GEORGE TOWN, March 17 – Penang is readying itself for the possibility of economic turmoil resulting from the US Federal Reserve’s rollback of its stimulus programme, Penang Chief Minister Lim Guan Eng warned today.

Saying that while Malaysia and others in the region have reaped the benefits of the US central bank’s bonds-purchases, Lim said the withdrawal along with a larger global economic slowdown meant the state must prepare mitigating measures.

“We are already seeing some effects of the tapering, as our foreign reserves have begun to shrink, which basically means that we are experiencing capital outflow,” he said in his opening speech at an economic lecture organised by the Penang Institute this afternoon.

He noted that stimulus has been an important factor in Asia in recent years as it allowed extra liquidity to flow into this region.

The Fed had in December last year announced its plans to taper its bonds-purchasing measures from US$85 billion (RM280 million) monthly to US$75 billion due to the recovering global economy.

Lim pointed out that the tapering also weakened the ringgit, which meant more expensive imports.

“This will cause inflation and such an effect will only further aggravate the costs of living for low and middle-income households,” he said.

This could then cause inflation to spike, possibly forcing Bank Negara to raise interest rates at a time when Malaysians were already struggling with a household debt level of 83 per cent to GDP.

The Bagan MP said the Penang administration is implementing measures to help the state’s economy weather the possible economic storm.

These include implementing a budget-based administration and clean governance that saw the state recording annual budget surpluses.

He reiterated that Penang had recording foreign direct investments amounting to RM19.7 billion between 2010 and August 2013.

“While these initiatives have strengthened our financial position and built resilience, we have also taken steps to ensure we stay ahead of the game in manufacturing and services, in order to ensure Penang is best prepared in the eventuality of an economic tidal change,” he said.