The federal government has been running a deficit for more than two decades and for Budget 2010, big cuts in the deficit has been promised though Prime Minister Najib Abdul Razak shed little light on how this will be done.

In his maiden budget last week, Najib promised an ambitious cut in the budget deficit from its highest level in more than 20 years - from 7.4 percent in 2009 to 5.6 percent of GDP.

Former World Bank economist Dr Lim Teck Ghee notes that the government's claim on cutting spending might be misleading if the second stimulus package was taken into account.

The RM60 billion stimulus package was announced in March and was to be spread out between 2009 and 2010.

"Thus they are not reducing government spending as they claim," said Lim, who now heads the Centre for Public Policy Initiatives (CPPI).

The 2010 budget allocation totalled RM191.5 billion - 11.2 percent lower than the revised allocation of RM215.7 billion for 2009.

y4c ethnic forum 280307 lim teck ghee 2 Lim also expressed concern on the lack of necessary safeguards against leakages. He said without adequate safeguards, efforts to reduce the budget deficit would be negated by abuses in the procurement process.

"The list of procurement must be examined with a very fine-toothed comb," said Lim.

"Far from being a budget for 1Malaysia, this is a NEP budget par excellence. All Malaysians should demand more transparency and accountability on what the money is being spent on, who are the main recipients and beneficiaries, and the potential scope for mismanagement, irregularities and abuse."

Widening deficit, more inflation

Meanwhile, former deputy secretary-general of the Finance Ministry, Dr Ramon Navaratnam hoped that the plan to slash the deficit will materialise.

"If within the year supplementary budgets are not introduced, the planned reduction may be realised... continuing deficit would cause inflationary pressure which then reduces our credit-worthiness (while) widening deficit also means having to borrow more," said Ramon.

ramon navaratnam interview 071108 05 "It is essential to exert strong financial and fiscal discipline, and it is also important to ensure that we get the best rates with the limited funds available.

He noted that fiscal integrity is crucial and purchases should be carried out through open tenders to avoid wastages.

"This is why the private sector must pick up the slack that will result from the reduced Budget spending. Therefore, it is of paramount importance that the economy is further liberalised," he said.

He also stressed the need to boost foreign direct investments (FDI).

"The government must seriously examine the cause of the drop in foreign investment because it reflects the lack of attractiveness and it indicated that we are not competitive enough," he said referring to the drop in FDI figures which has plunged from RM19.7 billion to RM3.6 billion.

"If the government spending is reduced and foreign direct investment decreases, the outlook may be jeopardised.

"On one hand, the government cannot raise taxes because we want more money in the hands of the people, which means revenue will go down. Since the government cannot raise taxes and cannot spend, we will have to make the private sector more attractive.

"This is how we got into the middle trap income... we moved up well, but we are now caught in a bind," said Ramon, who was also the president of Transparency International-Malaysia (TI)

'Stop buying submarines'

Leading consumer rights advocate Prof Mohd Hamdan Adnan warned of the correlation between budget deficits and the depreciation of the ringgit as well as inflation.

hamdan adnan interview 280706 talking Increased inflation and a devalued ringgit, said Hamdan, can result in a decrease in consumer spending and thus stifling government revenue.

"A deficit budget is never sustainable and will have an adverse impact on the economy. It will be a double jeopardy for us if the government has no income and is yet facing a deficit," he said.

He recommended that the government help private businesses as well as prudently managing expenditure and plugging leakages.

"Things that we don't need, such as submarines, should not be included in the expenditure," said Hamdan, who is the former Federation of Consumer Associations Malaysia (Fomca) president.