KUALA LUMPUR: There should be no more delay in implementing structural reforms to address weakening fundamentals in an economy faced with soaring deficits and a shrinking current account surplus due to slowing exports.
“Malaysia needs to strengthen its degree of resilient by continuing with structural adjustment programmes and institutional reforms,” said Malaysian Institute of Economic Research (Mier) executive director Dr Zakariah Abdul Rashid.
He said the policies, strategic reform initiatives and programmes of the New Economic Model, the Economic Transformation Programme and the 10th Malaysia Plan should be implemented and not remain on hold.
Zakariah was speaking to reporters in a briefing on the Malaysian economic outlook yesterday. He said the Government would need to find the political will to implement the bold measures needed to curb discretionary and populist-style spending.
He noted that the public accounts had been in deficit for a long time and bold measures were required for financial consolidation.
He said that with the potential risk of twin deficits, especially with the shrinking current account surplus and new expenditure commitments, the emerging weakness in economic fundamentals and changes in global economic landscape need to be addressed in the upcoming budget.
He added that the Government had actually taken several initiatives in its transformation agenda, but “the speed is not enough and more should be done”.
He said more initiatives and programmes needed to be implemented so the Government would be able to reduce its budget deficit to 3.5% in 2014 as well as preserve market confidence in the long term.
Nonetheless, the most anticipated revenue-enhancing reforms such as the goods and services tax (GST) would not be implemented anytime soon, Zakariah opined.
“It will take from seven to 15 months for preparation including setting up the infrastructure,” he said.
It has been reported that the GST is expected to be effective come 2015.
Mier has projected growth of between 5% and 5.5% for next year, supported by the expected fiscal strategies and measures to rein in the budget deficit, generally tight financial conditions and enhanced downside risks.
Meanwhile, it also believes that relying on heavy private consumption to drive the economy is not sustainable in the medium and long term.
“Consumption-driven economy will lead to not only rising inflation and demand for higher wages, but more importantly led to accumulation of household debt and adding risk to financial stability,” it said in its recent third quarter 2013 update report.
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