Friday, July 17, 2009

Malaysia Economy May Need Extra RM8b Boost

The additional requirement may push Malaysia's fiscal deficit to more then 8 per cent of the gross domestic product, says a think tank.

Malaysia may need another RM8 billion stimulus package to boost spending next year if the economic recovery is slow, said an influential think tank.

Malaysian Institute of Economic Research (MIER) executive director Professor Datuk Mohamed Ariff Abdul Kareem said the additional requirement may push Malaysia's fiscal deficit to more then 8 per cent of the gross domestic product (GDP) and even to between 9 per cent and 10 per cent in 2010.

He said from the RM67 billion in two stimulus packages rolled out by the government in November last year and March this year, a total of RM7 billion was expended last year, RM10 billion for this year, and another RM5 billion planned for next year.

The rest of the amount, which come in various forms such as guarantee schemes, are paper-based.

"But we may need another RM8 billion of fiscal spending to see some impact to the Malaysian economy," Mohamed Ariff said at the economic think tank's Malaysian economic outlook briefing in Kuala Lumpur yesterday.

The government has forecast the fiscal deficit to expand to 7.6 per cent this year from 4.8 per cent last year.

MIER expects revenue to be lower and "hard-pressed" next year, following this year's economic performance.

The impact from the two stimulus packages that were introduced by the government will only be felt at the end of the year, he added.

With low foreign debt, he said the government would not face any difficulty in borrowing from the liquidity-flush domestic market even if it may have to borrow operating expenditure needs for 2010.

He said Malaysia's fundamentally strong economy is marred by the budget deficit which stood out as an ugly speck.

Although the eight per cent deficit is nothing to be unduly alarmed about under the current global economic crisis, Mohamed Ariff was concerned with the timing to balance the books. He said Malaysia's fiscal discipline record has been lacking.

Since independence, Malaysia has enjoyed fiscal surplus for a six-year span only, with the highest deficit of 17 per cent to the GDP in 1982. On the liberalisation measures announced to make Malaysia more attractive to investors and possibly bring Malaysia's equity market closer to regional benchmarks, he said the impact remains to be seen.

"If they had been announced in good times you would have seen immediate results."But these are good measures taking us in the right direction and will help remodel the economy when the crisis is over," he said.

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