Published October 21, 2008

KL to cut growth forecast, review some projects

Global crisis may affect the economy, says finance minister

	Email this article
	Print article
	Feedback

(KUALA LUMPUR) Malaysia will cut its 2009 growth forecast due to the global economic slowdown, may review its budget deficit targets for this year and next and will examine some infrastructure projects, the government said yesterday.

Deputy Prime Minister Najib Razak told a news conference that while Malaysia was insulated from the worst effects of the global crisis, the growth forecast for 2009 'will be reviewed downwards'.

Mr Najib is currently also finance minister and is set to take over as prime minister in March.

He said that although Malaysia's financial services sector was 'resilient', the crisis would affect the economy here, which the government had seen growing 5.4 per cent next year.

The government will cut its 2009 economic growth forecast on Nov 4, from the current estimate of 5.4 per cent, he said.

Southeast Asia's third-largest economy has a managed float for its ringgit currency and runs a large current account surplus which has insulated it from the financial contagion that has hit the world's economies.

'Yes, our stock market is affected by the sentiment in other markets, but I would like to say that we are not in a financial crisis and certainly we should not talk ourselves into one,' Mr Najib said.

Malaysia is, however, the third most exposed economy in terms of exports as a percentage of gross domestic product (GDP), according to a survey from investment bank UBS on emerging economies.

The country's budget deficit is expected to surge this year to 4.8 per cent of GDP from a planned 3.1 per cent of GDP, thus limiting the government's room for a big spending stimulus to offset falling exports.

Mr Najib also said that Malaysia would liberalise some sections of its financial services economy to attract more foreign investment and would seek to encourage more foreign investment in property.

'It is realistic for the government to review the growth forecast for next year given the budget hasn't fully factored in the global financial crisis,' said Lee Heng Guie, economist at CIMB.

Meanwhile, Malaysia's government plans to loosen investment rules to lure foreign funds and shield itself from a global financial crisis that it says will lead to lower-than-expected economic growth next year.

The country will review its foreign-investment guidelines and ease rules on property purchases, Mr Najib said yesterday.

'We have to make Malaysia more competitive,' Mr Najib said. 'The Malaysian real economy will inevitably be negatively impacted' by the financial turmoil, he added.

Governments from Australia to China have stepped up efforts to protect their economies from the global credit crisis that's threatening to tip the world into a recession.

Malaysia's central bank said last week it's ready to shift focus to boosting economic growth as inflation worries ease, forecasting the slowest growth in seven years in 2009.

Mr Najib said the government may have to do 'some tweaking' of its budget-deficit targets.

Malaysia's economy may expand as little as 4 per cent in 2009, central bank governor Zeti Akhtar Aziz said last week.

Economic growth will probably be between 5 per cent and 5.5 per cent this year, below the official 2008 forecast of 5.7 per cent, she said. -- Reuters, Bloomberg