Friday, October 10, 2008

Budget Deficit Target Under Threat

The Government's 2009 financial budget which had been highly aggressive with a record RM207.9 billion expenditure and overly optimistic in its revenue projection of RM176.2 billion will only lead the Government to fail to meet its budget deficit target for the 2nd year in a row.

For 2008, despite having projected a decline in budget deficit from 3.2% in 2007 to 3.1% in 2008, the Prime Minister has announced that the Government has failed to keep a lid on the deficit, which will balloon to 4.8% this year. This increase in deficit was despite an RM14.5 billion increase in revenue from the earlier projected RM147.1 billion, thanks largely to the substantial increase in oil prices in 2007/8.

For 2009, the Government has projected a 3.6% budget deficit. However, in the light of the global economic crisis triggered by the financial markets turmoil in the United States, it will no longer be possible for the deficit target to the maintained.

In the 2009 Budget, the Government has projected a substantial revenue contribution from the petroluem sector of RM75 billion, which will comprise 46.4% of the Government's total revenue. This record contribution from the sector is based solely on the assumption that the global crude oil prices remaining sky high, and the Malaysian crude, the Tapis blend will average US$125 per barrel for 2009.

Table: Revenue Contribution of petroluem sector
to the Government relative to price and output 2004-2009


(1)2008 budget estimate presented in 9/2007
(2)2008 revised budget estimated presented in 8/2008
Sources: Malaysia 2008/9, 2007/8 Economic Reports; Petronas Annual Report 2007/8
However, with the global recession and curtailed economic demand, global oil prices have fallen dramatically, with the Tapis blend now costing under US$100 per barrel. With nearly all analyst agreeing with a bleak 2009, it is now anticipated that oil prices may fall further.

The more than 20% fall in crude oil prices will have a major impact on the Government's revenue. We anticipate that at US$100 per barrel of Tapis blend, the Government will lose an estimated RM14 billion in expected revenue from the sector.

Without a any reduction in the Government's planned record expenditure, this will mean a massive increase in the Government's budget deficit to a precarious 5.4%, from its projected 3.6%.

Aside from the Petroluem income tax, the Government has also projected a RM3.3 billion or a 6.7% increase in personal, cooperatives and corporate income tax revenues despite a cut in corporate tax rate by 1%, adjustments to lower personal income taxes as well as the global economic slowdown. The government has also estimated the crude palm oil (CPO) price to average RM3,000 per barrel in 2009 although it has already dropped to less than RM1,800 today. This will only mean substantially lower profits for the Malaysian plantation companies. Any threat to these tax collections will hence further undermine the Government's ability to maintain its fiscal prudence.

As the Parliament will commence its debate on the 2009 Financial Budget from Monday next week onwards, the new Minister of Finance, Datuk Seri Najib Abdul Razak should table a new, revised and improved financial budget in parliament. This is especially required in the significant events which had occurred since the former Finance Minister had presented it in Parliament on 29th August, including the collapse of the global financial markets as well as commodity prices.

As part of the “new” budget, the new Minister, as his first task in Parliament to slash operational expenditure which has exploded in recent years under Abdullah Ahmad Badawi's administration, from RM80.5 billion in 2004 to RM154.2 billion in 2009, or by 91.6%.

In the light of the volatile economic circumstances, Datuk Seri Najib must not only spew rhetoric about Malaysia's sound economic fundamentals and be in denial about the economic fallout which is about to hit us very hard, but instead take action and demonstrate his ability to soundly managing the country's financials to reassure investors and return the loss of confidence in Malaysia's economy.

Otherwise, the failure to even defend the budget deficit in his first year as the Minister of Finance will seriously erase any credibility he may have in managing Malaysia's economy.

19 comments:

Anonymous said...

His lack of apreciation of the current financial tsunami is akin to his lack of appreciation of the voters' tsunami that occurred on 8/3/2008. What a Finance Minister!!!

Keeping your head in the sand while proclaiming to all and sundry that Malaysia will escape the ill-winds from the West is going to do Malaysia no end of damage.

Immediate reversal of out-dated racial and politico-centric policies leading to a rentier economy, will be the only way to lessen the severity of the wave of economoic gloom that may wash over us in the next few weeks. Is the Barisan Nasional govt prepared for this eventuality? If not, just give up the ghost and hand over the reins to Pakatan Rakyat.

Anonymous said...

Good evening Tony,

Sad to say, our government and its leaders can do maths. That's why they can balance the national budget.

They are still living or sleeping thinking that there's still a lot left of whatever wealth Malaysia had got in the past and the wealth keeps calling on them to just spend it!

So, the next thing that I am going to throw your way is; what are you and PR going to go about this matter to save the nations from Dopey, Sleepy and Greedy?

Anonymous said...

YB Tony,

How can Malaysia simply allowed this Najis fellow to be the next PM?

1.) He is the one who headed the 1987 Kampung Baru Rally carrying a slogan that says "Soak The Keris In Chinese Blood"!

2.) The one who claimed that Malaysia is an Islamic State.

