Bank Negara governor Tan Sri Zeti Akhtar Aziz says Malaysia is currently adjusting to the reforms introduced by the central bank to ensure the country will not be too vulnerable to factors such as the oil price decline.

She says the country would have been in “great difficulty” if measures such as the subsidy rationalisation, the goods and services tax (GST), financial reforms by Bank Negara, and policies to strengthen the financial institutions had not been implemented.

“But because we did all that, we can manage this transition period of adjustment,” she told reporters after delivering her keynote address at the Wharton Global Forum Kuala Lumpur 2016 yesterday.

Althought the period of adjustment could take up to two years, she says it would ultimately place Malaysia on a more solid platform.

“That is very important because otherwise, we will be very vulnerable to things like the oil price decline.

“Our economy is still growing and the factors that are affecting our growth now are transitionary factors.

“We will go through this period of adjustment, and then we should be able to resume our growth, because we have the underlying foundations,” she says.

Under the recalibrated Budget 2016, Malaysia’s gross domestic product (GDP) growth had been revised to a narrower range of 4 per cent-4.5 per cent for this year, compared with 4 per cent-5 per cent under the original budget.

Last year GDP stood at 5 per cent as opposed to 6 per cent in 2014,

Earlier in her speech, Zeti said while Asean economies had seen immense growth in intra regional trade and investment, financial integration in the region had not seen significant progress.

Progressive economic integration, she said, was a key factor that underpinned the region’s potential.

“Asean is one of the most diverse region in the world in term of its economic size, level of income, resource endowment, economic structure, the financial sector development and economic systems.

“The region has therefore leveraged on its diversity and this is reflected in the increase in cross-border production networks and the significant increase in intra regional trade and investment activities,” she says.

Since 1990, Asean intra-regional trade grew from 18 per cent to 24 per cent of its total trade, while intra-regional investment activities quadrupled, after the Asian Financial Crisis, from 4 per cent to 17 per cent now.

“Asean economies have now reached that stage whereby greater regional financial integration can unlock growth potential.

“Going forward the push for regional financial integration is something that central banks in the region need (to do) to bring about a more effective intermediation of funds, bringing the excess savings from one country, to be channelled to productive investments in another,” she says.

Zeti says the Asean region, having one of the highest savings rates in the world, has the potential to match some of the massive requirements for financing in certain parts of the region, for investment projects and infrastructure development.

Financial integration, she said, would facilitate the channelling of funds from surplus countries towards productive investments in opportunities in the region.

“It will contribute towards achieving more stable conditions in the regional financial markets,” she added. While Asean has drawn lessons from the European experience of monetary and financial integration, she says, the approach taken by Asean is distinctly differrent. Unlike the European Union, in which the formation of a monetary union with a single currency represents a major element in realising its economic integration, the Asean region had come to a decision some time ago, in the early 2000s based on a study by Asean central banks, that a common currency would not be pursued.

“This is because the Asean economies did not have the pre-conditions to achieve such a monetary union, and the effort to achieve such pre-conditions would involve immense cost to our economies.

“It was therefore concluded that the region would instead be better served by greater regional financial integration to achieve the very same objective of a shared economic prosperity for the region,” she said.

The Asean region has experienced a long term annual average growth of more than 5 per cent, much higher than the global average, and this is expected to be sustained going forward, she said. Collectively, Asean is now the sixth largest economy in the world with a population of 630 million and a combined GDP of US$2.5 trillion.

With a young population, Asean has the third largest labour force in the world, after China and India. By 2020, Asean is expected to account for more than US$2 trillion of additional consumption to the world economy.