KUCHING: The Malaysian government recorded a smaller-than-expected deficit of seven per cent for gross domestic product (GDP) or RM47.4 billion in 2009 compared with a deficit of 7.4 per cent of GDP or RM51.1 billion in October 2009 as both operating and development expenditure came in lower than previous estimates.RHB Research Institute Sdn Bhd (RHB Research) in its research report yesterday stated that operating expenditure fell short of the estimate by 7.6 per cent, indicating that the government might have deliberately controlled its expenditure in order to contain its budget deficit.
The high level of operating expenditure suggested that there was not much room for the government to manoeuvre, added the research house, especially if the global economy were to be hit by another crisis.
The research house additionally noted that the amount allocated for subsidies came in lower than the estimates as crude oil prices fell sharply in 2009, which resulted in a significant saving for the government.
Faced with sharp global economic downturn, RHB Research said that it had no choice but to reallocate part of the savings from these subsidies to foot the stimulus spending bill in order to cushion Malaysia’s economy from an external shock.
Without this, it added, the budget deficit could have worsened to 7.9 per cent of GDP, should the government have maintained its spending.
The government’s proposal of a supplementary budget totalling RM12 billion for next year includes additional spending for the implementation of the six National Key Result Areas (NKRAs) under the Govern-ment Transformation Programme (GTP).
With the government scrapping its plan to restructure fuel subsidy in May this year, the research report highlighted that many investors were concerned that this move might lead to a higher budget deficit in 2010.
Nonetheless, the research house believed that the government would still be able to reduce its budget deficit according to plan to 5.6 per cent of GDP in 2010 as it had changed the petroleum income tax to a current year assessment system.
This move, it noted, would help cushion a decline in petroleum income tax as a result of a drop in crude oil prices in 2009, as prices had since recovered. This would be aided by a recovery in corporate income tax and a pick-up in individual income and other taxes during the year.
A smaller-than-expected drop in oil revenue could help the government to reduce its budget deficit more than expected in 2010, added the research firm. However it believed that the government would choose to maintain its budget deficit target of 5.6 per cent of GDP and cut its operating expenditure less steep than its initial plan.
The research house believed there was still a need for the government to be stringent and careful in its spending, given that the operating expenditure would still account for 92 per cent of its total revenue projected for 2010 which was still high after falling from a 22-year high of 99 per cent in 2009.
The research report placed emphasis on the government’s debt building up, noting that although the debt level has yet to reach an alarming level, it was not low either and would reduced the flexibility of fiscal policy.