Published January 9, 2009

M'sia preparing second stimulus package

Govt has capacity to lend some more as budget deficit has been cut: minister

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(KUALA LUMPUR) Malaysia plans to announce another economic stimulus package this year after last year's US$2 billion package, the country's Second Finance Minister said, according to a newspaper report yesterday.

Time for a refill: The collapse in crude and palm oil prices is expected to play havoc with government revenue

'The Prime Minister has given the directive to begin preparing another package,' Nor Mohamed Yakcop said in a television interview, according to the Star newspaper.

'We have the capacity to lend some more due to the fact that we have managed to reduce the budget deficit from 5.5 per cent of GDP (gross domestic product) in 2000 to 3.2 per cent in 2007,' he said.

Mr Nor Mohamed said the impact from the first stimulus programme unveiled last November would be felt around the first quarter of this year.

The government has said the first RM7 billion (S$3 billion) spending package, reaped from savings on reduced oil subsidies, is to be spent on 'high-impact' projects including roads, schools and low-cost housing.

Whether the RM7 billion economic stimulus package will be sufficient to cushion the impact of slower manufacturing output and slumping commodity prices, which will hit the rural sector the hardest, remains to be seen. One of the earliest measures was the injection of an additional RM5 billion into Valuecap, a special quasi-government fund established in 2002 to acquire 'sound but undervalued stocks'.

Critics have charged that it is a move to prop up the stock market, when the funds could be better utilised to retrain retrenched workers or channelled as soft loans to help small and medium-sized enterprises ride out the tough times.

Deputy Prime Minister Najib Razak, who is also finance minister, has said that the government has the capacity to introduce more stimulus packages but that it would not allow the budget deficit to expand further. 'My priority is that I really want to save the people from having to go through hardships if the real economy is impacted,' he said last month.

The government raised its 2009 fiscal deficit forecast in November to 4.8 per cent of GDP from 3.6 per cent. At that time, it also announced its first package to boost the economy, which it expects to grow 3.5 per cent this year. It maintained that Malaysia can avert a recession this year.

However, even with weaker electrical & electronics exports aside, the collapse in crude and palm oil prices is expected to play havoc with government revenue given that some 40 per cent of the Treasury's revenue is derived from the oil and gas sector. Moreover, next year's budget was predicated on oil prices of US$100 per barrel which has dived since then.

As such, private forecasts for the country's economic growth in 2009 are more pessimistic, with UBS expecting no growth and CLSA forecasting a 1.2 per cent contraction. -- Reuters, AFP