3.) And The Linked Murder of the Mongolian Girl Altantuya Case!

The unfair story is that how can we simply consent to an "Auto Pilot" system, giving way to an elected UMNO President to become the next PM?

This procedure is NOT AT ALL stated in the Malaysian Constitution!

Why is PR keep silent on this important matter?

Anonymous said...

http://iwfrpk.blogspot.com/2008/10/rpk-youve-got-friends.html

RPK - You’ve got Friends!

Candle-light Vigil in PJ on this Sunday, 12th October

Venue: Padang in front of Amcorp Mall, next to A&W Restaurant, Petaling Jaya (Google Map)

Time: 8pm

Date: Sunday, 12th October, 2008

Come one, come all. Please bring along your own candles (red & yellow) & wear your RPK t-shirts. T-shirts will be available for sale on-site subject to stock availability. Let’s show our support to RPK & family, and all of the ISA detainees.
Supporters of RPK & Malaysia-Today
===

You’ve Got a Friend

When you’re down and troubled
and you need a helping hand
and nothing whoa nothing is going right.
Close your eyes and think of me
and soon I will be there
to brighten up even your darkest nights.

You just call out my name
and you know wherever I am
I’ll come running oh yeah baby
to see you again.
Winter spring summer or fall
all you have to do is call
and I’ll be there yeah yeah yeah.
You’ve got a friend.

If the sky above you
should turn dark and full of clouds
and that old north wind should begin to blow
Keep your head together and call my name out loud
and soon I will be knocking upon your door.

You just call out my name and you know wherever I am
I’ll come running to see you again.
Winter, spring, summer or fall
all you got to do is call
and I’ll be there, yeah, yeah, yeah.

Hey, ain’t it good to know that you’ve got a friend?
People can be so cold.
They’ll hurt you and desert you.
Well they’ll take your soul if you let them.
Oh yeah, but don’t you let them.

You just call out my name and you know wherever I am
I’ll come running to see you again.
Oh babe, don’t you know that,
Winter spring summer or fall,
Hey now, all you’ve got to do is call.
Lord, I’ll be there, yes I will.
You’ve got a friend.

You’ve got a friend.

Ain’t it good to know you’ve got a friend.
Ain’t it good to know ain’t it good to know aint it good to know you’ve got a friend.

Song written by: Carole King
Performed by: James Taylor
Song & Lyrics belong to their copyright owners, used here for educational purpose only.

alvin lee said...

come on-lah you guys, our country's economic fundamentals are still strong. While Singapore has declared that they are now in recession, we are not and will not get into recession. Our stock market is not that badly hit as compared to other regions.

The above statements are made by our Finance and Second Finance Ministers lately.

So you see, in our Bolehland, everything is Boleh.

Anonymous said...

Let’s give the benefit of the doubt that Malaysia enjoyed strong economic fundamentals, financial markets and infrastructure that would increase its resilience to any external shock. However, a financial tsunami has just swept across US and Europe and practically the whole world. Even the Middle East where all the oil money could not even prevent a big fall in their stocks.
Lets not be in denial, Najb. Lets talk reality. Election is over, you are not going to get any more votes than the just concluded election.
Let engaged people like Pua, the economist, the finance professional, etc. Let not make the same mistake as US, where they claim that they are too BIG to fail. We are seeing a TSUNAMI coming our way filled with Financial crisis. What should we do? Yes address the issues. Don’t hide under the same US mistakes of too big to failed. Don’t be in denial.
Yes Granted that we are resilient but the levees of New Orleans once thought to be very resilient and strong falls under the might of Katrina.
We must be ready for that financial tsunami. Like it or not it is coming our way. We must be ready. We must be tactical. We must identify all the weaknesses. We must have the answers ready when each of that weaknesses fails. Plugs must be ready NOW. YES NOW.

PATHFINDER

Anonymous said...

The main reason that is chasing away foreign investors as well as local investors is our very own political instability. Let's move on for both sides.

Yes YB Tony please ask the new Finance Minister to table a more realistic budget. Also on how to increase more revenues foreseeing the global turbulent economy. Say from tourism.

Also I heard UMNO is too busy with power transition, position lobbying etc and forget about their day to day jobs.

Anonymous said...

I keep telling you that GST is in the cards. I thought it was going to be 2010 but it may be 2009. Najib may want to take the lump while he can rather than wait till its near election again..

Anonymous said...

Dear YB Tony
At the National Kidney Foundation Fund Fun Fair/Fund Raising Do this morning you mentioned that in these times of economic downturn it is even more important that the "haves" & the corporations should give & lend greater support to charities especially those involved in saving lives and touching people.
It is good that you & the fortunate ones support this very worthy cause as the Rakyat will suffer greater pain due to economic mismanagement & incompetence, corruption, misdirection of economic resources due to discrimination & sheer inability to be on top of management of economic crisis. They have their "heads in the sand" mentality not like our neighbour which recognised that the recession has already hit their country hard & will be a blight for at least two years. Our government are too obsessed with politicking & joustling for positions & looking at how the economic cake is to be shared, not growing it.
Thank you for your inspiring speech & for gracing this morning's NKF function at the 3-2 Square, Petaling Jaya

Anonymous said...

