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NEWS UPDATES Asean Affairs     11 October  2011                    

Malaysian budget criticized

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While it is undeniable that the goodies-packed and “perceivably optimistic” Budget 2012 has injected some feel-good factors into the lives of Malaysians, reality check has caused some quarters in the private sector to question the viability of the

government's fiscal deficit target and economic growth projections. “Malaysia's growth outlook seems to stand out comparatively in the region,” Bank of America's (BoA) director of global research Dr. Chua Hak Bin highlighted during a panel discussion at the 2012 Post-Budget Dialogue, which was jointly organised

by the Malaysian Economic Association and Universiti Malaya's faculty of economics and administration.

“The question is, are we prepared for the storm ahead?” he said, citing worsening economic conditions in Europe and the United States as risks that could throw a damper on Malaysia's growth potential in the next two years.

The government has maintained Malaysia's economy, as measured by the gross domestic product (GDP) or the total value of goods and services produced in the country, could grow between 5% and 5.5 percent this year, and between 5 percent and 6 percent in 2012.

The official projections are underpinned by domestic demand, which is expected to remain robust, driven by private investment and consumption as an effect of the accelerated roll-out of projects under the Economic Transformation Programme as well as the various infrastructure projects announced in the budget. Chua said the BoA expected Malaysia's GDP to grow around 4 percent this year and 4.2 percent in 2012. His organisation's less-sanguine approach was shared by some leading local banks in view of the increasingly challenging external environment.

Maybank Investment Bank Bhd (MIB) said it expected Malaysia's GDP to slow to 4.5 percent this year and 3.5 percent-4 percent in 2012. CIMB Investment Bank Bhd had also forecast a GDP growth of 4.5 percent for 2011. It expected the country's

economy to slow further to 3.8 percent in 2012. “Although the budget measures will help to support the domestic engine, they cannot take up all the slack left by weak exports,” CIMB explained in its report.

With the country's economic growth potentially dragged down by the rising uncertainties in external environment, economists remained skeptical over the government's ability to cut its fiscal deficit from 5.4 percent of GDP in 2011 to 4.7 percent in 2012.

For one thing, income tax collection, the main source of revenue for the government, could fall in line with an economic slowdown.

“We have a generous handout under Budget 2012. But tax revenue for the government could potentially be affected by the volatility ahead of us which remains quite large,” Chua said.

Economists at Nomura Group in their report even called the government's fiscal-deficit target “unrealistic”, given the prospect of elections in the near term and the downside risks to growth.

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It is commonplace in journalism to write two types of articles at the transition point between the year that has passed and the New Year. As this writer qualifies as an “old hand” in observing Thailand with a track record dating back 14 years, it is time take a shot at what may unfold in Thailand in 2011.

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