MIER: It will be mildly ex­pan­sion­ary

> Do­mes­tic de­mand growth fore­cast for the year re­vised up­wards on Bank Ne­gara Malaysia’s mon­e­tary pol­icy eas­ing in July

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KUALA LUMPUR: The Malaysian In­sti­tute of Eco­nomic Re­search (MIER) ex­pects the gov­ern­ment to an­nounce a mildly ex­pan­sion­ary bud­get on Fri­day to boost do­mes­tic de­mand, a key driver for the econ­omy.

This is de­spite the gov­ern­ment hav­ing to stick to its fis­cal deficit re­duc­tion path.

Speak­ing at a me­dia brief­ing here yes­ter­day, MIER ex­ec­u­tive di­rec­tor Dr Zakariah Ab­dul Rashid ( said the ex­ter­nal en­vi­ron­ment is still un­cer­tain, and Malaysia has to de­pend on do­mes­tic de­mand to sus­tain its growth mo­men­tum, with a fo­cus on pri­vate con­sump­tion and pri­vate in­vest­ment.

“The gov­ern­ment needs to put en­ergy into do­mes­tic de­mand as the ex­ter­nal en­vi­ron­ment is not forth­com­ing to push the econ­omy for­ward,” he ex­plained.

MIER has re­vised up­wards do­mes­tic de­mand growth for the year from 4.5% to 4.6% in an­tic­i­pa­tion of pos­i­tive re­sponse to Bank Ne­gara Malaysia’s mon­e­tary pol­icy eas­ing in July.

Pri­vate con­sump­tion and pri­vate in­vest­ment are pro­jected to ex­pand by 5.4% and 5.5% re­spec­tively in 2016 com­pared with 6% and 6.4% in 2015.

To boost do­mes­tic de­mand, Zakariah noted that BR1M hand­outs are needed to in­crease dis­pos­able in­come of the B40 (bot­tom 40% house­hold in­come group) group. How­ever, he stressed that BR1M should be a short-term mea­sure only and should not be ex­tended to the M40 (mid­dle 40% house­hold in­come group).

“Di­rect in­come trans­fers should be im­ple­mented on a se­lected ba­sis, more for wel­fare rea­sons rather than for ex­pand­ing pri­vate con­sump­tion,” he said.

Zakariah also ex­pects the gov­ern­ment to an­nounce some tax mea­sures, such as re­duc­tion of in­come tax.

To en­cour­age pri­vate in­vest­ment, he sug­gests more in­cen­tives be given to lure more pro­duc­ers to in­vest in Malaysia.

“The gov­ern­ment can also give pref­er­en­tial fi­nanc­ing rate to SMEs (small and medium en­ter­prises) and help them in the form of tech­nol­ogy and pro­duc­tion.”

Zakariah fore­sees high im­pact in­fra­struc­ture projects to con­tinue next year to im­prove short-term de­mand and pro­duc­tion ca­pac­ity of the econ­omy in the longer run. Mean­while, Zakariah said he is con­fi­dent Malaysia will be able to achieve its fis­cal deficit tar­get of 3.1% of gross do­mes­tic prod­uct this year de­spite RAM Rat­ings ex­press­ing its con­cern over the short­fall in gov­ern­ment cof­fers.

“We’ve no doubt at all. In the past years, the gov­ern­ment has been se­ri­ous about this (fis­cal deficit). They’ve shown a good track record in ad­her­ing to that tar­get,” he said.

RAM Rat­ings ex­pects this year’s fis­cal deficit will be higher at 3.3%.

While ac­knowl­edg­ing its com­mit­ment to stick to the fis­cal deficit tar­get, Zakariah said the gov­ern­ment has no choice but to spend in a bid to mit­i­gate the slug­gish ex­ter­nal de­mand. “This is an art of bal­anc­ing, the gov­ern­ment has to bal­ance well be­tween spend­ing and cut­ting the deficit.”

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