03/11/2008 (The Star Online) - Govt to focus on projects with high multiplier effects.

THE second phase of the economic stabilisation plan to be unveiled by the Government tomorrow is expected to focus on measures to restore consumers’ and investors’ confidence.

According to economists, the stabilisation plan could see the Government focusing on shorter-term projects with a higher multiplier effects on the economy.

They said the Government should ensure the country’s banking system remains strong; and funding and credit lines remained open to small businesses and manufacturers.

CIMB Economic Research head Lee Heng Guie told StarBiz the Government needed to re-prioritise spending and emphasise on projects which would have more widespread effect on the economy.

“We need to reschedule the country’s major projects especially those under the Ninth Malaysia Plan (9MP) accordingly and focus on those that can be quickly implemented,” he said.

Lee said the Government’s fiscal policy should maximise the impact of its expenditure to ensure every ringgit spent would benefit the economy.

“For the next 12 months, whatever allocated must be used efficiently and responsibly,” he said.

Malaysian Rating Corp Bhd chief economist Nor Zahidi Alias said the stabilisation plan might include measures to review government projects.

“The Government might review its projects to ensure that the focus will be more on shorter-gestation projects,” he added.

Nor Zahidi expected the Government to come up with measures to put additional money in consumers’ pockets as private consumption was expected to be dented by the relatively high inflation rate.

Inflation rate surged to a 26-year high of 7.7% in June.

“This may include a temporary and optional reduction in employees’ contribution to the Employees Provident Fund, similar to what has been done in both 2001 and 2003,” he said.

Other measures could be to boost rural household income especially since crude palm oil (CPO) prices had plunged in recent month, he said.

CPO futures had fallen from the peak of near RM4,500 per tonne in March to around RM1,514 last Friday.

Overall, the focus would be to support consumer spending that was the key pillar for the domestic economy, said Nor Zahidi.

The increasing focus on supporting consumer spending was also expected as inflation was expected to remain elevated despite the softening in crude oil price, he said.

Light crude oil had tumbled from US$145 per barrel since June to around US$63.47 last Friday.

“Food prices, in particular, are not expected to soften sharply despite the general slowdown in the economy,” he said.

Aseambankers Malaysia Bhd chief economist Suhaimi Ilias concurred that the government should expedite the implementation of major infrastructure projects as the country approached the final two years of the 9MP.

Projects such as the second Penang Bridge, Railway Double Tracking and extension of Klang Valley’s light railway transit should be implemented in quicker pace in view of the retreating building material prices now, especially steel.

Besides that, Suhaimi also expected specific measures to lift key growth sectors such as tourism, including reclassifying the hotel industry’s power tariff to industrial rates from current commercial rates.

He said the economic stabilisation plan might also include a major government-linked companies’ capital expenditure that would supplement the Federal Government’s development spending to boost fixed capital formation amid the anticipated slowdown in private investment activities such as Petronas’ Sabah-Sarawak Gas Pipeline, Sabah Oil & Gas Terminal and RM10bil fabrication works as well as Telekom Malaysia Bhd’s high speed broadband network infrastructure.

Suhaimi expects the plan to also include income support programs or measures to protect rural households, especially smallholders in the palm oil and rubber plantations, amid the plunge in related commodities’ prices.

“This could be in the form of a minimum monthly income guarantee of RM1,000, higher dividends and bonuses to settlers and participants under Felda, Risda and Felcra,” he added.

Rating Agency Malaysia chief economist Yeah Kim Leng said the Government needed to not just restore consumers’ and investors’ confidence, but also depositors’ confidence.

The worsening economic outlook would create more uncertainty for consumers and investors, he said.

Private consumption was expected to decline as workers’ feared losing their jobs while investors would be concerned about a weakening economy, he added.

Although Malaysia was not directly affected by the world financial crisis at this stage, it needs to protect itself against falling demand should global economy begins to deteriorate.

“We need to ensure that the local financial system will continue to provide credit line and lending activities,” he said.