Co-ordinated approach to boost country’s economy

KUALA LUMPUR: In a rare co-ordinated approach, the Government has come out strongly to dispel the notion that the country’s economic position is in crisis mode due to the steep fall in global crude oil prices. It has also expressed confidence that the depreciating ringgit will adjust over time to reflect the nation’s economic fundamentals.

Leading the charge is Prime Minister Datuk Seri Najib Tun Razak, who announced adjustments to Budget 2015’s economic growth, along with a RM5.5bil cut in its operating expenditure.

To the surprise of some economists, the Prime Minister left the development expenditure untouched, signalling that the strategy is to keep the domestic economy growing amidst a possible global slowdown.

There was speculation of expenditure being cut by up to RM15bil. But it did not happen.

“The development expenditure of RM48.5bil for 2015 will be maintained and spent for projects such as public housing, flood mitigation and public transport.

“In May, I will table the 11th Malaysia Plan (11MP) to outline the development expenditure until 2020,” he told an audience of top officials from the private sector and government-linked companies.

This effectively means big ticket projects such as the Mass Rapid Transit 2, the Light Rail Transit 3, the High Speed Rail between Kuala Lumpur and Singapore and the RM27bil Pan Borneo Highway will not be affected by the adjustments to Budget 2015.

Malaysia’s new economic growth forecast for 2015 is now between 4.5% and 5.5% as opposed to 5% and 5.5% previously while the fiscal deficit, a key indicator on how well the public finances are managed, is expected to be 3.2% as opposed to 3% when Budget 2015 was unveiled in October last year.

Najib stressed that Malaysia was neither in a recession nor in a crisis unlike in 1997/98 and 2009 which warranted a stimulus package.

On the depreciating ringgit against the US dollar, Najib said the Government was confident that the exchange rate would reflect the strong economic fundamentals.

“When the Budget was tabled, the assumption was the ringgit will be at RM3.20 against the US dollar. Today it is close to RM3.60 against the US dollar,” he said.

In relation to the depreciating ringgit, Najib said the current account surplus must remain in surplus and that the efforts to reform fiscal policies must continue.

“The ringgit is not the only currency to have weakened against the US dollar. In fact, almost all major currencies in the region have softened against the US dollar since September 2014,” he said.

Just after delivering his 26-page speech outlining the “Current Economic Developments and Government’s Financial Position”, Secretary-General of the Treasury Tan Sri Mohd Irwan Serigar and Bank Negara Governor Tan Sri Zeti Aziz addressed an audience of private economists and representatives from the media to further explain how Malaysia became a net importer of oil and factors that would determine the strength of the ringgit.

Zeti said the ringgit had appreciated and depreciated by about 12% and that the underlying fundamentals of the economy would prevail in determining the ringgit’s strength.

While there was an outflow of funds of US$19bil in 2014, Malaysia’s reserves were optimal, she said.

In December the international reserves were US$116bil – enough to finance 8.4 months of retained imports.

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