Bank Negara: Putrajaya has 'window of opportunity' to carry out painful reforms

KUALA LUMPUR, March 20 ― The government has a “window of opportunity” to carry out structural reforms that may be painful now but would yield net positive effects in the long term, Bank Negara Malaysia Governor Datuk Abdul Rasheed Ghafour said today.

“The positive growth trajectory and moderate inflation this year presents a window of opportunity for implementation of structural reforms,” he said at a press briefing here.

“However, as these reforms would entail short-term costs, they must be strategically sequenced and supplemented by targeted assistance to minimise the burden on households and businesses.”

The central bank had previously welcomed Prime Minister Datuk Seri Anwar Ibrahim's plan to recalibrate subsidies as part of a spending cut drive, saying it's necessary to plug leakages and rein in the government's hefty subsidy bill that is expected to surpass RM50 billion this year.

Past administrations had shown little will to roll back the programme that analysts said benefitted higher-income earners for fear of political backlash.

Anwar's government said it aims to distribute subsidies in a "more targeted" way but has yet to unveil the delivery mechanism. The central bank today warned about the risk of shocking prices and businesses if Putrajaya's plan to redirect the subsidies is not done carefully.

"As these reforms would entail short-term costs, they must be strategically sequenced and supplemented by targeted assistance to minimise the burden on households and businesses," Ghaffour said.

BNM's forecasted inflation to be between 2 to 3 per cent throughout the year even after accounting for the subsidy roll-back. The central bank maintained its growth forecast of between 4 to 5 per cent this year on the expectations that exports would improve and increased tourist arrival.

Ghaffour said BNM expects the economy to take at least a year to adjust to the subsidy cuts.

Reforms will also be crucial to "provide long-term support for the ringgit," the central bank governor said. The ringgit has shown gradual improvement since the start of the year, inching up to around RM4.70 as of March 14 from RM4.79 the previous month.