Malaysia is not in austerity mode but is instead adopting smart spending, Finance Minister Lim Guan Eng said today.

As Lim explained, the government will spend in key priority areas, especially when it leads to long-term sustainable growth that improves the well-being of the rakyat.

Malaysia is not going to just pursue fiscal consolidation, as a too-fast consolidation might affect growth, he added.

“We need to pursue economic diversification. Fiscal consolidation is a means towards fiscal sustainability. But sustainability requires a reasonable level of economic growth,” he said in his luncheon address at the Khazanah Megatrends Forum 2018 here today.

In the short term, Lim said, Malaysia needs to consolidate its fiscal position in order to address the excesses of the previous government, which led to RM1.09 trillion worth of government debts and liabilities, or 80.3 percent of GDP.

He believes the corporate sector has a prominent role in helping to keep the economy going and has the capacity on its balance sheets to invest and pursue growth because Malaysia's corporate debt, at least among listed companies, is merely 20 percent of GDP.

Despite current global headwinds, Lim assured that Malaysia would not run twin deficits, thanks to its robust economic fundamentals and current account, which is likely to remain in surplus for this year.

He said Malaysia had a current account surplus of three percent of the GDP last year, while in the first half of the year, the balance stood at 2.7 percent of GDP, or RM18.9 billion.

Lim noted there have been concerns about the weak second-quarter current account surplus of only RM3.9 billion and the low August 2018 trade balance of RM1.6 billion.

These low surpluses, in large part, were caused by the consumption tax holiday period after the abolishment of the goods and services tax, which in turn encouraged imports, he said.

He added, however, that import growth would moderate with the reintroduction of the sales and service tax last month, which would improve the balances in the short term.

Lim also said in order to maintain the current account balance, Malaysia's exports need to remain competitive and the country must recalibrate public finances towards a path of long-term fiscal sustainability.

He also noted that the government’s efforts at fiscal consolidation are focused on prudence–removing the excesses of the past while building a strong foundation for government finances to pursue a smart and responsible fiscal policy moving forward.

- Bernama