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KUALA LUMPUR - Malaysia slashed government spending in its 2010 budget, moving to rein in a deficit swollen by stimulus measures aimed at pushing the economy out of recession.
Prime Minister Najib Razak said that an extensive fuel subsidy system, extremely popular with the public but a drain on national coffers, would be revamped next year, but did not give details of the cuts.
He said the economy would shrink by 3.0 percent this year, less than a 4.0-5.0 percent contraction predicted earlier, but that it could bounce back and post modest growth of 2.0-3.0 percent in 2010.
"Major indicators suggest the economy is on track to recovery," said Najib, who is also finance minister, adding: "Malaysia's economic fundamentals remain resilient, despite the more challenging environment in 2009."
But he said that the downturn, which hit Malaysia's export-dependent economy hard, showed the country had to address its long-term competitiveness and shift to a model "based on innovation, creativity and value-added activities".
"We are now at a critical juncture, either to remain trapped in a middle-income group or advance to a high-income economy," he said.
Najib said Malaysia needed to strengthen domestic demand, lose its reliance on cheap imported labour, and introduce liberalisation measures to enhance competitiveness.
The 2010 budget allocation totalled 191.5 billion ringgit (56.6 billion dollars), 11.2 percent lower than the revised allocation of 215.7 billion ringgit for 2009.
"This allocation reflects prudence in government spending and gives priority to value for money," said Najib, adding that the cuts would not harm public sector delivery.
Operating expenditure will be slashed by 13.7 percent to 138.3 billion ringgit -- a cut of unprecedented size -- helping cut the fiscal deficit from 7.4 percent this year to 5.6 percent next year -- much lower than expected.
Malaysia has announced two stimulus packages, the most recent in March, which was billed as containing some 60 billion ringgit (17.7 billion dollars) in measures to prime the economy. - AFP/vm
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