KUALA LUMPUR — Oct. 8, 2018: Malaysia is not on an austerity mode but instead is adopting smart spending.
In line with this, it will spend in key priority areas, especially when it leads to long-term sustainable growth. Also, it is not going to just pursue fiscal consolidation as a too-fast consolidation may affect growth,
“We need to pursue economic diversification. Fiscal consolidation is a means towards fiscal sustainability but sustainability requires a reasonable level of economic growth,” said Finance Minister Lim Guan Eng in a luncheon address at the Khazanah Megatrends Forum 2018 today.
In the short term, according to Lim, Malaysia needs to consolidate its fiscal position in order to address the excesses of the previous government.
He believes the corporate sector has a prominent role in helping to keep the economy going and has the capacity on its balance sheets to invest and pursue growth because Malaysia’s corporate debt, at least among listed companies, is only 20 per cent of GDP.
Despite the current global headwinds, Lim assured that Malaysia would not run twin deficits, thanks to its robust economic fundamentals and current account, which is likely to remain in surplus for this year.
Lim noted there have been concerns about the weak second-quarter current account surplus of only RM3.9 billion and the low August trade balance of RM1.6 billion.
These low surpluses, in large part, were caused by the consumption tax holiday period after the abolishment of the Goods and Services Tax, which in turn encouraged imports, he said.
However, with the reintroduction of the Sales and Services Tax last month import growth will moderate and this will improve the balances in the short term. — Bernama