9MP mid-term review sets tone for budget

THE midterm review of the Ninth Malaysia Plan (9MP) has set the tone for the 2009 budget, which will be tabled in two months, with the emphasis on more “people-centric” projects.

Among the projects are the upgrading of rural infrastructure, building more affordable housing units, improving the food security situation, enhancing the public transport infrastructure and meeting the escalating costs of approved infrastructure projects.

To finance such projects, the Government has increased the allocation of the 9MP by RM30bil to RM230bil.

Of the RM30bil, about half will be for infrastructure, including RM10bil for the growth corridors, with the rest for projects to mitigate the impact of inflation on the lower and middle-income groups.

The agricultural sector is expected to be the major beneficiary in the coming budget due to the emphasis on improving food security.

Furthermore, the mid-term review report stated that emphasis would be given to increasing productivity through replanting activities with new and high-yield clones, land consolidation, good farm management practices and maximising the use of technology and mechanisation.

Besides this, there is also a RM3bil allocation that would go towards the National Food Security Policy.

In the next budget, the Government might very well be looking at measures to enhance the revenue base by reviewing tax incentives and improving tax collection, now that it has reduced the fuel subsidy and increased the electricity tariff.

To start with, a total of RM13.7bil is to be saved via the restructuring of the fuel subsidy while a windfall tax of 15% (for peninsular states) and 7.5% (for Sabah and Sarawak) to be effective tomorrow (Tuesday) has been imposed on plantation companies' revenue.

The Government, in the mid-term review report, has said it would continue to practise fiscal prudence with operating expenditure at the federal level to moderate to 6.9% per annum in the remaining period of the 9MP.

Although several construction projects, notably Penang's outer ring road and monorail projects, have been deferred for now, others, especially in the five growth corridors nationwide that were launched successively since late 2006, were left largely unchanged.

The Sabah Development Corridor even had its investment allocation raised to RM113bil from RM105bil.

Aseambankers Malaysia Bhd, in a report that came out on Friday, said it was cautious that the budget deficit target of 3.2% might be “busted” due to fuel subsidy issues, indefinite deferment of the Goods and Services Tax and pressure on Government spending.

It said the mid-term review report held “no surprises, but some disappointments”, as there were no new catalysts overall for the construction sector although RM2bil had been allocated to kickstart the financing for the Ipoh-Padang Besar and Seremban-Gemas double-tracking projects, RM1bil had been allocated for the construction of affordable housing and RM2bil for improving the rural infrastructure.

“Our major concern is that development growth may be sidetracked by politics and inflation,” it said.

CIMB Research head Terence Wong said in another report that while spending was up, it was unclear where the funds were going.

“Unlike the 9MP, the mid-term review does not spell out where exactly the increase in spending is going to as no proper breakdown is provided,” he said, adding that the construction sector would be the main loser due to the cutbacks on large infrastructure projects.

Wong said what was certain was that the bulk of the spending (41%) would go towards improving the standards and quality of life of the people.

He said other areas of major spending were raising the capacity for knowledge and innovation (22%) and moving the economy up the value chain (21%).

He said the average spending in the remaining period of the 9MP had been increased to RM53bil a year from the average spent per year of RM35bil over the last two years.

OSK Research said in a research note that it was neutral on the impact of the developments on the economy as a whole although there might be some light ahead for the construction sector.

It questioned whether the real growth for the sector, which has a revised target growth rate of 4.3% per annum from the initial 3.5% targeted in the beginning of the 9MP, was “a tad too optimistic”, given the escalating cost of building materials.

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