KUALA LUMPUR, Nov 3 — In one of his first major assignments as Finance Minister, Datuk Seri Najib Razak will have the unenviable task this week of presenting a very bleak assessment of the country's economic prospects and informing Malaysians that they will have to brace themselves for harder times.
Najib, who is also Deputy Prime Minister, is expected to announce tomorrow that the Malaysian economy, battered by the ill-winds of the global financial meltdown, will slow significantly next year. It will register an expansion of just over 2 per cent compared with the 5.6 per cent growth expected this year.
Government officials say that the economic stabilisation package Najib will unveil in Parliament will include cuts in expenditure on several infrastructure projects, measures to raise consumer spending, and the tapping of state funds to finance development projects.
The economic forecast will be the first official acknowledgment of what many economists have been saying for some time now: that Malaysia is not insulated from the global meltdown.
Since early last month, Malaysian government officials, including Najib, have insisted that the fundamentals of the local economy remained intact.
But the sharp drop in revenue, especially due to the sharp fall in prices of key exports such as crude petroleum and palm oil, which the government was relying on to fund development programmes, forced a rethink, government planners say.
“The overall theme is that we are in for hard times, but Malaysia will weather the storm better than others,” said a government official familiar with the economic stabilisation plan.
But private economists are not so sanguine. They say that the expected slowdown could have serious social repercussions, particularly on a population that has long been sheltered from pain.
The slowdown in manufacturing exports and the fall in palm oil prices are likely to lead to layoffs and raise the country's unemployment numbers.
Falling revenues will crimp the government's ability to spend and that, in turn, could lead to a disruption in the implementation of public projects, which have long been a source of dispensing patronage to the political parties in the ruling Barisan Nasional coalition.
“There is a huge transfer-pricing element in the Malaysian economy,” said a chief executive of a foreign bank in Kuala Lumpur, referring to the government's policy of favouring ethnic Malays groups in business. “So anything less than 4 per cent growth would be a recession.”
Navigating Malaysia through the global meltdown will be Najib's biggest challenge ahead of his expected takeover of the premiership in March next year from Datuk Seri Abdullah Ahmad Badawi.
Investment analysts believe that financial markets will respond positively to Najib as prime minister, because it could reduce political uncertainty.
Stockbroking firm Credit Suisse, which described Najib as an “eloquent pro-business leader and able administrator” in a recent strategy report on Malaysia, says that he will continue with the ongoing reform of government-linked companies which dominate the economy.
But the report cautioned that he was unlikely to make significant headway “with the controversial yet much needed reforms to the judiciary, police, affirmative action, patronage style politics and the education system”. “A lack of progress of these broad reforms may cause him considerable problems at the next general election,” the report said.
Malaysia faces tough challenges in the next 15 months, particularly on the currency front, with the ringgit widely expected to come under sustained selling pressure.
The currency, which averages roughly RM3.40 to the US dollar, has weakened to just under RM3.60 in recent weeks, and stockbroking firm CLSA expects the currency to slide to around RM3.75 to the greenback next year as a result of falling commodity prices and declining foreign direct investment.
CLSA also states that falling commodity prices will mean that handouts outlined in the national budget two months ago, such as tax cuts and expanded subsidies to keep fuel and food prices low, will not be spent. — Straits Times Singapore
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