Malaysia can increase fiscal stimulus, IMF says
Published: 15/08/2009 05:00
Malaysia has âlimited roomâ for additional fiscal stimulus should the countryâs economic condition deteriorate, the International Monetary Fund (IMF) said. |
Any decision on boosting spending should be made in the medium term because the country faces high budget deficits and rising debt, executive directors at the Washington-based lender said Friday in a statement. Malaysia also needs to focus more on âstrengthening domestic demand as a source of growth,â IMF officials said. âMalaysia is well positioned to weather the severe impact of the global downturn,â the IMF said in the statement, part of the countryâs annual âArticle IVâ review. There is âsome limited room for additional stimulus if the downturn proves longer or deeper than expected.â The Southeast Asian country has unveiled 67 billion ringgit (US$19 billion) of stimulus measures to counter a global recession that policy makers predict may cause the economy to shrink as much as 5 percent in 2009. âThe Malaysian economy has been weak and could benefit from continued fiscal stimulus,â said David Cohen, an economist with Action Economics in Singapore. âAt the same time, just like the other regional economies, the economic outlook has been improving with the turnaround in exports, improving global backdrop.â The countryâs industrial production fell by the least in seven months in June as a nine-month slump in exports eased, according to figures from the Putrajaya-based Statistics Department released this week. Budget shortfall Malaysiaâs budget shortfall may rise to 7.7 percent of gross domestic product this year, from an estimated 4.6 percent in 2008, the IMF said. Steps to reduce medium-term fiscal risks include broadening the non-oil tax base and moving ahead on subsidy reform, IMF officials also said. To boost domestic demand, the country should continue to promote private investment and make labor-market improvements, they said. Malaysiaâs central bank has recommended that the government sell new global bonds, Governor Zeti Akhtar Aziz said in Kuala Lumpur this week. Bank Negara Malaysia made the recommendation to the government, Zeti said. The central bank held interest rates steady at 2 percent for a third straight meeting last month, saying the $187 billion economy showed âsigns of stabilizing in the second quarter.â The IMF said that Malaysiaâs monetary policy has been âloosened decisivelyâ and that âdollar liquidity has remained adequate.â Source: Bloomberg |
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