KUALA LUMPUR • Malaysian Finance Minister Lim Guan Eng pared back expectations for economic growth for this year to about 5 per cent as the export-reliant nation braces itself for knock-on effects of a brewing trade war.
"If the global economy slows, as a trading nation, definitely Malaysia will be impacted," Mr Lim said in an interview with Bloomberg Television in Putrajaya on Thursday.
His forecast is more bearish than most economists' estimates and lower than the central bank's 5.5 per cent to 6 per cent projection.
In office for almost two months now, 57-year-old Mr Lim is spearheading Prime Minister Mahathir Mohamad's agenda to bring down government debt, curb spending and fight corruption.
He has to do that with lower revenue after a 6 per cent goods and services tax was scrapped, and against the backdrop of rising global risks as US-China trade tensions intensify and investors flee emerging markets.
"But let's say if things can be kept on an even keel, there are also opportunities for us," Mr Lim said. "Not only as a trans-shipment point, but also as a neutral country in this dispute, which allows both China and American companies to invest and also export their products."
Trade has underpinned Malay-sia's expansion since last year, helping to push up the growth rate to 5.9 per cent in 2017. Neighbouring Singapore, China and the US are its top trading partners.
A former chief minister of Penang state, Mr Lim is overseeing the new government's austerity drive, which includes salary cuts for ministers and scrapping and reviewing large infrastructure projects.
The government is saddled with more than RM1 trillion (S$337 billion) of debt and liabilities, which has been worsened by state guarantees for public companies, including the scandal-hit 1Malaysia Development Berhad (1MDB).
"Sometimes it is not the debt that haunts you, it is your ability to repay," he said, adding that his focus is on reducing the burden in nominal terms and also in proportion to gross domestic product (GDP).
Mr Lim said his priority is to meet a fiscal deficit target of 2.8 per cent of GDP for this year, while a balanced budget will not be achieved any time soon.
Former premier Najib Razak had projected to close the deficit by 2022 or 2023, missing his previous deadline of 2020.
Despite the debt burden, Mr Lim inherits a fairly stable currency and moderate inflation. Consumer prices rose 0.8 per cent last month from a year ago, the lowest in more than three years, while the ringgit has weakened 0.5 per cent against the dollar this year, a better performance than most of its peers.
"Sometimes, we think the market has probably undervalued the strength of the ringgit, but we want to let the market decide," Mr Lim said.
"The fact that many investors are having a second look, or are looking at Malaysia as an investment destination, that shows that they are interested in our emphasis on transparency ."
BLOOMBERG
