM90mil to increase the number of charging points for EVs on expressways. TNB says the rationale behind this investment is to solve the challenges of charging infrastructure. But is this enough? Of course not, but even this will take some time. Meanwhile, we will watch others in the region march on with EV plans and a roadmap.

Reference:

Jumping on the EV bandwagon, Keith Hiew, The Star, 5 Nov 2022

“Cinderella” Dream or a Horror Movie?

Racial unity is still best achieved through proper education. The young generation in this country are still separated by the education system. The government thus far has not done enough to make the national school the school of choice for the country. The country today sees the young attending national, vernacular, religious and even private schools. More could be done if the national education policy is designed to cater for all Malaysians to be racially mixed. The national school must be made the school of choice for all Malaysians.

All races have to be given equal opportunities to further their tertiary education and the right to take courses of their choice. Higher education institutions must be opened to all Malaysians. National schools and higher education institutions also need to be neutral.

As for job opportunities, the civil service and private sector jobs must be open for all races based on merit.

The UNHDP Report shows that the richest 10% in Malaysia control 38.4% of the economic income as compared to the poorest 10% who control only 1.7%. Wealth disparity is more intra than inter-racial. To strive for shared prosperity, the economic policy must be needs-based. The poor, irrespective of race, must be given special consideration in order to uplift their economic well-being. For the country to progress without racial discord, we need a government that can close this gap and bring economic prosperity and fairness to all.

Religious bigotry must be nipped for a harmonious society. Parochialism that benefits a few power-hungry politicians cannot be tolerated. Racism and harping on religion are not the solutions to resolve political, social and economic woes. Politicians who still harp on narrow racial and religious issues to gain power must be rejected. Have a mechanism or Commission to resolve issues.

Divide and rule was the colonial way of oppressing and defeating the people. This cannot be the policy of the government after independence. Despite their cultural differences, Malaysians of all races are all “wrapped up” into a single nationality. Malaysians are evolving into a nation of people with shared values and contributing to the economic and social well-being of the country.

For a nation to boost its economy and create more jobs, it needs to bring in investors. No political appointees should head GLCs.

For all these to ensue, politicians must stay away from “making money” for themselves or being corrupt. Corruption can destroy a nation. For better social justice, the country needs a government that will make all the law enforcement agencies, such as the Malaysian Anti-Corruption Commission (MACC), answerable to Parliament.

The roles of the attorney-general (AG) and the public prosecutor cannot be held by one person. The two roles must be separated because of the different nature that they play in upholding the rule of law. When these two roles are merged, conflicts of interest can occur, especially when the person prosecuted is a political figure aligned to the government of the day. Let an independent AG serve the government ensuring that they act within the law. And let an independent public prosecutor prosecute criminals, no matter who they are, without fear or favour.

Source: https://focusmalaysia.my

The spiralling cost of living is making the poor poorer. A country with a population of 32 million does not need a bloated Cabinet. The exorbitant salaries, perks and pensions given to ministers and other lawmakers need to be reviewed. The general public wants more hospitals, better schools, affordable homes, better roads and improved public facilities. All these need to be addressed by the next elected government.

If we were politically wrong before, we now need to have it corrected. The way forward to prosperity is when there exists racial unity, a progressive education system, a vibrant economy, a fair distribution of wealth and job opportunities, impartial enforcement bodies, social justice, better public services and a government that is corruption-free.

Although the above looks like a “Cinderella” dream, vote wisely to put in a government that will institute major reforms to make this country better for all Malaysians. Otherwise we will be in a horror movie!

Reference:

What voters expect from the next government, Moaz Nair, FMT, 25 Oct 2022

Roubini: The Long, Ugly Recession

Nouriel Roubini became a household name in the finance and economics arena over 14 years ago for his warnings about the global financial crisis of 2008. Many of his concerns manifested in a perfect storm of excessive lending, exorbitant leverage and with inter-connectedness of the financial system— which all came together in the historic financial crisis of 2008 and 2009. The NYU Professor of Economics who was dubbed ‘Dr. Doom’ by the media (although he prefers to be called Dr Realist) sees the makings of the next crisis that will emerge soon. The factors for a major crisis: Slowing economic growth, ill-timed fiscal stimulus, trade frictions which could turn into trade wars, domestic politics and frothy asset prices. In his latest book, Mega Threats he warns of a series of crisis coming together – debt to climate change.

