ASEAN KEY DESTINATIONS
Malaysian 2011 budget: smaller deficit
The deficit reduction would see some consolidation from 2010's forecast of a 5.6 per cent deficit with higher growth and revenues offsetting the extra spending.
Overall, the key points of the report are: - Increased operating expenditure, seen up 7 percent in 2011 at RM162.8 billion (US$52.67 billion).
To mitigate the increased costs, total revenues are expected to come in 3.7 billion ringgit higher which would be supported by RM2.2 billion worth of cuts in the subsidy bill and salaries for government workers.
Improved tax collections because of an improving economy would also boost the government's coffers.
Growth which is forecast at 7 per cent for 2010 after a contraction of 1.7 per cent in 2009, is expected to moderate to between 5 and 6 per cent in 2011 according to the Finance Ministry report, noting that the outlook for advanced economies would be "mired in uncertainties".
Although the budget deficit is expected to fall in 2011, the gap will still be wider than the 4.5 per cent of GDP forecast in a Reuters poll.
The postponement of a goods and services tax announced on Wednesday has also raised questions about Malaysia's commitment to fiscal consolidation.
Malaysia's finances may continue to be pressured in the medium-term, however, as Prime Minister Najib Razak has to spend, especially after his government announced a slew of blueprints to increase private investment to move the country to a "high-income" nation.
Private investment grew only 2 percent on average between 2006-2010, and is expected to be 10.8 percent of GDP this year, rising to 11.3 percent of GDP next year.
Najib may also outline further plans to liberalize other service sectors or offer tax incentives for the various economic sectors that the government has targeted to expand.
Net domestic borrowing by the federal government is expected to rise to RM51.1 billion in 2010 from RM36.5 billion this year.
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