Budget 2010: Govt to be prudent on spending

Tags: Budget | Maybank Investment Bank

Written by Nadia S Hassan
Tuesday, 13 October 2009 11:35

KUALA LUMPUR: The government is expected to keep a tight rein on its spending, in a move to trim the nation’s budget deficit that has swollen as a result of two stimulus packages unveiled earlier to restore the country’s slowing economy.

However, the tight budget will not affect the developments of some big-ticket infrastructure projects, said Maybank Investment Bank Bhd.

“We see 10% cuts in operating expenditure next year, mainly coming from two low-hanging fruits, namely ‘subsidies’ and ‘supplies and services’, which make up over one third of government operating expenses,” said Maybank Investment Bank Bhd in a research note.

“Ultimately, Budget 2010 is to pave the way towards the restoration of fiscal discipline in the medium term. Fitch Ratings earlier lowered its outlook on Malaysia’s sovereign debt, citing concerns about the fiscal deficit,” said Maybank.

“However, signs of domestic economy picking up and the job market stabilising indicate that the measures in the economic stimulus packages are working, thus allowing the government to focus on dealing with the deficit,” it added.

Maybank anticipates the government will adopt a more targeted or means-tested approach compared to the current blanket provision when it comes to subsidies as well as open tenders on government procurements in order to bring down costs. “We believe Budget 2010 will address the fuel/energy subsidies next,” said Maybank.

So far, the indication from the government is that the main aim of Budget 2010 would be to reduce next year’s budget deficit from the official forecast of 7.6% of gross domestic product (GDP) this year.

Maybank opined that the main beneficiaries of Budget 2010 would be basic infrastructure, public safety and social welfare, but expects developments on a few big-ticket projects to drive the CONSTRUCTION [] sector.

“Naturally, the budget is expected to highlight the implementation of some major infrastructure projects. Projects that are still pending implementation include the Southern (Seremban-Gemas) double-track railway, Pahang-Selangor water transfer (tunnel, dam, pumping station, pipelines), Sepang LCCT (low-cost carrier terminal) and the extension of the Klang Valley LRT (light-rail transit),” said Maybank.


This article appeared in The Edge Financial Daily, October 13, 2009.