Business

Wednesday September 30, 2009

Govt may limit 10MP development spending to RM180b


Proposal will cut deficit to 4%

KUALA LUMPUR: Malaysia, facing its biggest budget deficit since 1987, is considering plans to cut development spending to RM180bil in its next five-year plan for 2011-2015, a source with direct knowledge of the process said.

The spending plans under the 10th Malaysia Plan (10MP) compares with RM200bil of spending set out in the current plan for 2006-2010, or the 9th Malaysia Plan (9MP).

The proposal will enable the Government to cut its budget deficit to no more than 4% of gross domestic product in 2015.

“The amount will enable the government current account (primary budget balance) to remain in surplus throughout the 10MP,” the source said.

The primary budget balances the Government’s spending and revenues but excludes debt servicing costs and recent research from Citigroup calculates Malaysia’s sustainable medium-term primary deficit is 1.5% of GDP, compared with the 1.7% primary deficit it ran in the five years ended in 2008.

The planning unit’s proposals have been presented to the Malaysian cabinet as part of a series of five-year plans aimed at getting Malaysia to developed-nation status.

Malaysia has run a rising budget deficit since 2008 and the government forecasts that the deficit will be 7.6% of GDP this year. The International Monetary Fund (IMF) sees it at 7.1% of GDP in 2010.

According to the planning unit’s proposals, the development spending aspect of the 10MP would result in the deficit falling, although not at a rapid pace.

“Overall the (budget) deficit will not go over 4% of GDP in 2015,” the source said.

Overall debt service payments will be less than 15% of government revenues from 2011-2015, according to the report, and foreign debt will remain under 10% of GDP.

A recent IMF report said foreign currency denominated debt is projected at 9.6% of GDP this year.

As well as the RM180bil development spend, the Economic Planning Unit has proposed Malaysia put RM15bil into a private finance initiative.

“It is projected that this RM15bil can generate private investments totalling RM50bil through public private partnerships,” said the source. — Reuters

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