Malaysia is launching a fundamental change in its approach to managing the economy in a bid to reduce dependence on foreign investment and trade, said Prime Minister Dr Mahathir Mohamad today.

Mahathir, who is also finance minister, said in a preface to the ministry's annual economic report that the time had come to "reengineer growth strategies" because of "volatilities in business cycles of our major investment and trading partners".

The United States and Japan are Malaysia's top two trading partners.

The new strategy would involve "initiatives to vigorously explore and promote our domestic sources of growth. Indeed, this calls for a paradigm shift in our approach to managing the economy," he said.

Noting that growth had long been heavily reliant on foreign investment and trade, Mahathir called on the private sector to "resume its pivotal role in spearheading domestic economic activities" and pledged government commitment to facilitate such initiatives.

Domestic investment should be bolstered in new and niche areas, particularly in services such as tourism, education, transport and health, while agriculture should become "the third engine of growth", he said.

The government would "provide the necessary infrastructure and incentives as well as administrative support to ensure a more conducive and cost-competitive business environment".

Economy rebounded strongly

Mahathir, noted that the Malaysian economy "rebounded strongly during the first half of this year after experiencing negative growth during the second half of 2001".

He attributed this to "robust domestic sources of growth which had mitigated the adverse impact on the economy from a weaker external sector".

Indicating no immediate change in the controversial peg of the ringgit currency at 3.8 to the US dollar, the annual report said it "remains consistent with the fundamentals of the economy and continues to support economic growth".

The report predicted that the economy would achieve its target of 4.0-5.0 percent growth this year, well up on last year's anaemic 0.4 percent, and grow by a further 6.0-6.5 percent in 2003.

It said the fiscal deficit was expected to decline to 4.7 percent, a marked improvement over the forecast 5.1 percent and the 5.5 percent experienced in 2001, and narrow to 3.9 percent of gross domestic product (GDP) in 2003.

Major challenge

The major challenge this year was to sustain growth and strengthen macroeconomic fundamentals in the wake of the external shocks caused by the September 11 terrorist attacks on the US, the report said.

"The fragile and vulnerable global recovery necessitated a mildly expansionary fiscal stance in order to ensure the growth momentum is sustained."

Although the government was committed to achieving a balanced budget in 2005, "abrupt reduction of public sector expenditure is deemed premature in the light of the uncertain external outlook".

The report said projects initiated under last year's two stimulus packages totalling RM7.3 billion were expected to filter through and contribute positively to growth.

It said the predicted GDP growth in 2003 would arise "from a broader-based economy with growth emanating from a more pronounced role of a revitalised and dynamic private sector."

The manufacturing sector is expected to record an 8.5 percent increase in output, while the services sector should grow 5.9 percent, construction 4.5 percent, agriculture 3.4 percent and mining 2.5 percent, the report said. — AFP