Saturday, August 30, 2008

Malaysian Budget 2009 - Deeper Into The Red

Our new budget is taking us to sink deeper into the red, with a projected deficit of 4.8%.

The trend is of concern at this moment of time, not at all to be taken lightly.

When Pak Lah took over from DM the helm of state in 2003, he set out an ambitious plan to achieve a balance budget in 6 years' time.

At the handover, Malaysia's budget was all red with a deficit of 5.6%.

Way back in 1998, DM expanded the fiscal policy to prop up the nation's growth in the wake of the economic recession. The expansionary budget put the nation's growth back on the track.

Pak Lah did remarkably well on the first few years to shrink the deficit progressively at a sustainable growth rate.

But he made a u-turn this time to deliver a budget with a widened deficit, on the face of it to fend off the external shocks. However, a closer look would suggest that Pak Lah has intended the budget to be quite politically motivated.

Would such a dramatic jump in deficit be burdensome to us?

Certainly. Our currency and ratings would be at risk with such a huge debt on the shoulders of all Malaysians.

Following the political tsunami on March 8, Malaysia's credit rating outlook was changed to "stable" from "positive" by Standard & Poor's in May.

Now, with the wider deficit, our credit rating may stand to be downgraded resulting in reducing investment coming into the country and making it more expensive for local companies to borrow.

This is the price we have to pay for such an expansionary budget. Another hidden cost is on our currency.


rubberseeds said...

A rich country poorly managed for decades. Anyway, Happy Merdeka Tony.

Tony Hii said...

rubberseeds, same to you.