29-08-2008: Public Bank's post-Budget comments

Tan Sri Teh Hong Piow
Founder & Chairman of Public Bank

THE Budget 2009 is a well-crafted budget by the government, which should ease the financial burden of low, and medium-income households and businesses, particularly SMEs, who are faced with rising cost of living and operating cost. Equally important is that the Budget 2009 clearly is geared towards supporting domestic economic activity, enhances the country's competitiveness and resilience to withstand external challenges.

The government clearly recognises that the Malaysian economy will face significant challenges due to increasing external economic uncertainties and high global inflation. Some of the major developed economies are already slowing down, compounded by the effects of the credit crisis and financial market turbulence whilst high inflation have taxed household income considerably. Also, signs are growing that the emerging market economies are unlikely to be spared from the weakening global economic trend.


Amidst this challenging economic backdrop, the Budget 2009 is a positive counter cyclical budget. In particular, the proposed increase in public spending on infrastructure projects in 2009 should serve as a stimulus to the economy, particularly to private investment and private consumption.

Coupled with the cut in the corporate tax rate announced earlier in the Budget 2008, the proposed measures in the Budget 2009 to ensure the development of all five growth corridors, the tourism sector and small and medium enterprises should further stimulate domestic activity and thus cushion the economy from the external slowdown through private investment and private consumption. These measures to boost private investment would help cushion the economy from weak external demand.

Despite the expansionary stance, the government remains committed to its fiscal discipline and prudence as the budget deficit is expected to fall from 4.8% of GDP in 2008 to 3.6% in 2009. This is important in order to anchor investor confidence. This fiscal prudence is clearly shown in the expected modest and decreasing level of the budget deficit and also in the larger surplus of the current account of the federal government in 2009.

As the fiscal deficit is due to higher developmental expenditure, the Budget 2009 enhances future productive capacity of the economy and also the government's capacity to move towards a budget surplus when the Malaysian economy resumes a higher growth trajectory in the future.


In terms of financing the deficit, the government is not expected to have major constraints given the high level of liquidity in the Malaysian economy. As such, like previous budgets, the Budget 2009 is not expected to cause any crowding out of private investment.

This budget should support the Malaysian economy to achieve the projected 5.4% GDP growth for 2009. This rate of economic growth remains respectable, considering major growth headwind from abroad. Together with Bank Negara Malaysia's accommodative monetary policy and stable interest rates, the GDP growth target is realistic.

Furthermore, the economy has strong fundamentals to support the growth outlook. In particular, the banking sector remains strong and healthy to further support the economy as reflected by the industry's high capitalisation, ample liquidity and high and improving asset quality.