Source: https://www.livemint.com

Persistent inflation will mean the Fed will “probably have no choice" but to hike more than 4-4.25% from the present 3-3.25%. The Fed funds rate is going toward 5% in the coming year. On top of that, negative supply shocks coming from the pandemic, Russia-Ukraine conflict and China’s zero Covid tolerance policy will bring higher costs and lower economic growth. This will make the Fed’s current “growth recession" goal -- a protracted period of meagre growth and rising unemployment to stem inflation as difficult. With a hard landing, equities (S&P 500) may fall by 40%.

As a result, Roubini sees stagflation of the 1970s with massive debt distress. It’s not going to be a short and shallow recession but severe, long and ugly.

Roubini expects the US and global recession to last all of 2023, depending on how severe the supply shocks and financial distress will be. During the 2008 crisis, households and banks took the hardest hits. This time around corporations, and shadow banks, such as hedge funds, private equity and credit funds, “are going to implode".

His advice for investors includes: Be light on equities and have more cash. Though cash is eroded by inflation, its nominal value stays at zero, “while equities and other assets can fall by 10%, 20%, 30%." In fixed income, he recommends staying away from long duration bonds and adding inflation protection from short-term treasuries or inflation index bonds like TIPS. Assets such as properties or commodities (including gold) will be part of the portfolio to weather this catastrophe.

References:

Roubini: This will trigger the next crisis, Caleb Silver, Investopedia, 11 Sept 2018

Economist Nouriel Roubini, who predicted 2008 crisis, warns of “long, ugly” recession, Bloomberg, 23 Sept 2022

Slow and Steady, BNM!

Bank Negara Malaysia (BNM) has continued with its monetary policy normalisation with a third 25 basis point (bps) hike, to bring the Overnight Policy Rate (OPR) to 2.75%. The ceiling and floor rates of the corridor of the OPR are correspondingly increased to 3.00% and 2.50% respectively.

This is in tandem with the forecast of most economists. Further expectations are for another 0.25% increase in January 2023 and another 0.25% increase in March 2023, bringing OPR to 3.25%.

Inflationary pressures have been persistent with strong demand, tight labour markets, and elevated commodity prices. Consequently, many central banks are expected to continue raising interest rates to manage inflationary pressures.

Going forward, BNM expects the global growth outlook to continue to face headwinds from tighter financial conditions amid elevated inflation in major economies and the domestic challenges in China. The growth outlook remains subject to downside risks, including escalation of geopolitical tensions, worsening of domestic headwinds in China and potential energy rationing in Europe.

Household spending will continue to be underpinned by improvements in labour market conditions and income prospects. Tourist arrivals have increased following the re-opening of international borders is expected to further lift tourism-related sectors. Investment activity and prospects will be supported by the realisation of multi-year projects.

Downside risks to the domestic economy continue to stem from a weaker-than-expected global growth, higher risk aversion in global financial markets amid more aggressive monetary policy tightening in major economies, further escalation of geopolitical conflicts, and worsening supply chain disruptions, according to BNM.

In line with earlier assessments, headline inflation is likely to have peaked in 3Q 2022 and is expected to moderate thereafter, albeit still elevated. Underlying inflation – as measured by core inflation – is projected to average closer to the upper end of the 2.0%-3.0% forecast range in 2022, having averaged 2.7% year-to-date given some demand-driven price pressures amid the high-cost environment.

Moving into 2023, headline and core inflation are expected to remain elevated amid both demand and cost pressures, as well as any changes to domestic policy measures. The extent of upward pressures to inflation will remain partly contained by existing price controls, subsidies, and the remaining spare capacity in the economy.

