Nov 6, 2008, PETALING JAYA: The RM7bil stimulus package will help cushion the adverse impact of a global economic crisis but is unlikely to avert a possible recession, says Malaysian Institute of Economic Research executive director Professor Datuk Dr Mohamed Ariff Abdul Kareem.
In an e-mail to StarBiz yesterday, Ariff said the crisis was simply too big to be contained by a package of this size and there was a strong possibility that Malaysia might face two consecutive quarters of quarter-on-quarter contractions in the gross domestic product (GDP) growth.
“The strategy, which is mainly of increased spending, may not be sufficient to ward off the impending crisis. For one, there are limits to public expenditure, given the serious budgetary constraints.
“For another, there are no incentives in the package for increased private sector investment expenditures,” he said,
He added that the package would work better if it were accompanied by policy liberalisation.
Finance Minister Datuk Seri Najib Razak said on Tuesday the GDP growth forecast for the year had been pared down from 5.7% to 5%, while for 2009, was revised to 3.5% from 5.4%.
Meanwhile, the budget deficit for next year has been raised to 4.8% from 3.6% due to lower government revenue from commodities.
Malaysian Rating Corp Bhd chief economist Nor Zahidi Alias said the overall strategy to have an expansionary fiscal policy was a step in the right direction by the government.
“Economists have learnt over the years that a contractionary budget will only lead to disastrous outcomes when implemented during an economic slowdown,” he said.
Macro indicators seemed to suggest that the US economy would be experiencing a full-blown recession and an open economy like Malaysia is expected to be adversely affected through various linkages, particularly external trade and investment, Zahidi said.
“As such, efforts should be made to support domestic economy, particularly through consumption and high-multiplier projects. The reduction in employees’ contribution to the EPF would aid private consumption, the major pillar of the Malaysian economy,” he added.
In contrast, Ariff said it was not wise to use the EPF as an instrument for short-term macro-economic stabilisation.
“EPF savings are meant for the future, not for current consumption, and studies have shown that in most cases, EPF savings are inadequate to take care of the retirees’ financial needs,” he said.
However, Zahidi said that due to such concerns, the government had made the reduction in EPF contributions optional and would only be implemented for two years.
Source: http://biz.thestar.com.my/news/story.asp?file=/2008/11/6/business/2470214&sec=business
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