Following a general election that saw the first change of governing party in the nation's history, the new administration of Prime Minister Mohamad Mahathir has torn up a host of Chinese-backed investment plans, most recently dismissing the $13.5 billion East Coast Rail Link and the $1 billion Trans Sabah Gas Pipeline projects.
That's the landscape into which Firas Raad, the World Bank's new country manager for Malaysia, east Asia and the Pacific. Raad, a Jordanian national, arrived on August 15, after a five-year stint as country manager of Kuwait.
The World Bank opened a Malaysia office in 2015 and its Global Knowledge and Research Hub in March 2016, based in Kuala Lumpur.
Its mandate in Malaysia is to focus on knowledge-sharing, rather than financial support, to help the country achieve its goal of becoming a high-income economy by 2020.
In June last year it advised the Malaysian Central Bank and stock exchange on the world’s first green sukuk, raising $61 million to finance the construction of large scale solar (LSS) photovoltaic power plants in Kudat, Sabah, with a tenure of two to 16 years.
FinanceAsia spoke to Raad,who was giving his first interview since taking the role, and Richard Record, World Bank's lead economist in the bank's Macroeconomics, trade and investment Global Practice in Malaysia.
Q With the new government in place, what do you think its priorities should be?
A Raad Malaysia has been through an historic election, the new government is focusing on new priorities, and in our view they are focused a lot on economic inclusion and boosting institutional effectiveness and trying to make sure that economic growth is quality economic growth in the sense that it touches the lives of all the citizens. Over the last two decades Malaysia has done extremely well, but as the recent election indicated, averages are not everything. When you look at economic indicators whether its growth rates or unemployment rates, the numbers are encouraging. But beyond that, what people are feeling on the street, in sectors such as housing, that is where there is some concern and where the government is focusing its attentions. Going forward we will be working with the government and support some of their priorities.
Q News has just broken that the East Coast Rail Line and and Trans-Sabah Gas Pipeline projects will now be cancelled. Do you think this will hurt Malaysia in the long run as an investment destination?
A Raad One of the governments priorities is trying to rationalize public spending, and one aspect of this is the new government said that it would want to review these mega projects which it has being doing over the past few weeks. Whilst the government has been looking at its fiscal expenditures it has also being thinking about how to provide social assistance to the people who will need it. For us that is a big concern. As the government rationalises to try to meet its fiscal target in terms of the fiscal deficit, at the same time they need to make sure there is the safety net there to protect the vulnerable groups. The government has been looking at these projects all over the country and is looking at whether it can afford the projects.
Q Where do you see the big growth sectors from the World Bank perspective?
A Raad One we have been highlighting lately is the potential of the digital economy in Malaysia to promote economic growth. We are excited about this sector because it is very much in line with the thinking of the current government and it focuses upon promoting inclusion and innovation backed up by government policies. Obviously the economy is quite diversified which is great and Malaysia has really succeeded in moving from agriculture to manufacturing to services over recent decades and they have now a rich endowment of natural and human resources which puts Malaysia well on the way to reach that threshold of a high income country.
Record Malaysia is quite well placed in terms of the global economy, it's nicely balanced between the external side and domestic demand and a nice balance between manufacturing and services. Also there is a lot of potential in financial services and Islamic financial services, including the first ever green sukuk last year.
Q Your work with the government often includes regulatory reform. Which areas of regulation do you believe could be improved?
A Record Malaysia ranks 24th in our annual Ease of Doing business rankings, which is obviously very high, and obviously it is looking to improve on that ranking by looking at countries such as Singapore and South Korea as benchmarks. Some of the areas that have been highlighted as opportunities to improve include regulation on taxation including to speed up and cut the cost of tax administration. Three key other opportunities for improvement include the ease of setting up a new business, contract enforcement and insolvency.
Q How much do you think Malaysia may be affected by the trade war threat between the US and China bearing in mind China is Malaysia’s largest trading partner?
A Raad In general, Malaysia is very well integrated into the global economy and financial markets so as an export orientated economy any trade escalation in tariffs between the two super-powers will have an effect on Malaysia. However, as we said before, the Malaysian economy is quite diversified and is quite resilient as well so it could be exposed to an external shock but it has sources of resilience that could help it overcome the shock.
Record The impact right now is not really great, but the really scary situation is if we see tariff escalation translating into a global loss of confidence affecting global investment flows.
