September 13, 2018 / 5:22 AM / 8 months ago

REFILE-UPDATE 1-Malaysia can grow 5 pct and handle its debts - finance minister

(Amends 8th paragraph to clarify that the minister said Malaysia will not be in ‘operating deficit’)

* Finmin says huge debt needs to be reduced over 3 years

* Pledges that Malaysia can service its debts

* Says Malaysia won’t be a victim of emerging market contagion

By Julia Fioretti

HONG KONG, Sept 13 (Reuters) - Malaysian Finance Minister Lim Guan Eng said on Thursday that the Southeast Asian country can sustain 5 percent annual economic growth as its new administration reviews mega projects and copes with hefty debts left by the previous government.

In August, Malaysia cut its 2018 growth forecast to 5 percent, from 5.5-6.0 percent and reported much slower second-quarter expansion of 4.5 percent, compared to the previous period’s 5.4 percent.

Slower growth also signals the economic risks facing 93-year-old Mahathir Mohamad after his stunning election win in May that brought him brought to the premiership in Southeast Asia’s third-largest economy.

Lim, a former banker and chartered accountant, told the CLSA Investors’ Forum in Hong Kong that there is an urgent need to review expensive development projects because Malaysia does not have “enough money to pay for them”.

“We want to see reductions (in debt) over the course of 3 years and at the same time we are able to service these debts, we will not be in default,” Lim said.

“When we are talking about belt-tightening, cost rationalisation, then we are doing it.”

Before being named finance minister in May, Lim was chief minister of Penang state, a popular tourist destination. Earlier this month, he was acquitted of corruption charges brought against him two years ago when he was a senior opposition leader.

Lim will oversee the new administration’s first budget in November. He said on Thursday that Malaysia “will not be in operating deficit”.

After taking over, Mahathir repealed an unpopular goods and services tax. He has pushed to review major infrastructure projects launched by the past administration. About the need for tough fiscal measures, Lim said “It’s painful, but it’s necessary... I’m willing to be the most unpopular finance minister in Malaysian history.”

The minister said Malaysia will not be a victim of the contagion effects from emerging markets due to its strong trade and current account surpluses and high foreign-exchange reserves.

“I think that would put Malaysia off the radar as far as being victim of the contagion effects from ... so-called emerging markets currency risk. I’m still confident that we should be able to ride out the storm, if any.” (Reporting by Julia Fioretti; Writing by Clare Jim; Editing by James Pomfret and Richard Borsuk)

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