The think tank chief said that a crisis can only be acknowledged if Malaysia records a negative growth, which is a result of twin deficits stemming from the government’s balance of accounts and trade balance, concurring with statements issued previously by Prime Minister Datuk Seri Najib Razak.
“We are not in crisis. We have a handsome growth rate, low unemployment rate and a quite steady inflation rate at 2.7 per cent, while our FDI is encouraging. All indicators are good,” he added, using the abbreviation for Foreign Direct Investment.
Zakariah, however, cautioned Putrajaya against being complacent, and advised all economic reform initiatives to be continued, owing to the challenges of the year ahead with the depreciating value of the ringgit and falling global prices of crude oil.
“We have to face the fact we are not in 2014, so we should not expect the growth to be like in 2014,” he said, adding that Putrajaya should also equip itself well with proper initiatives if it wanted to be in “better shape” to face the challenges ahead.
Zakariah also urged the federal government to relook its current fiscal deficit target of 3.2 per cent of the gross domestic product (GDP) this year, an increase from the original 3 per cent target amid plunging global oil prices.
This, he said, was important to regain the confidence from foreign investors.
“If we put it at 3.2 per cent and we can’t achieve 3.2 per cent, it will affect our image because it shows we are not managing the economy well.
“What if we promise 3.2 per cent, but we overspend and end up with a higher rate? We have to revise it,” Zakariah said, adding that the fiscal deficit rates must also be one accepted by investors.
Last week, Najib had in his announcement of revisions to Budget 2015 said that the country’s chronic deficit would rise to 3.9 per cent of the GDP without government interventions.
“We have to accept the reality that we can never achieve the original target of 3 per cent of the GDP as announced previously,” Najib, who is also Finance minister, said in his address that was telecast live.
He stressed, however, that Putrajaya was committed to reducing the budget deficit from the targeted 3.5 per cent in 2014.
Najib also said economic growth forecasts have been reduced to between 4.5 and 5.5 per cent this year, compared to earlier targets of 5 to 6 per cent.
The new budget for Malaysia, an oil exporter, will be based on a projected crude oil price of US$55 (RM197.60) per barrel this year, compared to the US$100 per barrel used in the Budget 2015 announced last October, said Najib.
Malaysia’s national debt, currently at 54.6 per cent of GDP, hovers just below a critical legal ceiling and the country is jointly ranked with Pakistan as having the second highest debt-to-GDP ratio among 13 emerging Asian markets after Sri Lanka, according to data compiled by Bloomberg.
Ratings agency Fitch also maintained Malaysia’s sovereign debt outlook at “Negative”, rating Malaysia’s long-term foreign currency sovereign debt at A minus, which is the last rung of the upper-medium grade ratings.
In the economic outlook report today, MIER said that 2015 is also projected to be a challenging year for the country’s economy, given the uncertainties in several key indicators, notably, the deprecating ringgit and crude oil prices, the Malaysian Institute of Economic Research (MIER) said.
The think tank revealed that the depreciating ringgit exchange rates will likely cause higher import bills and increase production costs.
This is especially with the impending implementation of the Goods and Services Tax (GST) come April 1 this year.
MIER said that its survey revealed that the plunging ringgit and the falling oil price had also greatly affected the confidence of the business community, with slower business sentiment projected to extend till the next quarter of this year.