KUALA LUMPUR: Malaysia is not on an austerity drive but instead is adopting smart spending, said Finance Minister Lim Guan Eng.
The government will prioritise its spending in areas that lead to long-term sustainable growth and improves the well-being of the rakyat, he explained,
Malaysia is not going to just pursue fiscal consolidation, as rushing into it might affect growth, the minister said.
“We need to pursue economic diversification. Fiscal consolidation is a means towards fiscal sustainability. But sustainability requires a reasonable level of economic growth,” he said in his luncheon address at the Khazanah Megatrends Forum 2018 here today.
In the short term, Lim said, Malaysia needs to consolidate its fiscal position in order to address the excesses of the previous government which led to RM1.09 trillion in debts and liabilities, or 80.3% of the gross domestic product (GDP).
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 the listed companies, is merely 20% 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.
He said Malaysia had a current account surplus of 3% of the GDP last year while in the first half of this year, the balance stood at 2.7% of GDP, or RM18.9 billion.
Lim noted there have been concerns about the weak second-quarter current account surplus of only RM3.9 billion and the low August 2018 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 (GST), which in turn encouraged imports, he said.
However, with the reintroduction of the sales and services tax (SST) last month, import growth would moderate and this would improve the balances in the short term, he added.
Lim also said in order to maintain the current account balance, Malaysia’s exports need to remain competitive and the country must recalibrate public finances towards a path of long-term fiscal sustainability.
He added that the government’s efforts at fiscal consolidation are focused on prudence – removing the excesses of the past while building a strong foundation for government finances to pursue a smart and responsible fiscal policy moving forward.