UPDATED Opposition Leader Anwar Ibrahim warned of the possibility of a snap general election following Prime Minister Najib Razak's decision a day ago to delay the tabling of an unpopular goods and services tax (GST).
"There is a major possibility of snap general elections and I anticipate that tomorrow's budget is going to be an election budget," Anwar told reporters at the Parliament lobby on Thursday.
Populist moves, election goodies constrained by lack of funds
The election signs have been getting hotter as Najib unveiled one huge economic plan after another aimed at shoring up public confidence. So far, all have been panned for their grandiose vision but lack of details.
|Najib and members of his Cabinet|
As such, the delaying of the much-needed GST - which will buoy the government's coffers - was seen by many pundits as a major indicator of snap polls.
"Personally, I think elections won't be so close but this is why many experts believe that it will take place soon.
Firstly, there isn't much room for the government to maneuver. They have to watch the deficit and by not implementing the GST, which would help raise liquidity, they are seen as trying not to upset the people. But don't expect too many populist measures or election goodies because there won't be enough money," PHS Lim, president of the Malaysian Investors Association, told Malaysia Chronicle.
Balancing the budget: No other way out but asset sales
In 2009, FDI plunged 81 percent as investors - both foreign and local - decided to spend their money elsewhere amid concerns that the Najib administration might resort to drastic measures, including using force to cling to power in the event of further electoral setbacks.
"We are achieving our budget deficit target of 5.6 percent of GDP this year because the government has taken some cost-cutting measures. It puts us on track for a lower target in 2011," Reutersreported a government source as saying.
Economist say it is possible Najib may even lower the 2010 official deficit forecast of 5.6 percent to 5.4 percent in a bid to garner praise for getting the deficit back onto more reasonable levels after it hit a record 7 percent in 2009.
Nevertheless, that was likely to be as low as Najib could take it although his government might announce an ambitious 4.5 percent deficit target for 2011. They do not expect any further consolidating measures, as more belt-tightening might prime his Umno-BN coalition for further electoral losses.
Subsidies to be left untouched but after the elections ...
Subsidies, which form 2 to 3 percent of GDP, were unlikely to be slashed much either as further price-hikes could again swing votes over to the Pakatan Rakyat coalition led by Anwar.
Due to unchecked spending of the past years, experts also said there is now little room for Najib to maneuver without further assets sales and it is also likely he may sell off the government's stake in UEM, which operates tolled-highways under its PLUS Expressways.
"In 2004, the Abdullah administration announced they would balance the budget but the deficit hit the worst level of 7 percent last year. Tomorrow, the government can announce further reduction of the deficit target but after the elections are over - will the targets be kept or can the target be kept is a different story. Remember targets are just that," Lim said.