MIER: Govt needs to adjust expenditure to contain budget deficit

(Bernama) – KUALA LUMPUR, Oct 14: The government will need to adjust its expenditure rather than make adjustment to revenue in order to contain the budget deficit, the Malaysian Institute of Economic Research (MIER) said today.

Having government revenue just barely enough to cover operating expenditure is a dangerous sign, said MIER executive director Datuk Dr Mohamed Ariff Abdul Kareem.

On a hypothetical basis, he said the deficit could grow to 15.2 percent in 2015 if the government was doing nothing to curb its expenditure.

As such, he lauded the government’s intention to cut 15 percent of its operating expenditure in 2010 even though he said “it could be a tall order to be done in one year.”

Speaking at a press briefing on the Malaysian economic outlook for the third quarter 2009, Mohamed Ariff said the budget deficit for 2009 is expected to be larger than the projected 7.6 percent of the gross domestic product (GDP) as government revenue has been growing at a slower pace.

The MIER expects the deficit to be at 8 percent of GDP for 2009 and between 8 and 9 percent for 2010.

And with the cut in both operating and development expenditures, the size of Budget 2010 is expected to be smaller this year, it said.

As to how the government would go about in reducing its operating expenditure, Mohamed Ariff said it could be done, among others, by putting a cap on subsidies, plugging wastages in the system and making sure there are no holes to haemorrhage expenses.

According to him, government expenditure is what really matters in stimulating the economy.

And Malaysia may need a stimulus package to the tune of RM8 billion over the second half of next year should the United States experience a double dip in its economy.

The MIER has projected a 3.0 percent contraction in the Malaysian economy in the third quarter this year before a positive growth of 1.5 percent in the fourth quarter.

It expects the economy to grow a minus 3.3 percent for the whole of 2009 and at a positive 3.7 percent in 2010.

Mohamed Ariff said Malaysia could only reach its actual growth potential in 2012 and until then, it needed to struggle with tepid growth.

As such, this provided the government with a strong case to continue to stimulate the economy as the private sector may not be in the driver’s seat until the economy revives, he said.