KUALA LUMPUR: The government must take a holistic approach in executing structural reforms, including the possible reinstatement of the goods and services tax (GST), that will boost the country’s economic resilience as well as the ringgit in the long run, according to economists.
The path towards the betterment of the economy has to be based on long-term views and solutions rather than short term, Bank Islam Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said.
“The solution has to be for the long term because it requires (overall) economic improvements.
“We should not focus too much on short-term volatility but rather on the long term and how we can link that to economic policies that will yield a more favourable outcome for people and businesses,” he told Bernama.
The long-term view applies to both the economy and the currency, he opined.
“We could see the ringgit steadily weakening over time versus major currencies such as the US dollar and Singapore dollar. Perhaps, what the currency market is trying to tell us is that the country’s competitiveness level could be having some issues,” he explained.
The ringgit fell to 4.4000/4030 against the US dollar on Friday as investors fled to safe-haven assets including the greenback as the European Central Bank unveiled plans to hike interest rates next month.
The local currency also continued to fall vis-a-vis the Singapore dollar to a record low of RM3.1856.
Mohd Afzanizam said that Malaysia’s reliance on imported food items, as well as to foreign labour, has exacerbated the problem as the country has sold more ringgit to acquire the commodities.
“According to the Statistics Department, the self-sufficiency ratios are low for agricultural items such as beef (22.2%), for which we spent RM2.2bil on imports; mutton (9.6%) with RM879.4mil spent on imports; chilli (30.9%) and rice (63%).
“In addition, when we import labour from abroad, the level of remittances is high because they send their hard-earned money home and do not spend it here,” he said.
More than 70% of imported mutton was from Australia while mango, coconut and beef were mainly imported from Thailand, Indonesia and India, respectively.
Citing the Agriculture Department statistics, Mohd Afzanizam said the agriculture sector was one of the country’s economic pillars in its early stage of development with a contribution of 28.8% to the total gross domestic product (GDP) in 1970 and 22.9% in 1980.
Nevertheless, in 1990 the sector (16.3% share) was overtaken by the manufacturing sector (24.6%) following the advancement of the manufacturing sector that reflected the success of Malaysia’s Industrial Master Plan – Phase 1.
As of 2020, the share of agriculture stood at 7.4% of the overall GDP and in recent years, the share of Malaysia’s agriculture sector in the economy has been comparatively small compared to neighbouring countries such as Indonesia (13.7% in 2020) and Thailand (8.6% in 2020).
On the consumption tax, Malaysia University of Science and Technology professor and dean of the Institute of Postgraduate Studies, Geoffrey Williams, said the GST’s reintroduction is a sensible idea but not immediately.
“Once inflationary pressures recede, the GST should be included in a broader tax overhaul. To eliminate price distortions, tax reform should lead to the imposition of a unified sales tax on all goods. The entire system can be made more progressive by imposing a separate tax on luxury products.
“However, a tiered GST is distortive and should be avoided, with the exception of customary exemptions on essential products. The tax reform should also encompass cutting other taxes and improving the efficiency of the tax system,” he said.