KUALA LUMPUR, Oct 15 — A leading Malaysian economic think tank has warned that Kuala Lumpur might need another stimulus package to prevent ‘tepid, fragile and shallow’ growth but that it would push the budget deficit to a whopping 8-9 per cent of gross domestic product in 2010.
Even so, the Malaysian Institute of Economic Research (MIER), revised its forecast for 2009’s GDP upwards to a contraction of 3.3 per cent from 4.2 per cent and said that 2010 GDP growth would rise to 3.7 per cent from the 2.8 per cent it had predicted previously. The official forecast for 2009 is a 4-5 per cent contraction but that is also likely to be revised upwards as growth kicks in during the last quarter.
Mohamed Ariff, MIER’s executive director, however, cautioned that growth could remain weak until the start of 2012.
“This is why the government may need to introduce another RM8 billion fiscal stimulus package next year if it wants to really fuel the recovery,” he told reporters at a media briefing yesterday. The amount, he said, would add 2 percentage points to growth.
The comments come 10 days before Prime Minister Najib Razak is scheduled to table his first Budget in Parliament next week.
Najib, who is also Finance Minister, had previously predicted a 7.6 per cent budget deficit this year but hopes to considerably trim the shortfall next year which would seem to negate Ariff’s predictions.
Indeed, no analyst seems to consider more spending likely as slightly over RM90 billion — of the 9th Malaysia Plan allocation — remains unspent for the remainder of 2009 and next year.
But some economists seem to have loftier hopes for Najib. Writing in a recent note, Morgan Stanley’s economists said that “a budget deficit of less than 4 per cent of GDP” would help keep public debt ratios from rising. That, of course, speaks for itself but is wholly unlikely.
More likely is a recent report by Maybank Investment Bank which said that Najib’s Budget was likely to focus on trimming operating expenditure (RM153.5 billion in 2008) by at least 10 per cent.
It said he could do this by focusing on cutting subsidies — almost 16 per cent of operating expenditure — and tweaking “supplies and services” — almost a third of operating expenditure.
Najib raised the price of premium petrol by 14 per cent last month.
He also intends to issue vouchers to the poor for subsidised rice which means that, in future, rice, as a controlled price item, may not exist where the middle class is concerned. Meanwhile, open tenders for supplies and services to the government could cut prices considerably.
Even so, the scope for raising revenue is limited. A long-deferred goods and services tax is out of the question although Najib — like his predecessor Abdullah Ahmad Badawi — could set out a timetable for its eventual implementation.
Abdullah, for reasons of his own, backed away from implementing it in 2007.
Still, sin taxes could go up, analysts said. A small hike in cigarette duties was implemented last week while there could be scope for raising the taxes on both the gaming sector and the alcohol industry. — Business Times Singapore
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