Malaysia PM: Expect To Touch 5% Economic Growth In 2011

By Ankur Relia

KUALA LUMPUR (Dow Jones)–Malaysia’s export-driven economy is likely to expand 5% this year, but a serious downturn in the global economy will hurt its prospects for further growth, Prime Minister Najib Razak said Tuesday.

“To get beyond 5% growth we need strong external demand,” Najib told participants in Forbes Global CEO Conference in Kuala Lumpur.

Sagging exports in recent months, caused by weaker demand from developed countries, have slowed Malaysia’s economy. It expanded 4.0% on year in the second quarter of 2011, compared with 4.9% in the first quarter.

To maintain its growth rate, the Southeast Asian nation must stimulate domestic investment and demand, Najib said.

Najib, who is also the finance minister, also said the government remains committed to gradually reducing subsidies for commodities like gasoline, diesel, sugar, flour, and for electricity.

The Malaysian government’s subsidy burden was MYR24.93 billion in 2010, or 16.4% of the gross domestic product, the finance ministry says.

Najib added that the government aims to cut is fiscal deficit to 3.0% in the next few years, with the target for this year 5.4%, compared with 5.6% in 2010.

Apart from reducing subsidies, the government intends to introduce goods and services tax to achieve its deficit reduction goals.

“The question is the timing,” he said.

The tax will probably be introduced after the next national elections, he said

The government has until March 2013 to call for general elections. “It is bit of a guessing game…It is one of those thing where you must get the timing right,” he said.

Malaysia, already a major market for Islamic finance, is setting up a large Islamic bank, with a paid-up capital of at least $1 billion.

“I just got confirmation of a major commitment from one of the Middle Eastern countries. So we are putting together this because we believe that Islamic finance has a bright future and Malaysia is in the forefront,” he said.