Economy showing signs of recovery: Zeti

By Chong Pooi KoonPublished: 2009/10/21

Malaysia's RM67 billion economic stimulus has yielded results and the government should now "create an enabling environment" to spur investment activities", Bank Negara Malaysia governor said.

"Right now the fiscal stimulus is still necessary for this year and going into next year. (But) it is not sustainable over the medium term and the private sector has to respond and recover," Tan Sri Dr Zeti Akhtar Aziz told reporters on the sidelines of an insurance conference in Kuala Lumpur yesterday.

She said the domestic economy has already shown signs of recovery as the stimulus plan worked to spur private consumption. Investment activities also started to pick up, she said, but the economy still needs to improve further.

"The role of government will be to provide an enabling environment for investment activities to take place, both domestic and foreign direct investment," she said. Zeti did not specify what incentives or actions the government should take to spur private investment. The Budget 2010 is set to be tabled in Parliament on Friday.

However, National Economic Action Council (NEAC) board member Datuk Dr Zainal Aznam Mohd Yusof warned that the government should not cut back on fiscal stimulus now because the economic recovery is still anaemic.



"There are a lot of talks about reviving private investment. The worry is that, people might think that the government is thinking of exiting, trying to get out of this fiscal deficit situation as early as possible and to reduce the fiscal stimulus," Zainal, a former deputy director-general of the Institute of Strategic and International Studies (ISIS) Malaysia, told reporters at the same event later.

"I think it should continue a little with the fiscal stimulus, it shouldn't exit too early. The (economic) revival is still very weak," he said.

Still, Zainal acknowledges the government's constraint in resources as the country's budget deficit at a projected 7.6 per cent is already the highest in Southeast Asia.

"So (the government) is very concerned about trying to contain the fiscal deficit. Rightly so, but I think they should not do it too hastily, and not to be too dramatic and cutting the fiscal stimulus," he said.

Next year's budget is widely expected to be smaller than this year's and the Prime Minister has mentioned plans to cut operating expenditure by 15 per cent to rein in the budget gap.

Zainal said the government should contain subsidies for food and transport which make up a huge portion of its operating expenditure. "The key thing I'm looking for is how to redesign the whole subsidy scheme, to make it more efficient and more directed at the low-income groups."

But more importantly, Zainal said, Malaysia must find new revenue sources and cut its reliance on oil income. "That will be the key challenge and perhaps it should consider imposing value-added tax."