BNM believes its monetary policy is supportive of economic growth. Sounds like Turkey? Erdogan believes in growth with a low interest environment amidst hyperinflation. Nothing gets solved and the Turkish lira gets battered. Are we trying to follow them? Slow and steady is supposed to win but when you are too slow you will never make it!

Reference:

Another 25 basis points hike in Bank Negara’s OPR as expected, Cheah Chor Sooi, Focus Malaysia, 3 November 2022

Tax Revenues: Any New Measures?

 The government had intended to introduce the Fiscal Responsibility Act (FRA) as well as the Medium-Term Revenue Strategy (MTRS) to improve tax collections. But this is now on “pause” because of GE15.

Malaysia has time and again resorted to Petroliam Nasional Bhd (PETRONAS) to rescue the nation.  It (Government) is constrained by limited fiscal space to diversify its current base. More developed nations have tax revenues of 15-20% of GDP. Other nations like Denmark, Netherlands or Belgium have tax revenues of 40-45% of GDP. But these are “welfare states”. We are at 11-12%.

The petroleum-related revenue for 2022 surged 80% to RM77.8bil, mainly due to the higher crude oil prices, representing 27.3% of the government’s revenue. For 2023, with the crude oil price estimated at US$90/barrel, the government foresees revenue falling to RM58.9bil or 21.6% of the total revenue, inclusive of RM35bil dividend from PETRONAS. Malaysia needs to move away from being dependent on the national oil corporation. This is unsustainable.

A RM1 tax per litre, assuming RON95 at RM4.80 to RM5 per litre (which is what other South-East Asian nations are pricing) will go a long way to curb wastage, encourage public transport and collect at least RM20bil to RM25bil in indirect taxes. The government can then easily provide about RM8bil to RM10bil for targeted groups that require subsidies via direct cash transfers.

The Budget 2023 alluded to borrowings of almost RM100bil. This is again not sustainable. Between 2021 and 2023, the Government’s borrowings will be close to RM300bil with total debts ballooning to RM1.178 trillion or 64.9% of nominal GDP from 63.0% in 2022. Statutory debt will rise to 62.3% in 2023 from 60.2% in 2022. 

As seen in Figure 2, other than direct federal government debts, the government also carries the burden of debts that were previously assumed off-balance sheet. This includes committed guarantees of almost RM200bil, the balance of 1MDB debt of almost RM26bil and liabilities defined under PPP/PFI of RM149.6bil. Taken together, the total government debt in 2022 will increase to RM1.455 trillion, or 85% of nominal GDP. It will rise to RM1.541 trillion next year, or 84.9% of 2023 nominal GDP.

To address our debt problem, it is a simple equation of either boosting our revenue (via higher or new taxes) and cutting down on Operating Expenditure (OE) via leakages. Without new taxes or higher tax rates introduced in this budget, the government is simply kicking the can down the road and delaying the inevitable to a later date and time. Although the budget deficit is expected to be lower at 5.5% in 2023, it is only due to growth in the denominator as the budget deficit for next year remains largely unchanged from this year in absolute terms. Without a proper strategy to increase government revenue and lower OE, the fiscal deficit target of 3.5% by 2025 will be tough to meet as it will require the government to take drastic actions, post-GE15.

The higher debt level also means higher debt service charges for 2023. This is expected to increase to RM46.1bil or 16.9% of revenue, well above the acceptable international standard of 15%. With government debts expected to continue to increase, the government needs to raise revenue stream via new taxes. Higher tax rates – not the Goods and Service Tax (GST), which is seen as a regressive tax and hurts the lower-income group.

What new taxes? There is a range of taxes: from higher tax rates for the top-end (top 10% of taxpayers), windfall tax on energy and banking to forex transaction tax and “exit” tax for remittances. Much more thought needs to be given on new taxes but serious efforts also need to be done on OE. Otherwise, we are perpetually in deficit with inflationary pressures and future generations having to meet the debt obligations of today.

