Asia Times: Malaysian central bank projects 1% GDP growth in '99



	April 01, 1999	atimes.com

Southeast Asia

Malaysian central bank projects 1% GDP growth in '99

KUALA LUMPUR - Malaysia is poised to step out of recession with a modest one percent growth in gross domestic product (GDP) this year from a painful 6.7 percent contraction in 1998, the central bank, Bank Negara Malaysia, said Wednesday.

The central bank said in its 1998 annual report released here that domestic demand would be the main engine of growth supported by the government's fiscal stimulus package against a backdrop of a recovery in exports.

Bank Negara is sticking to its relatively conservative one percent growth projection despite more optimistic forecasts made by both local and foreign investment houses and equity research firms of two to three percent.

Bank Negara said growth could be higher, closer to two percent, based on efforts to hasten the comprehensive restructuring of the banking and corporate sectors as well as those to raise the utilization of excess capacity in the economy.

Prospects will also be brighter if the international economic environment improves or the private sector responds more favorably to the economic recovery measures. No less important is the tourism industry, where much potential remains untapped, it said.

Bank Negara's one percent forecast comes after contractions of 8.1 percent in the final quarter of last year, 9.0 percent in the third quarter, 6.8 percent in the second quarter and 2.8 percent in the first quarter of last year.

The report, with the focus on economic recovery after the outbreak of the currency crisis in July 1997, projected inflation to moderate to four percent from 5.3 percent last year.

Stressing that 1999 would be another challenging year, the central bank said ''while it is crucial to achieve economic recovery this year to preserve the standard of living and the quality of life attained in the last decade, such recovery would not be at all costs and at the expense of overall fundamental macroeconomic stability."

Bank Negara also said real aggregate domestic demand is projected to turn around to chalk up an increase of 4.3 percent this year, reflecting mainly the positive response to the measures taken by the government to stimulate domestic demand.

Public sector expenditure is also expected to follow suit and grow by 11.4 percent (1998: -6.6 percent), with the pick up in momentum in the implementation of the government's fiscal stimulus package.

Public consumption is estimated to increase by 10.1 percent mainly on account of higher expenditure on supplies and services and defence expenditure by the Federal Government, while public investment would increase faster by 12.8 percent because of higher allocations for socio-economic projects, including construction of roads and bridges, upgrading of rural amenities, agriculture, health and education.

The current account surplus of the balance of payments is expected to remain significant, albeit lower, at RM29.5 billion (US$1:RM3.8) or 11 percent of Gross National Product (GNP) from RM36.1 billion.

The moderate decline in the current account surplus reflects lower surplus projected in the merchandise account (RM57.1 billion), while the services account deficit is forecast to improve to RM21 billion (1998: RM23.4 billion). Exports are projected at RM277.6 billion (1998: RM282.0 billion) compared with imports of RM220.5 billion (1998: RM212.7 billion), but Bank Negara said export prospects remain uncertain, which was why domestic demand was touted as the main source of growth this year.

Total external debt outstanding is expected to rise moderately by 4.2 percent to RM166.4 billion but Bank Negara said ''Malaysia will remain a moderately indebted country, with the ratio of external debt to GNP stabilising at 62 percent."

Reserves at the end of 1998 rose to RM99.4 billion or 5.7 months of retained imports compared with RM59.1 billion or 3.4 percent of retained imports a year earlier.

Per capita income in 1999 is projected at RM11,831 or US$3,113 from RM11,835 or US$3,018 in 1998.

As for employment, the central bank said the recovery in 1999 is expected to generate increased employment opportunities in all major sectors, but the unemployment rate would be higher at 4.5 percent from 3.9 percent in view of the higher entrants into the domestic labour market.

On a sectoral basis, growth in real output this year is poised to reflect positive growth in output in the manufacturing, services and agriculture sectors, while the decline in construction would moderate and the mining sector would contract.

Domestic oriented industries would lead the way for the manufacturing output to turn around to register an increase of 0.8 percent in 1999 from a 10.2 percent decline in 1998. Agricultural output is also set to turn around with a five percent increase from a four percent decline mainly as a result of the higher output of crude palm oil, while services activity is set to grow by 2.5 percent from 1.5 percent in 1998.

Construction, among the mainstays of economic activity, would further consolidate with the decline in output moderating to eight percent.

The central bank's conservative growth projection was also understandable in view of the fact that commodity prices are expected to remain generally weak, with petroleum prices expected to decline to US$12 per barrel and higher supplies set to depress crude palm oil price levels.

Looking ahead, the central bank said the broad thrust of policy would be directed at re-engineering the growth strategies for the immediate and long term, while addressing the vulnerabilities in the economy, a move which would provide the basis for greater economic expansion.

In 1998, policy management focused on reducing risks in the economy to ensure macroeconomic stability and promote a stronger financial system, which among other things also included an expansionary monetary policy to stimulate business activity via greater liquidity and lower interest rates.

Selective capital controls, including pegging the ringgit at RM3.80 to the US dollar, provided exchange rate stability, crucial in containing disruptive speculation against the local unit and ensuring a stable environment to facilitate sound business decisions.

Besides this, Malaysia took definitive steps to address the rising non-performing loans (NPLs) in the banking system by setting up Pengurusan Danaharta Nasional Bhd, the asset management company to buy over the NPLs, and Danamodal Nasional Bhd recapitalise weak banks.

To complement their roles, the Corporate Debt Restructuring Committee (CDRC) was established to address financing problems of viable businesses whose main role was to implement a comprehensive framework for debt restructuring through bringing together creditors and debtors for a voluntary debt workout.

So far, Malaysia's pragmatic approach in economic management has begun to yield positive results with measures to address vulnerabilities in the economy expected to strengthen the foundation upon which sustainable growth would be achieved over the medium and longer term, Bank Negara said.

(Asia Pulse/Bernama)

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