Govt should relook at infrastructure spending in 2016 Budget - Economist

The government has to relook at its long-term infrastructure spending in Budget 2016 as one of the balancing act to mitigate the impact of depreciating oil prices and the challenging economic environment in China.

Business School Dean at the Malaysia University of Science and Technology Dr Yeah Kim Leng suggested that bigger projects can be delayed until the economic conditions recovered.

"I think on that basis, we have to look at individual projects in the economy because we do not want the government to cut spending to the extent that it will exacerbate the current slowdown.

"What the government needs now is to relook at projects that can be postponed without having major impact especially those that does not have so much of a multiplier effect," he told Bernama on the sidelines of the ASEAN Economic Forum here Friday.

Yeah was among the speakers at the forum, alongside Asian Development Bank Lead Economist Jayant Menon and Malaysian Investment Development Authority Deputy CEO Datuk Phang Ah Tong.

He pointed out that the Goods and Services Tax (GST), which was introduced on April 1, 2015, had offset some of the effects of the substantial drop in revenue from the oil and gas sector.

"It is prudent for the government to revisit Budget 2016 and see how they can take proactive or preemptive measures in the event our oil revenue continues to slide further," he added.

Prime Minister Datuk Seri Najib Razak said he would present a revision of this year's budget to accommodate the country's falling revenue from lower oil prices and uncertainty in the global economy.

The 2016 budget was based at an average oil price of US$48 per barrel. The benchmark Brent crude oil price stabilised on Friday at US$34.33 per barrel after tumbling to a 12-year low, in line with the recovery of China's

stock market.

The world's second largest economy had lifted its circuit breaker mechanism which halted its share market trade twice this week as well as increased the guidance rate for the yuan at 6.5636 per US dollar on Friday.

Yeah said the government might need to stretch its budget deficit slightly higher than its expected 3.1 per cent in 2016 without resulting in adverse market reaction.

"As long as we are not sharply off from the previous year's budget deficit of 3.2 percent, I think it should be fine.

"Even, it can go up to 3.5 percent as long as we can convey to the market that it is temporary because of the unusual conditions such as the recent stock market crash in China," he added.

Yeah said the government also needed to ensure that the credit conditions remained supportive of Malaysia's economic growth amid the bottoming out of the interest rates cycle in the United States.

"Malaysia is not short of liquidity just loss of confidence," he added.

Overall, he said Malaysia's economic growth was likely to be at 4.9 percent in 2015 and 4.7 percent in 2016, driven by private consumption and investment.

He noted that lower oil prices would prolong in 2016 as it had yet to bottom out.

"Expected growth in 2015 is commendable despite all the headwinds. There is still sufficient growth momentum driving the economy.

"It has generated a lot of pessimistic sentiment which is not helped by the fact that the global economy and financial conditions are challenging," he added.

Earlier, he said the consumer price index averaged 2.1 percent in 2015 but was expected to rise in 2016, peaking in the first quarter at 3.0 percent before easing off as the GST base effect wears off.

The forum was organised by solutions provider, IME Holdings Sdn Bhd, in conjunction with its 35th anniversary.