Malaysian Budget Deficit ‘IS’ a Source of Concern!

A country’s fiscal budget comprises of government expenditures (the sum of government purchases and government transfer payments) and tax revenues (Roger A. Arnold, 2008). Malaysia has a long standing fiscal deficit (10 years) whereby government expenditures are greater than tax revenues of approximately 3% to 4% of gross domestic product. According to Nor Zahidi Alias (2008), Malaysia has the highest budget deficit as a percentage of GDP within Asean. During this financial crisis, Malaysia’s government would likely implement expansionary fiscal policies. According to Angus Whitley (2008), the Malaysian government would inject RM7billion stimulus package to housing, public transportation and private sectors. Besides that, it also plans to spend around RM200 billion in five years on infrastructures and other development projects in order to bolster domestic demand (Stephanie Phang and Angus Whitley, 2007).

Item RM billion % of GDP
2005 2007 2010 2005 2007 2010
Revenue 106.3 139.9 179 20.3 21.8 20.8
Operating Expenditure 97.7 123.1 150.3 18.7 19.2 17.5
Current Surplus 8.6 16.8 28.7 1.6 2.6 3.3
Net Development Expenditure 27.3 37.5 56.6 5.2 5.8 6.6
Overall Deficit -18.7 -20.7 -27.9 -3.6 -3.2 -3.2

Previously, Malaysia is seen to suffer from a double shock in this crisis. Malaysia is a net exporter of crude oil (unrefined petrol) which according to Petronas, churns out 600,000 barrels per day of which 339,000 barrels per day are refined locally (the balance is exported as crude oil). Government revenue would decrease further as the slowing in global demand caused the commodity prices to decline. As forecasted by MIER in the Malaysian Insiders (2008), Malaysia’s budget deficit this year will exceed 5% of GDP and exceed 4% next year.

The country risk will increase accordingly as the government need to finance the deficit by borrowing. This is supported by Moody’s Investors Service’s A3 rating on Malaysia’s foreign currency long-term debt (the fourth-lowest investment level). The Malaysian rating has not been upgraded since December 2004 (Stephanie Phang and Angus Whitley, 2008).

Should the budget deficit increase dramatically due to government overexpenditure to stimulate the economy, the likelihood of the government to default on government bonds and monetizing the debt (print money) will increase. Malaysian taxpayers must be vigilant and make sure the right amount of money goes to the right place!

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  1. […] Eternity in an Hour created an interesting post today on Malaysian Budget Deficit IS a Source of Concern!Here’s a short outlineA country’s fiscal budget comprises of government expenditures (the sum of government purchases and government transfer payments) and tax revenues (Roger A. Arnold, 2008). Malaysia has a long standing fiscal deficit (10 years) whereby government expenditures are greater than tax revenues of approximately 3% to 4% of gross domestic product. According to Nor Zahidi Alias (2008), Malaysia has the highest budget deficit as a percentage of GDP within Asean. During this financial crisis, Malaysia’s go […]



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