LAO PDR
Lao PDR facing severe economic downturn marked by escalating inflation
(09 September 2024) Lao PDR is facing a severe economic downturn marked by escalating inflation, a sharply depreciating currency, and high levels of external debt. Inflation in August 2024 stood at 24.3%, continuing a 28-month streak of double-digit rates, though down from a peak of 41.3% in February 2023. The kip has lost over half its value against the dollar and Thai baht in three years, exacerbating the impact on purchasing power and commodity costs. The IMF reported Lao PDR had the highest inflation rate among Southeast Asian countries at the end of 2023, surpassing even Myanmar. The central bank’s monetary tightening, with rates reaching 10.5%, has not stabilised the currency. Laos’ debt repayments surged to USD 950 million in 2023, with total government debt at 115% of GDP. A significant portion of this debt is linked to a USD 6 billion railway project financed largely by China. Experts suggest Lao PDR should renegotiate its debt and potentially seek IMF assistance, as the current economic model, reliant on foreign investment in natural resources, is contributing to instability.

MALAYSIA, UK
Malaysia and UK explore role of Islamic finance in promoting green investments 
(12 September 2024) Malaysia’s central bank Bank Negara Malaysia (BNM) and UK financial stakeholders convened at the MIFC-UK Business Forum to explore the role of Islamic finance in promoting green investments. Sultan Nazrin Muizzuddin Shah emphasised that Islamic finance, with its principles of ethical practices and equitable risk-sharing, is well-aligned with sustainability goals and can address global funding gaps. The forum, attended by over 140 participants, highlighted Malaysia’s position as a “global gateway” for Islamic finance in Asia and OIC markets, while leveraging the UK’s role as a global financial hub. BNM stated that Malaysia requires approximately MYR 1.2 trillion to MYR 1.3 trillion to finance its sustainable economic landscape. The event was co-organised by BNM, the MIFC Leadership Council, and UK Islamic finance stakeholders.

INDONESIA
Indonesia initiates construction of Jakarta’s second subway line 
(11 September 2024) Indonesian President Joko Widodo has initiated the construction of Jakarta’s second subway line, the East-West Line of the Mass Rapid Transit (MRT), which will span 84 kilometres from Cikarang in West Java to Balaraja in Banten province. This new line, which is substantially longer than the existing 15.7-kilometre North-South Line, aims to alleviate traffic congestion and enhance connectivity in Jakarta and its suburbs. The project will be completed in two phases, with the 24.5-kilometre Phase 1 expected to begin by the end of next year and finish by 2031. Japan is financing the project with a loan of up to JYP 140.7 billion (USD 982 million), using Japanese technology for the rolling stock and signal systems. Jakarta, with over 10 million residents, faces severe traffic congestion and air pollution, costing the country approximately USD 5.6 billion annually. The expansion of the North-South Line, also supported by Japan, is set to extend 5.8 kilometres by 2030. Additionally, Indonesia has introduced Southeast Asia’s first bullet train connecting Jakarta and Bandung as part of its broader transport infrastructure development.

INDONESIA
Indonesia to impose import duties of up to 200% on range of goods, eyeing Chinese imports
(19 August 2024) The Indonesian government plans to impose import duties of up to 200% on a range of goods, including textiles and electronics, primarily targeting Chinese imports. This move aims to protect local businesses, which are a significant part of the economy, contributing 60% to GDP and employing around 120 million people. Indonesia has also implemented strict curbs on e-commerce, including reducing the de minimis threshold for duty-free imports and banning social media shopping platforms, although TikTok Shop has since resumed operations. Other Southeast Asian countries are also considering higher tariffs and restrictions on imports to protect local industries. The government faces the challenge of balancing protection for local businesses with the need to manage trade relations and prevent illegal imports. Additionally, there is concern that high import duties may harm businesses reliant on foreign raw materials.

THAILAND
Thailand to tackle country’s USD 475 billion household debt through debt restructuring programme
(09 September 2024) Thailand’s new government, led by Prime Minister Paetongtarn Shinawatra, plans to address the country’s substantial household debt, estimated at USD 475 billion, through an extensive debt restructuring programme. This initiative will target relief for car and home loan borrowers and extend to the informal sector, and is supported by state-owned financial institutions, commercial banks, and asset management companies. The government is also focusing on financial aid for small businesses, which represent about 35% of the workforce and GDP, through debt suspension and improved liquidity access. Additionally, the administration aims to stimulate economic growth with fiscal measures and expedite constitutional reforms to enhance democratic governance and political stability. Shinawatra, elected after her predecessor was dismissed for ethical violations, faces the challenge of reviving Thailand’s slow-growing economy, which has averaged 1.9% growth over the past decade. The government is aiming to boost growth to avoid pushing public debt close to the 70% GDP ceiling by 2027 and to reassure both domestic and foreign investors of stable governance.

