The significant progress that was achieved in financial sector reform and restructuring in 2001 has enabled BNM to shift its focus from managing banking sector problems to the medium and longer-term issues of developing a more competitive and resilient banking sector. The Financial Sector Masterplan that was launched in March 2001 aims to provide the blueprint for the development of financial sector over the next ten years. To date, 9 out of the 119 recommendations under the FSMP have been fully implemented. In addition, 22 recommendations are being implemented on an on-going basis. Outlook and Prospects for the Malaysian Economy in 2002 As we enter the year 2002, indications are that world trade is expected to recover to about 2.5% in 2002. Growth in the major industrial countries as a group is expected to stabilise at 1.1%, reflecting a stronger growth of 1.4% in the US economy. Malaysia is well positioned to benefit from the emerging recovery in the global economy. Real GDP growth in the Malaysian economy is projected to recover to 3.5% in 2002. The projection is based on stronger growth in private consumption, a modest recovery in private investment, sustained public sector expenditure and moderate growth in exports. Current domestic indicators suggest that the Malaysian economy is in the early stages of recovery. The index of leading indicators has shown positive growth for six consecutive months. Both the decline in exports and manufacturing production have also begun to moderate.
The benefits of these measures abound. For example, the fiscal deficit has been constrained to within the allowable limits of below 3% of GDP. Lower fiscal deficit coupled with prudent monetary policy have contributed to current low and stable inflation rate. As you are aware, annual inflation stood at 9.9% at end-December 2009 and further declined to close at 8.2% at end-July 2010. The growth in the economy has also been robust,  2  BIS Review 105/2010  underpinning the sustainability of policy reforms. Real economic growth has averaged above 5% for most part of the past decade. Concern has also been raised that Government borrowing competes with the private sector for scarce funds thereby pushing up interest rates and perpetuating the high cost of finance. However, in recent years, the Government has scaled down its domestic borrowing requirement in order to free resources for the private sector. On the other hand, due to banks appetite for risk free debt instruments, competition for government securities has intensified exerting a downward pressure on yield rates. Chairperson, these achievements attest to the importance Government attaches to reviving this economy and making Zambia a middle income country by the year 2030. Distinguished Ladies and Gentlemen, part of the reason financial intermediation has been limited has been because of the inadequate supporting financial and legal infrastructure. A well developed financial infrastructure is essential for fostering investor participation and expanded access to financial services.