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Tuesday, 20 January 2015

Spending may be slashed by RM15bil

PETALING JAYA: Adjustments to Budget 2015, which will be announced by Prime Minister Datuk Seri Najib Razak (pic) today, will likely include spending cuts of up to RM15bil.

According to economists, the cuts may allow for the Government to be on track to meet its deficit target of 3% this year, in the most optimistic of circumstances.

Malaysia University of Science and Technology School of Business dean and economist Dr Yeah Kim Leng told The Star that he estimated total spending cuts of between RM10 and RM15bil that may affect both operating and development expenditures.

“Some of the big projects may be delayed but the Government can decide to resort to private sector financing,” he said.

“Reduction in operating expenditure should be prioritised – especially expenses that can be reduced without jeopardising the quality of government services,” he said.

Institute for Democracy and Economic Affairs chief executive Wan Saiful Wan Jan said the Government should consider trimming its spending and focus on development expenditure instead of operational expenditure.

“They should consider downsizing certain ministries and cut down their expenses,” he said.

Tan Sri Ramon Navaratnam said unproductive projects should be replaced with those generating high income.

The former transport ministry secretary-general said the Government should focus and approve programmes that could contribute to higher productivity as well as increase supplies for the country.

He said political will was crucial during unpredictable times to prevent adverse effects from becoming worse.

Ramon suggested that the Government relax certain restrictive policies temporarily to attract more foreign investors.

Alliance Research’s chief economist Manokaran Mottain said the construction sector would be affected if development expenditure that was originally given a RM48.5bil allocation under Budget 2015 is trimmed.

“There are various mega highway and connectivity infrastructure projects due this year and the Government might consider deferring some of the projects.

“The Government will have to evaluate which projects are more urgent and high-impact.

“We are still expecting the GDP growth for 2015 to be about 5%. However, if the Government were to trim the budget drastically, risk to overall economic growth would be tilted to the downside.

“A slowdown in the pace of growth is not an outright contraction or a crisis, but rather, a moderation,” added Manokaran.

Dr Yeah expects the drop in oil and gas revenues to be offset slightly by the impending introduction of the goods and services tax in April and the scrapping of fuel subsidies.

“If Brent crude oil remains at between US$40–US$50 (RM142-RM177) per barrel, the Government can opt to raise revenue by not lowering pump price to actual market prices.

“It should channel the additional tax collection into a price stabilisation or oil wealth fund,” he said.

Even if there was a slight overshoot of 3% on the budget deficit, this would not overly impact investors’ confidence as long as it remains lower than last year’s target of 3.5%.”

“If it is between 3%-3.5%, I believe the market can still accept it, given the circumstances,” he said.

On the ringgit, Dr Yeah said the local currency might have “overshot to the downside” as investors might have earlier overreacted.

On the biggest public infrastructure project – the Mass Rapid Transit Line 2 – announced last year by the Government, Mass Rapid Transit Corp Sdn Bhd’s newly appointed CEO Datuk Seri Shahril Mokhtar credited the Government for being responsible and reviewing Budget 2015.

Shahril said a second MRT line for the city was still a logical step, especially as Malaysia had taken the position of making urban rail the backbone of public transportation for the Klang Valley, but considering these trying times, MRT Corp would abide by any Government decision.

Asli chief executive officer Tan Sri Dr Michael Yeoh said the Government should explain clearly the measures taken in the light of global uncertainties and the drop in oil prices, which will have both positive and negative impacts on the nation.

Tags / Keywords: Nation , revised Budget , economist , Najib

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