Photos from Anti-ISA Candle-light Vigil in PJ, 12th October - FREE RPK

http://iwfrpk.blogspot.com/2008/10/anti-isa-candlelight-vigil-oct-12.html

From tonight onwards, Team RPK said there will be an Anti-ISA Candle-light Vigil at the padang behind A&W, next to Taman Jaya Putra LRT, starting 8pm. More and more people are starting to come and support RPK and all the ISA detainees. Even the cars passing by horn loudly to give their support. Come with a friend next Sunday, it's a peaceful gathering of Malaysians who believe in a free and democratic Malaysia.

"Be the change that you want to see in the world." - Mahatma Gandhi

"All through history the way of truth and love has always won. There have been tyrants and murderers, and for a time they can seem invincible, but in the end they always fall, always." - Mahatma Gandhi

ceepee said...

Tony,
You are right to say that there is going to be a reduction in revenue because of the drop in prices from the petroleum and palm oil. However there is also going to a reduction in subsidies for petrol, diesel and other consumer products such as oil palm which has dropped substantially.
By the way where have these subsidies been classified, as development expenditure or operating expenditure?
Also can you quote any benchmarks with regards to operating expenditure compared to other develop countries?
Regards,

Anonymous said...

Tony,
Dont be worried . UNMO will take care of everything! With the whole world worried about the economic disasters our Government under UNMO is not worried at all. Its all in the mind!
Enjoy Tony! Enjoy Malaysians! We are the chosen people! Chosen country! Our pucuk pimpinan will take care of us!After all I read some where ..." and the meek shall inherit the earth"

Anonymous said...

no worry sir, the new finance minister can ask bnm to print more money, the more the better to settle local debt (i hutang this syarikat 200mil, mof/bnm can print 200mil and settle it)....... if the debt cannot settle by money supply then can try loan from imf or arab brethen. if these also cannot, then malaysia can declare bankrupt (like iceland) and everybody wear white shoe. see, no worry at all, still can buy toto......

Anonymous said...

"For 2008, ...... projected a decline in budget deficit ...to 3.1% in 2008,....announced that the ...deficit... balloon to 4.8% ...despite an RM14.5 billion increase in revenue ..."

reading this made my blood run cold. How can the administration squandered 14.5 billion surplus plus other cost overrun?

any man in the street can't feel the benefit of the extra spending.

The assumption on the income is a joke and to say in 2009, 75% of the national income depends on a depleting resource and its market price has since declined?

Najib's absence on Monday is significant. As the new F Minister, he must address this. Badawi has left a pretty sh#tty situation for him to clean up..but the eyes of the top 2 are merely cast on party election while Iceland, Pakistan, Hungary and a few more countries have started the domino effects

God help Malaysia.

In a few years time, Malaysian working in foreign countries will increase even more although I expect some repatriations in the coming months or year.

Fancy a Malaysian maid?

Regards
Lee Wee Tak

Anonymous said...

Tony

Try to at least cite your source here.

This entire post copied verbatim from a Citibank investor report dated September 8.

Rusman

Unknown said...

Hi Rusman,

To accuse me of having this entire post copied "verbatim" from the Citibank report is a real serious accusation.

As I do not have a copy of the Citibank report which you are referring to, I will welcome you to email me a copy or place the report here for everyone's review to determine if I had really copied "verbatim".

I'm responsible for my writings and I certainly do not plagiarize. I've calculated and estimated the figures above on my own, based on the info available in the Economic Reports.

So please, others could have similar ideas as the above, and I have no monopoly over ideas, but to accuse me of copying "verbatim", at least have the courtesy to show us the piece which I allegedly plagiarize from.

Tony

Anonymous said...

Few days ago, our future PM said malaysia Economy strong, will no affected.
Few days later, pm said stop certain project, future pm said will affected, then financial department said foreigner pull out...

WHAT A "FLIP FLOP" government!!! and Flip flop Future PM.

PM and future PM must talk properly!!, not FLIP FLOP!!

Made in Sense, we know this economy sure happen to Malaysia. Dont try to bull shit the public, cheat the public to pull in the money to the share market..

Another things is IF MALAYSIA NOT PROBLEM, THEN WHY THE PROJECT HAD TO CALL OFF???? ESPECIALLY THE SCHOOL. AS I KNOW the price tender for the school enough the cover the material cost.

myop101 said...

dear YB tony,

I was curious as to how Value Cap has been performing to date. As a member of PAC why don't your committee consider assessing the performance of this entity?

As a headstart, I did a very, very simple evaluation of it and I think the Govt may not be wise to invest another RM5 billion in this venture.

http://myop101.blogspot.com/2008/10/value-investment.html

Ben said...

Budget "koyak" already. The revenue based on oil income has lost 51 billion based on recent prices. Obviously, these novice did not factor in the drop in global oil prices. Bunch of amateurs, better step aside and let Tony & DAP takeover. DSAI cannot change the gomen, call for GE now and let the people decide!