MALAYSIA
RHB Research downgrades Malaysian transportation sector from overweight to neutral 
(10 September 2024) RHB Research, the research arm of Malaysian bank RHB Bank, downgraded the Malaysian transportation sector from ‘overweight’ to ‘neutral,’ citing limited upside as Malaysia Airports Holdings Bhd (MAHB) and Westports Holdings Bhd reached fair valuations. MAHB reported a 74% year-on-year core profit increase for the first half of FY2024, driven by international passenger traffic recovery, but its share price is approaching the MYR 11 privatisation offer limit. Westports’ first-half earnings rose 7.9% year-on-year, though lower yard utilisation may limit transhipment volume. Tasco Bhd’s core net profit for 1QFY2025 dropped 25% to MYR 10.6 million, but RHB maintained a ‘buy’ call on the stock with a target price of MYR 1.15, citing its diversified client base, business segments, and the Integrated Logistics Services (ILS) tax incentive. RHB expects a rebound in freight forwarding, new warehouse contributions, and tax credits for Tasco. Global logistics challenges remain, with ocean freight capacity shortages expected through early October and higher air cargo demand during the holiday peak season.

SINGAPORE
Platform workers to have their own CPF contributions and work injury insurance coverage
(09 September 2024) The Platform Workers Bill, tabled for a second reading in Parliament on 9 September, will mandate increased Central Provident Fund (CPF) contributions and work injury insurance coverage for platform workers, aligning them with regular employees. CPF contributions will be compulsory for those born on or after 1 January 1995, with older workers able to opt in at any time. Lower-income workers earning less than SGD 3,000 per month will be supported by the Platform Workers CPF Transition Support scheme, offsetting 100% of their CPF contributions in 2025. Protections will initially cover ride-hailing and delivery workers, and platform work associations will represent workers in negotiations. Work injury compensation will fall on a single operator or be shared if workers engage with multiple platforms. The government expects increased CPF contributions to boost workers’ total earnings, especially for housing needs. From 2025, Workfare Income Supplement (WIS) payments will be disbursed monthly, with higher payments from 2029.

RCEP Monitor

JAPAN
Japanese companies seek foreign acquisitions due to contracting domestic market
(09 September 2024) Japanese companies are increasingly pursuing larger foreign acquisitions as their domestic market contracts. In 2023, Japan recorded approximately 660 outbound M&A transactions, a 6% increase from the previous year, with total deal value reaching USD 50.5 billion, up 7% from the previous year. Key transactions include Nippon Steel’s USD 14 billion bid for U.S. Steel, Renesas Electronics’ USD 5.9 billion acquisition of Australian firm Altium, and Sekisui House’s USD 4.9 billion purchase of MDC Holdings. The U.S. remains the top destination for these deals, followed by the U.K., Singapore, and India. Recent Japanese government reforms, including new guidelines and enhanced transparency on capital efficiency, are stimulating this surge. However, political challenges, particularly from the Committee on Foreign Investment in the United States (CFIUS), are creating hurdles for Japanese firms targeting American assets. Despite these challenges, the yen’s weakness has not deterred Japanese companies, which are supported by substantial cash reserves totalling JPY 600.9 trillion (USD 4.2 trillion) as of the end of March. These firms are primarily targeting markets with economic growth and young demographics, while sentiment towards China remains cautious.

JAPAN
Japan’s GDP grows at annualised rate of 2.9% in second quarter of 2024 
(09 September 2024) Japan’s gross domestic product (GDP) grew at an annualised rate of 2.9% in the second quarter of 2024, slightly below the preliminary estimate of 3.1%. The non-inflation-adjusted GDP growth was 1.8% from the previous quarter, with the total value of the economy surpassing JPY 600 trillion for the first time. Private consumption and capital investment were revised slightly lower, with consumer spending rising 0.9% after four quarters of decline. The data supports the Bank of Japan’s (BOJ) view of continued gradual recovery, though economists expect no immediate rate changes at the upcoming policy meeting in September. However, further rate hikes are anticipated by January 2024. Inflation remains a concern, as the consumer inflation rate has stayed above the BOJ’s 2% target for 28 consecutive months. Rising wages have not yet restored consumer spending to pre-pandemic levels, while inflationary pressures continue, driven by rising food prices. Economists forecast 1.7% growth in the third quarter, suggesting ongoing inflationary pressures.

NEW ZEALAND
New Zealand’s sovereign wealth fund reports 14.9% return for latest financial year 
(09 September 2024) New Zealand’s sovereign wealth fund, the New Zealand Superannuation Fund, reported a 14.9% return for the latest financial year, increasing its total funds under management to NZD 76.6 billion. The fund, managed by Guardians of New Zealand Superannuation, attributed its performance to strong global equity exposure, with 44% of its portfolio in global stocks and 4% in New Zealand stocks. Fixed income represents 21% of the portfolio. The fund’s annualised 10-year return was 10.33%, down from the 12.1% return reported in the 10 years through 2022. The fund has a 50/50 split between passive and active management. The fund beat its Treasury Bills benchmark by 9.33% but underperformed its reference portfolio, which returned 15.13%. CEO Jo Townsend highlighted the fund’s potential growth to NZD 185 billion by 2040, noting that tax savings could improve efficiencies.