Malaysia seen hiking tariffs to curb growth
Malaysia seen hiking tariffs to curb growth
KUALA LUMPUR (Reuters): Malaysia is expected to hike import
duties on luxury goods and machinery, give tax breaks to export
industries and delay more infrastructure projects in its annual
budget for 1998, economists said.
They said these fiscal measures were aimed at slowing down
growth and reducing the current account deficit, two major
demands from foreign investors who have rocked Malaysia's economy
by selling down its currency and stocks in the last few months.
The budget proposals will be announced by Deputy Prime
Minister and Finance Minister Anwar Ibrahim in Parliament at 0800
GMT on Friday.
Most economists said the budget proposals would be watched
closely to see if the government was serious in keeping its
promises made during the current financial markets crises.
"I hope they do what the Indonesians have done. List the
specific projects to be deferred (or canceled) and what is their
impact in terms of expenditure," said Liew Yin Sze, chief
economist with JM Sassoon & Co in Singapore.
He said most other measures were secondary as far as this
budget was concerned.
Last month, Anwar announced some of the projects that would be
delayed, including the $6.2 billion Bakun hydroelectric project,
as the clamor for the slow down of the economy grew.
In a speech to foreign fund managers, he promised measures to
boost exports and cut down imports. He said economic growth would
slow to between six and eight percent next year.
"We feel the economy is moving quite fast. We would like to
see the budget engineer a slowing of the economy through fiscal
and monetary measures," said Ong Sin Beng, economist with JP
Morgan in Singapore.
Much of Malaysia's growth over the last nine years has been
pegged to infrastructure development. This has resulted in an
average growth rate exceeding eight percent over that period.
Malaysia's gross domestic product grew by 8.2 percent in 1996.
But an unavoidable side-effect of this growth has been rising
corporate debt, with a worrying level of non-performing loans
potentially able to wreak havoc with the balance sheets of local
banks, the economists said.
Currently non-performing loans stand at around 3.5 percent of
total outstanding loans for the banking industry. But analysts
say an economic slowdown could see that figure rising to around
six percent.
"Malaysia does need a period of consolidated growth. This
would allow some companies that are over geared to unwind some of
their debt," said a foreign fund manager in Kuala Lumpur.
Crucial to this consolidation is a hard-hitting budget that
will drastically reduce the current account deficit, now running
at around 5.5 percent of Gross National Product, say analysts.
"This would probably include measures to support local
industries by encouraging people to buy from local support
industries," said Eddie Lee, regional economist at brokers
Vickers Ballas in Singapore.
Other measures may entail beefing up various existing funds to
support small and medium-scale industries, he said.
Higher import duties on luxury cars and civil engineering
equipment could also be on the cards, said Lee.
Most economists also believed that an expected cut in
corporate tax rates, currently at 30 percent, will not come.
"It's going to be a painful Budget. He (Anwar) wants to see a
bigger surplus than 1997. With the economy slowing, tax revenues
will be slow. If you cut tax further it will cut revenues," said
Tan Min Lan, an economist at Merrill Lynch.