KUALA LUMPUR: The RM60 billion mini-budget announced yesterday is a step in the right direction towards mitigating the impact of the global recession, although the effectiveness of the measures remains to be seen, economists and market watchers said.

Maybank Investment Bank chief economist Suhaimi Ilias said the “overwhelming” size of the package would minimise the impact of the global economic crisis.

“The good thing about this mini-budget is that it focuses on assisting those who really need assistance, rather than on mega projects.

“Large chunks are going towards maximising job retention and the low-income group, and also helping businesses access funds through government guarantees,” Suhaimi told The Edge Financial Daily.

However, the government’s revision of the budget deficit to 7.6% from 4.8% would be “a concern that could weigh on the government’s fiscal standing over the long term”.

“It will definitely be an issue... how we are going to scale back the deficit. The government coffers are too dependent on petroleum and only 10%-11% of the working population pay taxes.

“So it’s difficult to see how the government will bring down the deficit from 2010. It will have to drastically slash spending or increase taxes. It really boils down to how you tackle the revenue side of things,” Suhaimi said.

AmResearch head Benny Chew felt, however, that the widened deficit was not an issue, as many countries would be running deficits during this recessionary period.

The second stimulus was a step in the right direction in mitigating a deepening recession, he said, noting however that AmResearch’s current forecast for the economy was less optimistic than the government’s forecast of between -1% and 1% growth this year.

AmResearch’s forecast of the gross domestic product (GDP) was currently -1.3%, with a possibility of further downside, he said.

Meanwhile, a local equity market analyst questioned the effectiveness of the fiscal spending, as it was not seen to have a real impact on the equity market.

“We see it as having a neutral impact on the market, as spending for listed companies was not stated clearly, unlike China’s recently announced stimulus package which comprehensively outlined infrastructure spending.

“The multiplier effect of the package also does not seem very much,” he said.

The analyst also said the RM60 billion package was not as large as it appeared, as the fiscal injection from the mini-budget only amounted to RM15 billion, to be spent over 2009 and 2010, which was less than the market expectation of between RM20 billion and RM30 billion.

Bank Islam Malaysia Bhd senior economist Azrul Azwar said the government’s move to revise the 2009 GDP growth target indicated it had “clearly underestimated the gravity of the global financial meltdown and the ensuing global downturn on the Malaysian economy”.

Bank Islam is calling for a contraction of 1.2% for 2009.

Azrul said the size of the mini-budget seemed to be big enough to avert a much deeper and more prolonged recession, as well as to prevent massive job losses. However, he added a caveat, saying there continued to be concerns over transparency, accountability and integrity issues.

“The lack of transparency of how funds allocated in both stimulus packages are being spent and the need to make public the exact details of spending plans for both stimulus packages has to be addressed urgently,” he said.

On the budget deficit climbing to 7.6% of GDP, Azrul said it was nowhere close to the country’s all-time high of 16.6% in 1982 although it could still be a concern if left unchecked.

“Although the government expects the huge fiscal deficit to be temporary, the inability or the lack of seriousness of the government to balance the budget or at least to significantly narrow budget deficits during the “good years” between 2002 and 2008 raise doubts over its capacity to do so this time in the near- to medium-term,” he said.

“What is really lacking in the mini-budget is the strong commitment from the government to return to fiscal discipline and balance with a specific timeline and the measures to achieve fiscal consolidation in the near- to medium-term.”