Reference:

Budget 2023 – Much ado about nothing? Pankaj C. Kumar, The Star, 15 October 2022

Who Do We Vote?

The election season is on – a time to determine who will represent us in Parliament. After the euphoria of the 2018 general election, many were disappointed when political ‘frogs’ (defectors), through their ‘Sheraton Move’, overthrew the duly elected government. So, in this election, keep in mind two words – character and credibility. This is about individual commitment to moral standards which enhances character and builds credibility. It is not about being perfect or saintly but being aware of mistakes and taking corrective action.

Source: https://www.malaysia-today.net

Individuals should be held accountable for their actions and politicians cannot tell blatant lies, amass wealth beyond measure and defraud the nation.

The choices are many, and the field will be filled with many parties. There may be scandalous or questionable individuals, warlords and political operators whose shelf-life is over. We must remove them.

These tainted politicians believe that, if they get to form the government, they can then appoint an attorney general who will clear them.  They have no regard for institutions but seek to benefit themselves, even at the expense of the nation. Who are they? They adorn the front pages of our newspapers.

There is this one coalition that ruled Malaysia for six decades. It is in no better place today. It has become weaker, because of infighting, lack of credibility and downright arrogant which then leads to the present coalition.

Multi-ethnic Malaysia falls victim to identity politics based on ethnicity or religion. Race, religion and royalty remain the cry of one party, only to have its actions defame each of these. Populist ideas that play on the insecurity and fear of ‘the other’ dominate political discourse for votes.

We see scant discussion of critical issues like inflation, the weakening ringgit, the recession, unemployment, migrant workers, relations with China, and key foreign affairs issues like Myanmar, Asean and many others.

The state of the country illustrates this reality. Corruption has become systemic in major institutions. For instance, the Companies Commission of Malaysia, Bank Negara, the Securities Commission and even the Malaysian Anti-Corruption Commission (MACC) have had to deal with corruption-related issues.

Another breeding ground for corruption is at the local government level. As land is a state matter, many grey areas are not exposed. Environmental degradation, river pollution and massive floods occur because they are no elected councils.

Corruption is not an ethnic issue. You meet the challenges of corruption in China, South Korea, India, Indonesia and the Philippines, as well as in the West. It is human failure facilitated by long periods of being in power. The root cause is unbridled greed.

Consider candidates and evaluate their character, behaviour and wealth. Many are warlords, irrespective of their ethnic origin, are in politics for the benefits that power gives them in terms of wealth and rewards. Some are over 85 or 97 and still want to be your representative!

Evaluate their education, character and sincerity to the cause they represent. Note how much wealth they have accumulated. If their cause is only self-interest, then please strike them out.

Where are the fresh faces? 

What lies ahead of us is a daunting choice, which we all must make in the best interest of our nation. Systems can be manipulated, offices can be corrupted, but in the end, it is the quality of our leaders that matters. Not race or religion. Vote well for a future that breeds hope and not despair!

Reference:

Election 2022: Throw out the warlords, the corrupt and the racists! K. Haridas, Aliran, 

24 Oct 2022

What Do We Want?

Our conscience must define who and what we are. But that assumes we have one. There are people who have none and are willing to “hoodwink” with their lies. Take Trump or some other “great” leaders.

Humanity has certain instinctive and intuitive values that allow us to discern right from wrong in general. We also have the knowledge of values acquired from tradition, parents, ancestry, faiths, families and friends, community, culture and our social acquaintances. We may hold these dear to us.

We may celebrate diversity of culture, ethnic or religious values and may incorporate some as our own. It is an appropriation that may transform us into complete persons.

Source: https://www.dreamstime.com

In our world today, we find ourselves besieged by much sensitivity. There is the never-ending paradox and dilemma of unseen forces that lead to phobias of every colour and nature. Each side believes they are right. Any question that could lead to the betterment of society is discarded. We cage these inner feelings within us for fear that we may trespass upon the concerns of others or jeopardise our rights of some but that’s fine if we are in the majority.

