PETALING JAYA: Local economists have expressed worries over Malaysia's ability to reduce the deficit to 5.4% of the gross domestic product (GDP) next year – a slight 0.2% decrease compared with 5.6% in 2010.
The Federation of Chinese Assocation Malaysia (Huazhong) deputy secretary-general Dr Chin Yew Sin said the government would need to do more to cut down the deficit in the next four years.
"We presumed the deficit would go down about 0.5%, but this time it was only reduced by only 0.2% (to 5.4%) and I am quite worried about this," said Chin, who is also an economist and professor of Zhongnan University of Finance, Economics, Politics and Law .
He said that Budget 2011 unveiled by Prime Minister Najib Tun Razak recently aimed to cut the deficit to 2.8%- 3% by 2015 but the country would still be 2.6% short of its target.
"This means that from now till 2015, we need to cut the deficit by about 0.7% every year. Hopefully in the next four years there is no economic crisis," he said.
Chin added that the government's failure to reduce spending could be attributed to its projects launched such as the Government Transformation Plan and KPI (Key Performance Indicators), which incurred high administrative costs.
Malaysia has been in deficit for the past 14 years and had only once been in fiscal surplus during the "economic boom years" between 1993 and 1997. However, the country reverted to budget deficit in 1998 in the wake of the Asian financial crisis.
Chin was, however, positive about Budget 2011, which he described as "inclusive and comprehensive”.
"I think Budget 2011 is good as it focuses on the country's infrastructure to spearhead our economy. During former prime minister Abdullah Ahmad Badawi's time, only 40% was spent on infrastructure and 60% on human capital. Now Najib has reversed this by spending 60% on infrastructure," said Chin.
He said that the construction industry has the ability to spur other industries, including steel and food, as well as small and medium enterprises and small and medium industries; this in turn can stimulate economic development.
Broader tax base needed
Meanwhile, RHB Research Institute Sdn Bhd's head of research and chief economist, Lim Chee Sing, said that there seemed to be "no light at the end of the tunnel" as far as the deficit is concerned.
"Obviously, 5.4% was less than expected. This is the 14th year that we are in deficit. Look at the other countries in the region; their deficit is between 1% and 2.5%. So if you say that we are comfortable, I would say I don't think so," said Lim.
However, he said that the government was also facing constraints and the measures taken were seen as "prudent".
"I would say that the budget is setting the pace towards transformation. The government aims to strike a balance between fiscal consolidation and the need to sustain spending to cushion the economy against the risk of a sharper slowdown in the global economy," he said.
Lim said the country needed more concrete measures to balance the budget and grow revenue and he suggested two approaches.
"First, you need open and transparent procurement policies... open tenders can save you a lot in costs. Secondly, you also need to reduce subsidies, although the government has undertaken measures to reduce subsidies so that the country would not turn into a very subsidy-dependent economy," he said.
Lim also suggested a broader tax base.
"Currently, our tax base is very narrow. Only 10% pay taxes; we need to broaden it," he said.
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