The cut of 15 percent of the government operating expenditure will not reduce the budget deficit to the expected seven percent, said think-tank Malaysian Institute of Economic Research (MIER).

NONE "We will still see a large budget deficit in the absence of operating expenditure. In fact it would be even bigger," said its executive director Dr Mohamed Ariff Abdul Kareem told journalists yesterday.

Mohamed Ariff was met at the sidelines of the Industry Insights Seminar organised by The Perdana Leadership Foundation. He was one of the speakers at the plenary session of Industry Insights Seminar.

The session was titled ‘Whither Malaysia's Economy? A Bird's Eye-View of the Malaysian Economy and Where it is Headed’.

He said the government's revenue could be much lower than what has been estimated if the economy continues the current trend.

"So there is a theoretical possibility of the government running into budget deficit of more than a double digit percentage of GDP."

In addition, the government may have to fork out more for other expenditure, he said.

"We are talking about re-modelling the economy and re-amending it. This is a long term measure that requires a lot of government expenditure."

Deficit to balloon up to 11 percent

Mohamed Ariff was asked to comment on the government's plan to cut operating expenditure by 15 percent in the upcoming Budget 2010.

He said the budget deficit will be at 10 to 11 percent even if there was a cut by 15 percent in operating expenditure.

"It is not too large as historically it was 16 percent in 1992. But we should not go back to that kind of level."

The government needs to stimulate the economy even if revenue is at a shrinking mode as the economy is still expected to be sluggish, growing at two to three percent.

He also said it would not be easy to reduce the operating expenditure in one go by 15 percent.

- Bernama

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