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Malaysia has fiscal space to manoeuvre
KUALA LUMPUR: Warning bells have turned louder as the Malaysian economy is facing more threats following the escalation in the year-long Sino-US trade war, according to economists.
However, the experts remained positive on the country’s growth outlook, with some pointing out that the government has room to manoeuvre the domestic economy by leveraging on the fiscal space.
It was also recommended that the government allow the country’s fiscal deficit level to widen by increasing expenditure, without being too fixated on the deficit target.Speaking at a forum organised by the Asean+3 Macroeconomic Research Office (AMRO) and the Malaysian Economic Association (MEA), CIMB Group chief economist Donald Hanna said that the government could strengthen its fiscal space by monetising or selling some of its government-linked companies (GLCs).
This would allow the government to create adequate buffers to support the economy in the event of a further slowdown and to deal with the national debt levels, he pointed out.
“As we heard before that Malaysia has too many GLCs, this shows that the state has more assets than it typically needs.
“Malaysia’s financial liabilities may be high, but assets are high too and net worth is there.
“The government is already looking at monetising its assets which is a good move, ” he added.
Hanna was responding to AMRO chief economist Khor Hoe Ee who said that Malaysia’s fiscal space was limited.
In his presentation, Hoe said that the federal government’s debt level was relatively high and this limits the government’s fiscal space.
“Currently, the Malaysian economy is resilient and the government doesn’t have to do much to sustain growth.
“But certainly, if the economy is badly hit in the future, then there will be a stronger case for the authority to take more supportive and expansionary fiscal policy measures, ” stated Hoe.
Commenting on the risks and vulnerabilities facing Malaysia, Hoe added that external challenges have risen as export growth has decelerated sharply.
“Meanwhile, frequent shifts in investor sentiment underscore the need to uphold fiscal consolidation and rebuild buffers, ” he said.
Offering a contrasting opinion, Sunway University economics professor and MEA deputy president Yeah Kim Leng pointed out that the country’s debt level is not excessively high.
“I would describe it as moderate. Our fiscal space, which looks at federal government indebtedness and fiscal deficit level, is also not limited but rather moderate, ” Yeah said.
According to Yeah, the government should raise its expenditure to further spur the local economy, which has been slowing down in recent times.
“As long the spendings result in sustained growth and productive isnvestments, it is fine to increase expenditure.
“The government must also ensure that the amount spent goes into areas or sectors that have high multiplier effect, ” he said.
Source: https://www.thestar.com.my/business/business-news/2019/08/07/malaysia-has-fiscal-space-to-manoeuvre#pcoKUYyquBHF8pq7.99