Malaysian gov’t says economic exposure to UK minimal

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Kuala_Lumpur_City_Center_2015The Malaysian government downplayed the effect of the Brexit voting outcome on the Asian country’s economic and financial structure.

Prime Minister Najib Tun Razak said the country is well positioned to face any volatility following the UK referendum result because it has sound fundamentals, a diversified economic structure, and ample liquidity in its financial markets.

“I am confident we will be able to weather this period of uncertainty. The government will also continue to strengthen the economy and further our fiscal reforms,” he said in a statement on June 24.

He said the UK’s exit from the 28-nation EU will not have a major impact on the Malaysian economy. Although the UK is regarded as an important partner in all areas, including trade, investment, defense, education and tourism, Malaysia’s economic exposure to the country is limited, he added.

The UK is not among Malaysia’s top 10 trading partners and only accounts for about 1% of its total trade. Najib said there might be an opportunity to increase Malaysia-UK trade now if the later reaches out to strategically important nations beyond the EU.

For his part, Minister of International Trade and Industry (MITI) Mustapa Mohamed said that while there may be some impact in the very near term, the medium- to long-term impact of Brexit on Malaysia’s trade and investment will be minimal.

“With our strong fundamentals and economic diversification, we are in better position to face any uncertainty,” he added in an official statement on the MITI website.

Observing that the UK economy has been growing faster than most EU economies, with GDP growing by 2.3% compared to 1.9% for the EU in 2015, “we believe with the appropriate policies in place, the UK economy will adjust to the new reality,” he further stated.

As far as trade is concerned, Brexit is unlikely to significant disrupt Malaysia’s external sector. In 2015, Malaysia’s trade with the United Kingdom stood at MYR16.5 billion (US$4.0 billion) or 1.1% of Malaysia’s total trade.

Mustapa said Malaysia’s total trade with the UK registered a 9.4% growth in ringgit terms to MYR16.25 billion in 2015 from MYR15.02 billion in 2014. Total exports amounted to MYR9.32 billion, an increase of 17.6%, compared to MYR7.92 billion in 2014. Total imports increased slightly by 0.3% to MYR7.13 billion in 2015 compared to MYR7.10 billion in the preceding year.

In 2015, the UK was Malaysia’s third largest trading partner in the EU and fourth largest source of investment. As of 2015, a total of 433 manufacturing projects with UK participation have been implemented and valued at MYR6.8 billion.

Brexit will have minimal impact on foreign direct investments (FDIs), as they are normally long term in nature, and exchange rate volatility is usually priced into the FDI-related contracts, said the trade minister.

The UK may no longer be part of the currently negotiated Malaysia-EU FTA, but Malaysia will explore the possibility of a separate bilateral FTA with the country, said MITI.

Photo: Azharsofii