Press Statement from Penang Institute on Budget 2018

Press Statement
Penang Institute
George Town, 31 October 2017

Mr Tim Niklas Schoepp, Chief Communication Officer and Acting Head of Economics Programme
Dr Negin Vaghefi, Senior Analyst, Economics Programme
Mr Timothy Choy, Analyst, Economics Programme

The 2018 Budget was announced on 27 October 2017 by the Prime Minister Datuk Seri Najib Tun Razak. We wish to highlight a few points.

1. The 2018 Budget deficit is expected to hit 2.8% of GDP vs. 3% in 2017. Higher expenditures will be offset by an increase in revenue. The increase in revenue is mainly driven by a stronger economic growth and a recovery of oil prices. The economic growth for 2018 is projected to reach 5% to 5.5%. Whilst the economic growth of the country can be seen as positive, this development is mainly driven by the positive projection of the global economy rather than by sound fiscal and economic policies of the Federal Government. The country sees exports up 16.6% this year and rising 3.4% in 2018.  Surely, Penang will benefit from this increase as its economy is export-driven.

2. Under the 2018 Budget, about 83.6% is allocated for Operating Expenditure (OE), while only 16.4% is for Development Expenditure (DE). There is a growing imbalance in favour of OE, as the ratio was about 73% to 27% in 2008. Since the country aims to become a developed nation in the near future, the coordination of operating and development budgets needs to be improved.

3. The largest proportion of OE is for Emolument which is about 34% of total OE and 28.2% of the total 2018 budget. Considering the large size of civil services in Malaysia, a significant percentage of the country’s finances is spent on public employees which might increase unsustainability without reforming the civil services. Moreover, the Federal Government misses to recognise that a reformed civil services will not only help address the budget deficit but will also release talent and labour into higher paying private sector jobs since the unemployment rate in the country is low.

4. In the 2018 Budget the Prime Minister announced an upgrade of the Pulau Pinang International Airport (PEN). As the Penang State Government has raised the capacity bottleneck of the airport many times in the past years, it is good that the Federal Government has finally identified the airport  upgrade as a national priority. However, more transparency on the strategic planning, the investment volume and the timeline of the airport upgrade are also necessary.

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