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20
Feb
2014

FISCAL ADJUSTMENT AND DYNAMIC ECONOMICS PERFORMANCE: INTRODUCTION

FISCAL ADJUSTMENT AND DYNAMIC ECONOMICS PERFORMANCE: INTRODUCTIONMalaysia’s leading challenge today is to lessen the inflation rate, poverty level and external debt as a part of nation’s agenda toward sustainable economic performance. As many countries in the Asian region, Malaysia has accumulated a number of external debt. External sources needed to develop the internal financial budgetary and fulfill the gap of domestic resources of financial supports to development the nations economics targets. Borrowing money from abroad can be defined as external debt and the increases in term of external debt may also burden the countries fiscal adjustment; and economic performance in long term. In order to finance the Malaysia’s fiscal deficit, the Malaysian government has borrowed from internal or external sources or by creating money through debt monetization. Most of the time, the Malaysian government financed the deficit through borrowing rather than through money creation. This scenario has an indirect effect on Malaysia’s sustainability for the past 2 decades. After facing the optimal debt level, the government is unable to borrow from public or from abroad to finance its deficit. This condition may cause macroeconomic crisis such as debt trap and hyperinflation.
Identically, developing countries are no exception, where most the countries experienced problem with external debts in the early 1980s. Figure 1 provides details of selected indicator of macroeconomics performance for Malaysian economics for the past 2 decades. The growth of outputs as an annual change clearly shows and unstable trends, where the Asian financial crisis has cause on the downtrend of the growth rate within the period of 1997 until 2000. The consumer price index (CPI) and labor force indicates an upward trend. Although the CPI has increased, but the percentages are in the stable mode compare to other Southeast Asian countries. Surprising, the trends of annual change of imports and exports in Malaysia were in the same mode. As a consequence, Malaysia’s trade balance were not so diverge although faces economics crises in middle of 1990s. In term gross domestic saving as percentage of GDP, Malaysia has reach a good standing went facing the economic downturn in 1997-1998 with special fiscal and monetary treat done by the federal government. Therefore, Malaysia able to recover smoothly from the economic crisis compare to other countries in Southeast Asian region. The remaining situation also has cause on Malaysia’s total international reserve. The amount of international reserve keep on increasing for the last 2 decades and this indicates that, the Malaysian government have look forward to stabilize the sustainability of economic growth in future without any ‘rescue packages’ from IMF or other sources of rescue funds.

Figure-1

Figure 1: Malaysia’s Macroeconomics Performance, 1990-2008

Malaysia’s leading challenge today is to lessen the inflation rate, poverty level and external debt as a part of nation’s agenda toward sustainable economic performance. As many countries in the Asian region, Malaysia has accumulated a number of external debt. External sources needed to develop the internal financial budgetary and fulfill the gap of domestic resources of financial supports to development the nations economics targets. Borrowing money from abroad can be defined as external debt and the increases in term of external debt may also burden the countries fiscal adjustment; and economic performance in long term. In order to finance the Malaysia’s fiscal deficit, the Malaysian government has borrowed from internal or external sources or by creating money through debt

About The Author

Kevin J. Brandon

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