KUALA LUMPUR, Oct 23 — Malaysia’s budget deficit in 2010 will shrink to 5.6 per cent of gross domestic product (GDP), according to the country’s annual economic report, presented ahead of the budget today.
The deficit reduction from a new forecast for a gap this year of 7.4 per cent, the biggest in more than 20 years, is much more rapid than 7.3 percent of GDP expected by economists in a recent Reuters poll, although measures spelling out how it would be achieved were vague.
The main spending cuts come from: reduced operating expenditure, seen down by 13.7 per cent in 2010 at RM138.3 billion; lower development spending, seen down 4.5 per cent to RM50.6 billion; Further reductions in food and fuel subsidies which are seen falling 14.7 perc ent in 2010 to RM20.9 billion.
But at the same time, the government is taking a hit on revenues, mainly due to lower petroleum income taxes which are expected to fall 28 per cent to RM19.4 billion in 2010.
In order to fend off the impact of the global economic downturn, Malaysia’s government introduced two packages of extra spending and loan guarantees worth a total of RM67 billion.
Malaysia’s government now believes that the impact of the global economic downturn on Asia’s third most trade dependent economy will be slightly less than expected and the economy will shrink 3 per cent this year, less than the 4-5 per cent forecast.
Growth will return in 2010, albeit at a tepid rate of 2-3 per cent. Prime Minister Datuk Seri Najib Razak wants Malaysia to grow at 6 per cent annually and has opened up some sectors of the economy to more foreign investment to boost growth.
Datuk Seri Najib is also expected to outline some further investment incentives in his budget speech which could last two hours. He may also outline plans for the introduction of a goods and services tax and measures to broaden the tax base.
Out of a population of more than 28 million people, there are just 2.3 million taxpayers and tax-paying companies.
Even though Malaysia is targeting a smaller budget deficit next year, it also expects weaker government revenues of RM148.4 billion versus RM162.1 billion this year.
Despite the targeted drop in operating spending, the salaries of government workers are set to rise to RM42.2 billion from a projected RM38 billion in 2009.
Net domestic borrowing by the federal government is expected to fall to RM40.5 billion in 2010 from RM56.9 billion this year. — Reuters
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