2010 Budget: Is it enough to support growth?

THE most shocking takeaway of the 2010 Budget is the projected reduction in the deficit-to-gross domestic product (GDP) ratio to 5.6 per cent in 2010 from 7.4 per cent forecast for 2009.


While we understand the urgency to trim the government's budget shortfall, which deepened this year to its worst since 1987 following two stimulus packages launched to soften the blow from the global downturn, we would argue that the ambitious deficit reduction target is too drastic and may put a spanner in the works of a still tentative recovery.

No doubt, the projected cutback by 13.7 per cent to operating expenditure and by 4.4 per cent to gross development expenditure will have non-stimulatory impact on economic activities in general.

Little wonder that Malaysia's GDP growth is only expected to range between 2 per cent and 3 per cent in 2010 notwithstanding a pretty strong rebound projected for the global economy with a 3.1 per cent increase as per the latest International Monetary Fund forecast released in early October 2009.

Still, the seriousness of the government to address this "perennial" issue, which lasted since the dawn of the Asian financial crisis in 1998, deserves a "vote of confidence" among global rating agencies.



Indeed, it is our view that they should at least "reward" our commitment to really consolidate public finances and return to a fiscal balance within three to six years by maintaining Malaysia's sovereign ratings status quo.

After all, a painful but prompt fiscal adjustment today will go a long way in preparing Malaysia with adequate room to manoeuvre should the fledgling recovery now turn out to be a W-shaped one.

We sincerely hope that the call to shift to a new economic model that is based on innovation, creativity, knowledge, high technology and high value-added activities will help preserve Malaysia's relevance in an increasingly competitive global economy, enhance our competitive advantages and transform Malaysia into a high-income nation, without compromising the objectives of equitable distribution of wealth and high quality of life.

* The writer is the chief economist of Bank Islam.