For example, if

• one expresses feelings about the trespasses of China or India, all hell may break loose! It is immediately construed as negative. 

• Islam is discussed, it is reserved for adherents of the faith or better still the “right” theologians to discuss. Others are excluded. 

In these situations, discourse or discernment is drowned by a siege mentality. When transparent, respectful communication is neutered, the integrity and independence of the soul’s liberty is incarcerated. We cannot be disabled or destroyed by differences or disagreements. We must each be courageous about speaking up about rights or wrongs, no matter where they are – in high or low places. Inaction gives the other side power. Silence gives the other side power. That was how Nazi Germany and Hitler rose. 

Each must seek to live a life well lived. This is an essential part of our journey. Such a struggle, futile as it may seem, may well be a treasure, a gift to bequeath to our children.

Now we are heading for national elections, let’s do some soul-searching.

• What is our true “north” that allows us to discriminate, disadvantage, demoralise others?

• Do we reject the deceptive divisions of race and religion?

• Do we reject corruption? 

• What are the values that will guide us that even “thieves” dare to stand for election?

No one party or candidate must determine for us what our nation should become. It is the collective conscience of the many that must determine the actions of the few. In this PRU15, examine your heart and your head for those with love, faith, righteousness, integrity and hope for a better future for Malaysia.

Reference:

What kind of nation do we want? Listen to your soul, Dominic Damian, ALIRAN, 18 Oct 2022

WTO Slashes Trade Growth in 2023

 The World Trade Organisation (WTO) anticipates global merchandise trade will slow next year as "multiple shocks" ranging from Russia's war in Ukraine, high energy costs in Europe, and US monetary policy tightening. All of which will raise manufacturing costs and squeeze households.

The Geneva-based institution said it expects trade growth to fall sharply in 2023 to 1%, compared with its previous forecast of 3.4%. The WTO also raised its projection for growth in merchandise trade this year to 3.5%, up from its previous projection of 3%.

The WTO's forecasts — which are in line with International Monetary Fund and Organisation for Economic Co-operation and Development projections — mark a major deceleration from 2021's 9.7% growth in global trade. That was fuelled by consumer purchases of household items while travel and other service industries were limited during the depths of the Covid-19 pandemic.

In addition to the economic risks facing the US and Europe, the WTO said poor nations stand to suffer more. Other potential drags include central banks raising interest rates too high or acting too late on inflation. 

Policymakers are confronted with unenviable choices as they try to find an optimal balance on tackling inflation, maintaining full employment, and transitioning to clean energy.

A slowdown in trade poses challenges for logistics industries such as container shipping, where the biggest players posted record profits in recent quarters because of sky-high ocean freight rates. Some of them are already adjusting their businesses to account for lower volumes.

The world's largest container carrier, Geneva-based Mediterranean Shipping Co, announced the suspension of a transpacific service and cited significantly reduced demand for shipments into the US West Coast.

A slower global GDP growth, high inflation and an ever increasing interest rate regime is a toxic mix for lower growth of merchandise trade. Malaysia’s trade to GDP ratio was 130.7% in 2021. We are an open economy dependent on Singapore, China and the U.S. We have been reporting consistent trade surpluses since 1998. This is mainly due to rise in exports of electrical and electronics products.

To diversify export markets and export products, the Government has implemented various initiatives. In the light of global developments, we need to review and re-order priorities in our tax and incentive regime for DDIs and FDIs, if we want to cushion any shocks to the economy.

Reference:

WTO slashes forecast for merchandise trade growth in 2023, Bryce Baschuk (Bloomberg), TheEdge CEO Morning Brief, 6 October 2022

Why is the Singdollar on an Uptrend?

The Monetary Authority of Singapore (MAS) tightened its monetary policy for the fifth time in a year, which strengthened the Singapore dollar.   That helps neutralise inflation. The Singapore Central Bank has re-centred the mid-point of the Singapore dollar nominal effective exchange rate (S$NEER) policy band “up to its prevailing level”. The slope and width of the band were left unchanged. MAS is effectively allowing the Singapore dollar to appreciate. This makes imports cheaper and in turn helps to put a lid on the rise in prices of goods and services in Singapore.

