MANILA: Malaysia's gross domestic product (GDP) is
expected to grow 5.8% this year on strong export demand
and private consumption and a slower 5.6% next year
on further fiscal tightening, the Asian Development
Bank (ADB) said.
In its annual economic outlook report, Manila-based
ADB said projections for Malaysia assumed a 12% to 15%
growth in private investment, including increases in
foreign direct investments of about US$1bil a year.
The investments will offset the planned cuts in public
investment, but will not generate a significant improvement
in the ratio of gross capital formation to GDP, it added.
The improved economic performance in 2003, coupled
with moves toward greater transparency in government
decisions and a stronger anti-corruption stance, has
created favourable conditions for 2004 (in Malaysia),
the ADB said in the report.
Better investment outcomes, ...possible if policy
is focused on investment-promoting initiatives, offer
opportunity for higher-than-projected economic growth,
the report added.
The ADB noted that the Malaysian government is targeting
a reduction of the fiscal deficit to 3.3% of GDP in
2004, with revenues projected to rise 7.2%.
However, it said a planned 1.6% reduction in
expenditures will be more difficult to achieve, although
the government's decision to hold elections early in
the year and avoid an extended period of politically-driven
budget decisions, is encouraging in this regard.
Planned cuts in the development budget are already
deep, but further modest cuts may be possible if necessary,
the ADB said.
It said the Malaysian government's aim to narrow further
the budget deficit to 1.8% of GDP in 2005 and balance
the budget in 2006 will need significant further spending
Meanwhile, pressure has gradually built on Bank Negara
to consider a more flexible exchange rate and allow
the ringgit to appreciate against the US dollar, it
The rise in portfolio investment inflows to Malaysia,
fuelled by the market view that the ringgit is undervalued,
is likely to reinforce this, it said.
However, it said a likely accommodative monetary policy
in the context of low inflation and a narrowing fiscal
deficit will contain the upward pressure on the ringgit.