Mier: Malaysia may need third stimulus package

The Star Online > Business
Wednesday December 2, 2009

KUALA LUMPUR: Malaysia may need a third stimulus package should the US economy go into a relapse next year, according to the Malaysian Institute of Economic Research (Mier).

Executive director Prof Emeritus Datuk Dr Mohamed Ariff said in the event of a double dip recession in the US, Malaysia could use an additional RM8bil to pump prime the economy and “that is something we can afford to have.”

“We may need an additional RM8bil if there is going to be a double dip (recession) in the US and elsewhere,” he told reporters after the Mier National Economic Outlook Conference 2010-2011 yesterday.

He said the government’s spending from the first and second stimulus packages amounted to only RM22bil of the total RM67bil under the packages. “The second stimulus package would have exhausted itself by May,” he said.


The government has so far introduced two stimulus packages totalling RM67bil, with the first package at RM7bil in November last year and the second stimulus package worth RM60bil in March this year to cover a two-year period.

“We may have to brace ourselves for a slightly bigger budget deficit,” Ariff said, adding that the current national debt was small in comparison to what it was before and that of other countries in the region. The government is targeting a budget deficit of 5.6% of gross domestic product (GDP) for next year.

“Our national debt is 42% of GDP, Japan’s is 187%, India’s is 110%. So, by our own and regional standard it is small,” Ariff said, adding that 95% of the government debt was sourced domestically, and only 5% was foreign.

“However, the government needs to be prudent in handling the debt or else the country’s sovereign rating would suffer,” he said.

Meanwhile, the private think tank also expects the country’s economy to contract by -3.3% this year and expand by 3.7% next year, while it concomitantly forecasts GDP growth of 5% for 2011.

“The economy is doing much better than we had anticipated. It is a regional trend,” Ariff said.

“Malaysia needs to grow by 1% in the fourth quarter to register growth better than –3% for the year. But we are still holding on the original forecast of -3.3% and wait to see the fourth quarter results,” he said.

However, he said all indications were that the economy would perform better than Mier’s forecast three months ago.

“The potential (annual) growth rate of the Malaysian economy is 5.5% at this point in time. Until 2011, we see the economy hovering below the potential growth rate,” he said.

Meanwhile, he said the government’s target of 5% growth next year was a tall order and “the PM’s personal target.”

“It is going to be tough. One can engineer that, but at what cost? A 5% growth may mean a bigger budget deficit, much bigger national debt. There is a cost. But what’s the point if you cant sustain it,” he said. He said he expected accommodative policies to be in place throughout 2010.

“The monetary policy will remain relaxed with overnight policy rate of 2%. We don’t expect a revision – upward or downward – in the next 12 months,” he said.

Ariff also said downside risks were still prevalent and might perturb the road to recovery.

“While the worst is over and we are moving to positive growth territory, the future is uncertain. 2010 can be more challenging than this year and there are a lot of landmines to avoid, like asset bubbles, high oil prices and exchange rate risk.

“The recovery we see is still fragile. There is still a 50% chance of a relapse in the first half of next year. The growth we see in most economies is artificial growth engineered by huge fiscal stimulus,” he said.

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