KUALA LUMPUR: The World Bank today advised Malaysia to take advantage of the current gloomy global economic environment to consolidate its fiscal position.
World Bank chief economist (East Asia and Pacific) Sudhir Shetty said Malaysia should look at long-term economic sustainability instead of propping up growth in the short term.
“It’s time to consolidate on the fiscal side to ensure that buffers are built in case the shocks are larger than anticipated.
“In that respect, having a slower growth might be a worthwhile trade-off in favour of greater stability, going forward,” he told reporters during the East Asia and Pacific Economic Update event here today.
World Bank lead economist (macroeconomics, trade and investment) Richard Record said there was now an opportunity for the country to undertake deep and structural reforms which held back Malaysia in the past.
“Malaysia is very export-oriented to the extent that export and trade prospect, in general, is looking dimmer than it was six months ago, and that will affect prospects for the Malaysian economy,” he said.
Meanwhile, Record said Malaysia’s slower growth pace was not an unusual situation, considering that the country was approaching high-income economy status.
“It’s only natural that when a country’s wealth increases, the rate of economic growth declines,” he said.
Nevertheless, he added that Malaysia had been doing well in placing careful regulations for banks, flexible exchange rates and substantial reserves to boost investors’ confidence.
Record also said the diversification of the economy and exports had helped in mitigating the economic challenges.
“Export is diversified across all product markets, both in advanced and newly developing economies across the world, and across product types, both manufacturing and commodities, as well as oil and gas, and agricultural,” he said.
He said the country’s balanced consumption between export and domestic trade also helped mitigate some external challenges.
“The fact that Malaysia has a different source of growth would certainly help. Having seen very strong growth on the external side would perhaps see the domestic side picking up a little bit next year,” he added.
On the ringgit, Record said the weakening of the local unit against the US dollar was because of the strengthening US economy and the increase in interest rate which lured investors to the country.