The government is expected to announce soon a series of measures including tax and interest rate cuts to reduce operating costs as the Sars outbreak bites the fragile economy, a top government official said today.

"Our main concern is the Severe Acute Respiratory Syndrome (Sars). It is having a negative multipling effect o­n the economy. The economy is in need of urgent new impetus," the official told AFP o­n condition of anonymity.

"I think they may consider tax cuts and lower rates."

Prime Minister Mahathir Mohamad is due to brief cabinet members tomorrow o­n the economic concerns and the list of proposals to minimise the impact of Sars during a weekly meeting, he said.

Deputy Prime Minister Abdullah Ahmad Badawi o­n Monday submitted the proposals to Mahathir, who is also finance minister, after consulting business leaders and government officials.

Mahathir returned to work Monday after a two-month vacation.

Tourism badly hit

The official said the worst affected sector of the economy was tourism and its sub-sectors.

Asked when the official announcement would be made, he said: "Very soon. Maybe within a week."

Malaysian experts had advised the government to cut taxes to offset a prolonged slump caused by the Iraq war and Sars.

Economists said the government had little option but to encourage consumer spending, as both foreign direct investment and domestic investment were falling.

The Malaysian Institute of Economic Research (MIER) has cut its 2003 economic growth forecast for Malaysia after the outbreak of Sars to 3.7 percent from an earlier projection of 5.7 percent.

Sars has had an adverse impact o­n tourism, an industry which has helped boost the country's economy in the past few years. Tourism is Malaysia's second largest foreign exchange earner after manufacturing.

Companies in crisis

Manu Bhaskaran, Singapore-based Centennial Group's head of economic research, told AFP a tax cut and lowering rates would definitely prop up the economy.

"There is a need to make the tax regime more competitive. Taxes in Malaysia are higher than Singapore and Hong Kong," he told AFP .

"I will not be suprised if these two measures are adopted. Yes, it will help stimulate the economy," he added.

Tunku Iskandar Tunku Abdullah, chairman of the Malaysian Association of Tour and Travel Agents, had said recently that most of the travel companies were facing severe cash-flow problems.

"We appeal to the government to suspend immediately the monthly tax payments paid by the companies," he said.

"We are not going to make any profits this year. Companies are now fighting just to remain afloat," he said. "We are in a crisis beyond all proportions." - AFP