Governments globally reacted swiftly to the COVID-19 pandemic with loose monetary and fiscal policy, but tight controls on movement both domestically and internationally. This had an odd and unprecedented effect on the movement (or lack thereof) of goods and services, as well as job loss, supply chain constraints, and rapid inflation. Countries that rely heavily on tourism, were all but decimated during this time. Global GDPs contracted drastically in Q2 of 2020, with mild recoveries seen in Q3. And how about Malaysia? Is Malaysia economy doing well?
Frontier and emerging markets like Malaysia were hardest hit as they do not have the luxury of excessive money printing, deep economic markets, personal savings amongst its citizens, and robust healthcare systems ready to deal with hospitalizations, or the rollouts of administering vaccinations. The ringgit has depreciated 1.7% against the U.S. dollar and is expected to experience heightened volatility in the future based off the U.S. treasury markets.
Malaysian government policy reacted by raising its debt ceiling twice since 2009. From 60% to 65%. Also, lowering interest rates to borrowers, and ramping up social aid programs for those unable to work. The irony of money printing, while seemingly helpful in the short term, destroys wealth in the long term. The average person does not realize this, and in fact asks for more “help”, to their detriment. Inflation, also know as the expansion of the monetary supply, punishes savers, and rewards debtors. Debt becomes cheaper, while those who saved, lose purchasing power. The even sadder irony, is that once the money monster is created, it becomes a necessary evil, otherwise markets, asset prices, and currency valuations go into free fall, destroying “wealth” on the way down.
Economists were looking forward to a 5%-6% growth of GDP for Malaysia for the year of 2021, but have adjusted those returns to be around 3%. Recovery has not been as swift, or as easy as would’ve been hoped. In fact, “Writing off 2021, and banking on 2022” is the country’s mantra. Even then, international travel is not expected to return to normal until 2024.
The continued restrictions on movement, vaccine passports, vaccine efficacy, and the delta variant have all played into foreigners not being able to, or wanting to travel. As of September 16, 2021, foreign travellers are still not able to enter. Domestic travel for the fully vaccinated has now begun. Malaysia relies heavily on tourism, and although restrictions were lifted to welcome spending, it is not delivering results as expected.
Going forward, emerging markets like Malaysia will succeed by welcoming foreign high income earners, entrepreneurs, innovators, and a cryptocurrency friendly policy. While a quick google search would say Malaysia is crypto friendly, there is some mixed reviews on that. The cryptocurrency exchange Binance recently removed service operations as of August 16, 2021. An economy like Malaysia would benefit greatly by embracing bitcoin specifically, as either legal tender, or not taxing capital gains on its investment. This would bring a flood of crypto investors, and their capital, into the country.
Malaysia’s MM2H program, a longstanding residency program, which is one of the best in the world, was suspended until recently. It is now coming back on the scene with new requirements as the wealthy have only become wealthier in this last year, while the poor got poorer. Those that have access to assets for investments, favour very well when the money printer is turned on. Assets absorb excess currency like sponges. Not to mention, credit expansion (or leverage) is then used by the rich, to invest even more. And Malaysia wants the richest ones. Instead of a monthly income of USD $2500 per month, now the requirement is around USD 10k per month, a 4x jump. Emerging markets like Malaysia, could seemingly benefit from an influx of capital over the next decade.
Malaysia can continue to benefit greatly by creating and producing products for the western world to consume. Considering that the countries that consume the most, do not actually produce anything domestically, there is a huge advantage here. The combination of a crypto friendly environment, the attraction of major foreign capital, and a surge in wealth in the domestic middle class, would all be very positive for Malaysia. The geopolitical landscape will be unrecognizable as the future continues forward. The frontier and emerging markets paying attention to the destruction of the social, political, and economic landscapes of the west, stand to benefit the most, as wealthy citizens look to leave those areas. New residents will be in search of more personal freedoms, low taxation, low cost of living, and overall happiness.
Malaysia can capture this movement of financial and human capital, if it can get on a sound money system, and a political environment that is stable. The future is bright for Malaysia economy.
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