THE Malaysian Institute of Economic Research (MIER) has warned that the twin deficit problem is imminent and the the government must tackle it fast by implementing structural reform initiatives now.
Twin deficit refers to current account deficit in the balance of payments as well as in the public-sector account.
Mier executive director Dr Zakariah Abdul Rashid said the government needs to address issues such as weaknesses in domestic economic fundamentals, adapt to the ever-changing global economic landscape and restore people's faith.
"Existing policies, strategic reform initiatives and other relevant programmes need to be implemented to ensure there is strong political will in the government, and no reneging in its commitment.
"The possibility of a twin deficit is there and the government is addressing it by undertaking several structural reforms but it is not fast enough," Zakariah said here yesterday at a media briefing on Malaysian Economic Outlook.
He said the government must also take measures to avoid financial instability, such as allowing exchange rate adjustments and foreign exchange interventions, to smoothen excessive volatility.
Other tough political and economic issues, such as income inequality and growing disparity among the races in Malaysia, also need to be addressed, he added.
"The GST (goods and services tax) will be the most important measure to be carried out in the short term, while long-term measures require an overhaul in the education system to provide enough skilled workers for the nation.
"If the government can move away from the uncertainties, then businesses will benefit.
"The issue is when will the GST be implemented and what is the rate?" he added.
He said the business community does not care whether or not the GST is implemented.
"They understand that it has to be done. They also understand that it is not a short-term necessity, but a long-term goal for the economy and their businesses as well," he said.
He said racial and interfaith harmony needs to be preserved as disharmony could potentially destabilise investors' perception of the country.
Meanwhile, the Mier outlook shows that business expectations for the fourth quarter are sluggish in the manufacturing sector with external orders expected to decline.
In the quarter, the production volume is expected to be "unexciting". Employment is expected to increase slightly, wage pressure is seen rising and prices are seen increasing.
The Mier projects Malaysia's growth outlook next year to be between 5.0 and 5.5 per cent.