The global economy faces high inflation and lower growth in 2023 while Singapore’s economic growth will "come in below trend" in 2023 amid intensified downside risks. Core inflation is expected to remain elevated over the next few quarters, with risks still tilted to the upside.

Source: https://en.wikipedia.org

Singapore's central bank has a unique approach to monetary policy. Unlike most central banks that manage monetary policy through the interest rate, it uses the exchange rate as its main policy tool because Singapore is an open economy that depends heavily on trade. It is 3x the GDP.

The exchange rate of the Singapore dollar managed against a trade-weighted undisclosed basket of currencies from Singapore’s major trading partners, referred to as the S$NEER . MAS allows the S$NEER to float within an unspecified band. Should it go out of this band, it steps in by buying or selling Singapore dollars. The central bank also changes the slope, width and mid-point of the band when it wants to adjust the pace of appreciation or depreciation of the local currency based on assessed risks to Singapore’s growth and inflation.

With Singapore buying almost everything it consumes from abroad, a stronger Singapore dollar will help convert foreign prices of imports into lower local prices. The flip side of that, however, is a possible hit on the competitiveness of the country's exports.

The three policy levers of MAS are:

1. The slope

This is probably the most common tool used by the MAS to adjust the band. Simply put, the slope determines the rate at which the Sing dollar appreciates. If the slope is reduced, this means the local currency will be allowed to strengthen at a slower pace. It strengthens at a faster pace when the slope is increased.

2. The mid-point

This is a tool generally reserved for “drastic” situations, such as recessions, when the outlook for growth and inflation sees an abrupt and rapid change. Compared to tweaks in the slope, an adjustment in the mid-point either upwards or downwards is likely to yield a quicker and bigger impact on the currency, economists have said.

3. The width

This controls how far the Sing dollar can fluctuate. This means the wider the band, the more volatile the currency can be. It is typically reserved for periods of increased uncertainties or volatility.

Under both exchange rate (MAS) and interest rate regimes (followed by BNM), monetary policy operations lead to changes in the central bank’s balance sheet. For example, the selling of US$ to strengthen the S$NEER will have the effect of reducing Official Foreign Reserves on the asset side of MAS’ balance sheet, which is matched by a reduction in banks’ cash balances with the MAS on the liabilities side. This is akin to a central bank that targets a higher interest rate by selling domestic currency-denominated securities and thereby reducing the asset side of its balance sheet, matched by a reduction in banks’ cash balances with the central bank on the liabilities side.

MAS’ intervention operations are thus akin to interest rate-targeting central banks’ monetary policy operations. Instead of using money market operations to achieve a targeted policy rate, Monetary and Domestic Markets Management Department (of MAS) uses FX intervention operations to ensure that the S$NEER stays within the policy band.

MAS has reserves in excess of USD400 billion while BNM’s reserves is only above USD100 billion.

So, what’s best? An interest rate regime or forex intervention as a monetary tool? Either tool is neutral and can be used to meet overall objectives.

From an inflation perspective MAS is direct and efficient in managing its core inflation with the exchange rate mechanism. BNM has been focused on growth, which suggests keeping rates as low as possible and leaving exchange rate to find its own level. The problem with that is we are not in lock-step with the Fed which leaves us vulnerable to exchange rate depreciation and imported inflation. If we drop this growth obsession and move in tandem with the Fed, we will ameliorate imported inflation and have a decent exchange rate. To do so, we need to increase OPR by another 0.75% - 1.0% in November. Will we do that? No, it is probably going to be an increase of 0.25% which is neither here nor there!

References:

MAS tightens monetary policy for the fifth time in a year to dampen inflation, Tang See Kit, 

14 Oct 2022, Channel News Asia

How does MAS carry out its monetary policy?  https://www.mas.gov.sg