Review: Malaysian 2006 Budget Report

Just recently, our Prime Minister Dato' Seri Abdullah Ahmad Badawi annouced the 2006 budget. It took me awhile to finish reading the whole budget report since it was pretty long. But I managed to follow through some of the interesting points that I think are rather weak or can be critized on.

(i) the expected growth of 2006 is 5.5% (world 4.3 and Asean 5.4).

I don't think that it is realistically achievable given that the main GDP components such as Public consumption, public demand and private consumption are all contracting.

This is further supported by the fact that we are experiencing negative growth of savings rate (37.1% in 2004 to 34.7% in 2005). Economic equilibrium is when saving equals investment and when savings is down - investment will follow suit. Thus , it further downgrades growth. (In fact, if I am not mistaken, this is the 1st time that the Minister of Finance did not share, and take pride on, the savings rate vs GDP in his budget speech)

Manufacturing is expected to grow at 4.9% (from 4.8% in 2005) - very-very low for Malaysian standard that has always been 8% plus.

(ii) In managing national economy

The common targets are GDP growth, inflation rate and unemployment rate. As on the inflation rate – The civil servants’ bonus (as a start, giving bonus as its helps to stimulate spending and expanding the economy) but it can trigger inflationary pressures and I think that is one of the reasons of PM’s campaign for thrifty spending immediately after the budget presentation. On monthly basis, the consumer price index and producer price index are going up.

As regards the unemployment rate. I do not think that the target of 3.4% (from 3.5% last year) is achievable given the promotions of mergers and acquisitions that will lead to retrenchments. Further the unemployed graduates training schemes are not tailored to the promoted sector i.e. agriculture.

(iii) Rural development.

Coming from the city, I appraise the allocation of RM5.7 billion for rural development positively, particularly the infra sector.

(iv) Poverty.

Efforts are made to reduce poverty. However, the efforts need to be planned properly and of target-base.

I noted that the poverty eradication efforts are only concentrating on the rural poor – so – how about the urban poor? The malays say: orang kampung – susah cara kampong, orang Bandar – susah cara Bandar but the latter is worst as they have to pay their needs based on city prices.

The other finding is on agriculture and poverty that has evolved from a mere relationship to an identity. Basically one can divide the agricultural activities into two: land and water economies. I realised that not much impetus is given on water activities i.e. the fishing industry. If we were to check on which sector of the agricultural activities that has the most of hard core poverties – the common answer is fisheries, especially the small scale fisheries who depends on the increasingly depleted near-shore fish stocks. However no great things are proposed for this sector. Fishing registered negative growth of -0.4% in 2005 and is expected to grow by 5.3% in 2006 – how can it grow (and growing from negative to positive) without fiscal supports?

(v) Halal Food.

It tickles me whenever I read about halal food initiatives in the budget as halal food has always been the key words for many years and yet yields no powerful and impactful results. We are one of the key countries of the OIC and should leverage the position to be a halal food hub, this is further supported by our demography and food-producing resources.

The 2006 budget put forth proposals to increase our ability to do research on halal food. I think, the better way is to locate the money for :

(a) certification of halal food – to build up the capacity and efficiency in terms of certification and monitoring. Last year or 2 years back, months after the budget dealt with halal food hub – the nation was served with a surprise on issues like non halal sausages that carry halal certificates, lack of enforcements and monitoring of JAKIM and rumours on tradeable halal certificates. I think the government should invest on building up an body to certify halal food with proper enforcement officers. Make it Badan Pensijilan dan Pemantauan Makanan Halal Malaysia.

(b) building the brands of Malaysian halal food

(c) building overseas channel managements for the Malaysian halal food industries