This article first appeared in The Edge Financial Daily, on July 27, 2016.

KUALA LUMPUR: Putrajaya is looking at the possibility of introducing a stimulus package to ensure the country achieves its growth target in view of the slowing local and global economy, said Second Finance Minister Datuk Johari Abdul Ghani.

However, he said he could not reveal any specifics at this juncture, only saying the government is mindful that any move it makes will have to be based on the government’s capacity, without leveraging further.

“We are still engaging with some focus groups [about this]. We will see what we can do. But we cannot do anything that [entails] more borrowing. We need to strike a balance,” he said.

Johari told reporters this after delivering a keynote address at the Malaysian Institute of Economic Research’s (Mier) 31st National Economic Briefing yesterday.

Mier executive director Dr Zakariah Abdul Rashid highlighted during the event that Malaysia’s declining current account balance had raised concerns about twin deficits, which may trigger a credit rerating for Malaysia, as external demand remains sluggish while its public account is in deficit.

“The possibility is there, as going forward, [the] external sector is not performing and exports are expected to fall. We have to address it (the current account balance) carefully as this will affect our rating,” he told The Edge Financial Daily.

It is worth noting that Mier, in April, revised downward Malaysia’s net exports projection. It believes net exports will now contract 0.5% year-on-year (y-o-y) instead of growing 1.2% y-o-y, as global recovery fails to get its momentum going as oil prices remain below US$50 (RM203) per barrel, and downside risks lurk, putting more weight on negative sentiments among major economies.

According to Bank Negara Malaysia (BNM) and finance ministry reports, Malaysia’s current account balance for the first quarter of this year stood at just RM5.04 billion, less than half the RM11.33 billion achieved in the same period last year.

Mier forecast the full-year current account balance will come in at RM11.29 billion, significantly lower than last year’s RM34.7 billion, and account for only 1.2% of gross national income, compared with 3% in 2015 and 5.4% in 2012.

Zakariah, however, opined that the government had limited room for further easing to spur economic growth, due to high public finance and household debts, while it strives to reduce the fiscal deficit to 3.1% of gross domestic product in 2016.

He also does not expect BNM to cut interest rates further this year after unexpectedly slashing the overnight policy rate from 3.25% to 3% two weeks ago, as this would affect the whole economy.

Zakariah said the recent rate cut is a measure to boost private consumption, the key growth engine that is expected to hold up the country’s economy, as export growth remains subdued, with declining private investment, while government expenditure remains limited.

“What is left now is private consumption, but it is also limited [due to slow consumer sentiment]. Whether sentiment can improve significantly remains to be seen,” he said.

According to Mier’s survey, consumer confidence remains low — although the Consumer Sentiment Index (CSI) recorded a marginal gain to 78.5 points in the second quarter of the year, from 72.9 points in the previous quarter — as the CSI remains below 100 points. “This shows that consumers are still pessimistic about the economy,” said Zakariah.

Meanwhile, Mier’s Business Conditions Index gained 13.6 points quarter-on-quarter to settle at 106.4 points, surpassing the 100-point threshold, which indicates that manufacturing activities have improved. But longer-term expectations have weakened on downside risks to global growth, he said.

Malaysia registered an economic growth of 4.2% in the first quarter this year. The second-quarter figure is expected to be released in August, and Zakariah is expecting a similar quantum of growth.