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(KUALA LUMPUR) Malaysia's government intends to narrow the budget deficit in 2010 by reducing expenses to offset falling revenue, Second Finance Minister Ahmad Husni Hanadzlah said yesterday.
'We are looking at what operating costs we must reduce, but in terms of development expenditure we will maintain that,' the minister said in Kuala Lumpur, without providing details.
Malaysia has unveiled RM67 billion (S$27.7 billion) of stimulus measures to counter a global recession that policymakers predict may cause the Southeast Asian economy to shrink as much as 5 per cent in 2009. The additional spending will swell this year's budget shortfall to 7.6 per cent of gross domestic product, the biggest in 22 years, the government said in March.
That prompted Fitch Ratings to lower Malaysia's long-term local-currency credit rating to A, the fifth- lowest investment grade, from A+, on June 9. It was Fitch's first rating cut for the nation's debt since the 1998 Asian financial crisis.
'We will definitely do our best to reduce the budget deficit because' the rating cut by Fitch 'is not good for the country,' Mr Ahmad Husni said. 'Because of the economic situation, we will not be getting the same amount of revenue from petroleum, from the corporate sector, so revenue next year will be much lower than this year.'
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Malaysia's economy contracted 6.2 per cent in the first three months of the year as exports slumped. The decline in the second quarter may be as bad as the first quarter, Mr Ahmad Husni said, echoing comments by Prime Minister Najib Razak last month.
Mr Ahmad Husni said he expected the economy to shrink less in the third quarter before resuming growth in the final three months.
'On the spending side, the low-hanging fruits are operating expenses,' said Suhaimi Ilias, chief economist at Maybank Investment Bank. 'You can't cut down development spending because of the commitment to the stimulus packages.' - Bloomberg
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