Saturday October 24, 2009

Economists: A step in the right direction

PETALING JAYA: In general, economists see the budget as having rightly addressed a number of essential issues pertaining to the country’s economy.

“It is a realistic budget because it has responded well to the expectations of the rakyat, and has allocated benefits to a wide cross-section of people,” said ASLI’s Centre of Public Policy Studies chairman Tan Sri Ramon Navaratnam.

“It has also taken into account that the fiscal deficit has to be reduced before it poses danger to the economy in terms of the country’s creditworthiness and inflation,” he added.

CIMB Investment Bank Bhd chief economist Lee Heng Guei calls it a move towards “responsible fiscal management”.

“The Government has taken the right step in ensuring fiscal sustainability,” he said.

Malaysian Rating Corp Bhd chief economist Nor Zahidi Alias concurred, pointing out that the structural problem of rising fiscal deficits could “have a long-term repercussion on Malaysia’s macro foundation if they not fully treated”.

Zahidi believed that the budget was a critical step to lift the income levels of Malaysians and the measures introduced augured well for the nation’s aspiration to move up the development hierarchy.

With the absence of sin taxes, RAM Holdings Bhd chief economist Dr Yeah Kim Leng sees the budget as putting more emphasis on progressive elements that contribute towards meritorious spending rather than to impose penalties on expenditure they want to discourage.

Lee said there was a broad range of measures to spur and revitalise private investments, and increased consumer spending was a boost to the medium to long-term competitiveness of the country.

However, Navaratnam thinks that more incentives should have been provided for the private sector so that it could take over from the public sector as the engine growth in the midst of a challenging economic environment now.

“The public sector has to slow down because of the rising deficits,” he said.

Public expenditure could be less if there were better utilisation of funds and less wastage, but this itself was a challenge to the political system and the public services industry, Navaratnam said.

“We need to get more bang out of the buck,” he added.

National Economic Advisory Council economist and board member Datuk Dr Zainal Aznam Yusof said the forecast for a 2%-3% growth for 2010 was a small fillip - a boost in sentiments that things were looking up for the economy.

“The broad macro picture is that the worst will be over next year. Also, that the Government will reduce the fiscal deficit next year is another mild boost and shows that the Government is serious about managing the fiscal deficit and is not going overboard.

“There is a strong populist element in the budget. Also, clearly the services sector has been given special attention which is consistent with the Prime Minister’s previous measures,” he said.

Kenanga Investment Bank head of research Yeonzon Yeow said the allocation of RM20.3bil to the social sector encompassing education and training, health, welfare, housing and community development is massive and unprecedented.

“The maximum individual income tax rate reduction from 27% to 26% was expected but still welcomed. Overall, no major surprises, impact on the stock market should be muted,” he said.

OSK Investment Bank head of research Chris Eng said overall, it was a balanced and fair budget.

“There is the restructuring of the fuel subsidy system and there is the income tax relief. Overall, we think that the budget should create a positive sentiment for the market although we don’t see any particular sector benefiting greatly,” he said.

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