SEOW CHOONG LIANG
K&N Kenanga head of research
THE stark reality is that the federal government is well into its sixth-year of running a budget deficit and will find it difficult to continue spending at this rate. Total federal government debt has risen to RM175.29bil at the end of the first quarter, which is about 49.6% of estimated 2003 gross national product. This is the highest level since 1994.
Meagre economic growth has taken its toll on government revenue – first quarter federal government revenue was 14% lower year-on-year.
As a result, the overall deficit climbed 264% year-on-year to RM4.68bil in the first quarter compared with a forecast deficit of RM14.91bil for the whole year as tabled in Budget 2003. If annualised, the first quarter deficit represents a total of RM18.7bil, larger than the current forecast.
As a result, the government would be seeking an additional allocation of RM4.5bil to Budget 2003. The amount would include RM3bil for development expenses and RM1.5bil for operating expenses.
This is in excess of the government’s estimate on May 21 when announcing the package of new strategies to stimulate economic growth. Then, it had estimated that the package would result in a loss of revenue amounting to RM800mil a year, from the provision of incentives and tax exemptions.
This package was to have required a federal government budgetary allocation of RM1.7bil.
It is hence difficult to have any high expectations for Budget 2004, which would also see the tabling of Budget 2005 since the government has decided on two-year budgets instead of one.
One way to reduce the burden of the public sector would be to privatise, some say re-privatise certain assets. But clearly, the key to reducing the deficit lies in the performance of the private sector.
Here, the nexus between the two sectors has to be fundamentally altered. Foreign or multi-national investments aside, the domestic private sector has spent a long time being steered by the public sector into promoted industries and businesses which have had mixed results.
It may be time the domestic private sector is let loose to mark its own course and compete in an open market place, and the public sector strengthen its role in providing basic infrastructure and improving administrative efficiency.
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