Published August 17, 2009

M'sia has 'limited room' for further stimulus: IMF

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(WASHINGTON) Malaysia has 'limited room' for additional fiscal stimulus should the country's 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 on Friday in a statement.

Malaysia also needs to focus more on 'strengthening domestic demand as a source of growth', IMF officials noted.

'Malaysia is well positioned to weather the severe impact of the global downturn,' the IMF said in the statement, part of the country's annual 'Article IV' review. There is 'some limited room for additional stimulus if the downturn proves longer or deeper than expected'.

The country has unveiled RM67 billion (S$27.5 billion) of stimulus measures to counter a global recession that policy makers predict may cause the economy to shrink as much as 5 per cent in 2009. Malaysia's budget shortfall may rise to 7.7 per cent of gross domestic product this year, from an estimated 4.6 per cent 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 labour-market improvements, they added.



Malaysia's central bank has recommended that the government sell new global bonds, governor Zeti Akhtar Aziz said in Kuala Lumpur last week.

The central bank held interest rates steady at 2 per cent for a third straight meeting last month, saying the US$187 billion economy showed 'signs of stabilising in the second quarter'. The IMF said that Malaysia's monetary policy has been 'loosened decisively' and that 'dollar liquidity has remained adequate'.

The country's 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 last week. -- Bloomberg