Business

Thursday October 1, 2009

Economists expect cuts in Government operating expenditure

By FINTAN NG


PETALING JAYA: Economists see the impending cuts in the Government’s operating expenditure as part of the framework that is being laid out for a new economic model that includes consolidating Malaysia’s medium-term public spending.

The move to cut expenditure is fiscally prudent as the global economic slump has brought reduced revenues from corporate taxes while lower commodity prices have also taken a toll, they said.

Furthermore, the country’s budget deficit, which has steadily risen since 2008, is expected to hit 7.6% this year from the pump-priming measures announced by the Government last November and this March.

On Tuesday, Prime Minister Datuk Seri Najib Razak said the Government was looking at ways to cut back on operating expenditure ahead of the Budget 2010 announcement expected later this month.

He said there might be a slight reduction in the operating expenditure, which has reached RM1bil a month, an amount that the Government was committed to spend until the end of next year.

CIMB Investment Bank Bhd economic research head Lee Heng Guie told StarBiz that the Government would need to make those cutbacks to rebuild fiscal strength in order to weather a future slump.

“They need to adopt a credible plan as fiscal reform is a core element of the new economic model and this is not just for next year’s expenditure but for the medium term,” he said, adding that there was more breathing space for reforms to be carried out and cuts to be made as the economy started to recover.

“The Government will need to look into areas where they can reduce operating expenditure, in other words they’ll need to trim down the excesses and be focused on the spending,” Lee said, noting that as revenues would be affected by the economic slump, there was a need to cut back on its commitments via lower expenses and capital expenditure.

Kenanga Investment Bank Bhd economist Wan Suhaimie Saidi said the Government’s move to cut back on operating expenditure could be in anticipation of suppliers increasing their prices as the economy recovered later in the year.

“The target budget deficit for this year is 7.6%, anything above that may be damaging to the country’s credit rating too,” he said.

Separately, it was reported that the Government was also considering plans to cut the development expenditure to RM180bil for the 10th Malaysia Plan (10MP), which would run from 2011 to 2015 from the RM200bil in the 9MP, which ends next year.

Citigroup Inc Asia Pacific economics and market analysis vice-president Kit Wei Zheng said in a Sept 24 report that a targeted reduction in the fiscal deficit next year “looks challenging” and could result in a spike in inflation if subsidies were reduced.

He also noted that fiscal implementation continued to gain momentum in the second half of the year.

As at August, 40% of the RM7bil stimulus package announced last November had been completed while a further 30% had been awarded contracts but the funds had not yet been spent, according to Kit.

He added that of the RM15bil stimulus package announced earlier this year, 20% of planned spending had been completed while a further 30% was work in progress.

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