Is Malaysia overspending?

Kuala Lumpur: MORE money for consumer pockets, longer operating hours for hypermarkets, and no need for government approval anymore for foreigners to buy pricier commercial properties.

These are among steps being taken by the Malaysian government to boost spending, woo foreign investment and revive the flagging economy.

They form part of a RM7 billion stimulus package announced by Deputy Premier Najib Razak on Tuesday.

Economists say they might just help the financial situation at a time when Malaysia is faced with the prospect of slower growth as some countries face recession.

The country is also bracing for lower revenues due to plummeting prices of crude oil and palm oil - its biggest money earners - in the global market.

If all contributors opt to cut their Employees Provident Fund payments, which will be allowed from January, the government hopes to see RM4.8 billion injected into the economy a year, as part of increased consumer spending.

By lowering payments to EPF - similar to Singapore’s retirement fund CPF - people will have more money in their pockets.

Add to that the extension of hypermarket operating hours, and the government is crossing its fingers that the increased shopping will help prop up the economy.

AmInvestment Bank economist Manokaran Mottain said the cut in EPF contributions will raise private consumption activities and provide a multiplier effect towards domestic growth.

The move to allow foreigners to buy commercial real estate worth RM500,000 and above, WITHOUT Foreign Investment Committee approval has been welcomed by industry insiders as a boon.

This reduces the red-tape because a buyer could now just deal with the seller, instead of also having to apply to the government for permission to buy the property.

“Property investment is still one of the most viable options, considering the high yields in the long term,” said Real Estate and Housing Developers’ Association Malaysia president Ng Seing Liong.

The RM7 billion package is nearly double the RM4.3 billion that the government poured into the economy in September 2001, to offset the economic fallout following the terrorist attacks in the United States.

In other words, the money being poured into the Malaysian economy over the next few months to build schools, new roads, low-cost housing is much more than the economic efforts to fight the post-911 slump.

But the current stimulus package will be lower than the amount injected to counter the downturn caused by the SARS outbreak in 2003, at RM7.3 billion.

At that time, it was felt that the government had to inject more money because the economy was still wobbly from the 911 effects.

Wan Suhaimi Saidi, economist with Kenanga Investment Bank, told The Straits Times that the RM7 billion this time around should be enough to tide over economic woes.

This is because Malaysia’s economy is somewhat insulated and less exposed to the global turmoil compared to other economies.

But economists also raised concerns over the widening deficit for 2009.

Due to the extra spending needed to prop up the economy, the government deficit is being raised to 4.8 per cent of the gross domestic product, from 3.6 per cent previously.

Malaysia has registered a budget deficit every year since 1998.

In other words, the government has been spending more that what it was earning in the last 10 years!

Mr Najib said that the higher decifit of 4.8 per cent is due to the drop in government revenues, from RM176.22 billion to to RM168.7 billion.

Malaysia’s government depends on some 46 per cent of its revenues from petroleum taxes.

The sharp drop in global crude oil prices is thus worrying, economists say. In recent years, the government depends on oil and gas dug up and sold by national oil company Petronas to funds its spending.

Mr Dzulkefly Ahmad, a lawmaker for the opposition Parti Islam SeMalaysia pointed out that the drop in crude oil prices could cause an RM18 billion shortfall in projected revenue.

Due to lower prices, the government could see an estimated loss to the tune of RM18 billion to RM25 billion instead of the RM8 billion predicted by Mr Najib, he claimed.

“The numbers do not jive, whichever way you look at them,” he was quoted as saying by the news website Malaysiakini.

Hazlin Hassan
The Straits Times
Singapore
06/11/08