The government's 5 percent growth target for 2010 is not realistic and could further inflate the budget deficit, a leading Malaysian think-tank warned Tuesday.

Malaysia in October forecast its export-dependent economy to grow by a modest 2-3 percent next year, after shrinking an estimated 3 percent in 2009 as it battles the effects of the global financial slowdown.

However, Prime Minister Najib Abdul Razak said last month that he wants the economy to post 5 percent growth in 2010.

"It's going to be tough, it's not going to be easy under the current circumstances," said Mohamed Ariff Abdul Kareem, the head of the influential Malaysian Institute of Economic Research (MIER).

"Of course it can be artificially engendered, but it won't be sustainable," he said, referring to the potential effect of stimulus measures.

"A 5 percent growth may mean a much bigger budget deficit and a much bigger national debt - there is a cost to it," he told reporters.

The government in its 2010 annual budget slashed operating expenditure by 13.7 percent to RM138.3 billion, to reduce the fiscal deficit from 7.4 percent this year to 5.6 percent next year.

Future is uncertain

The MIER maintained its forecast for Southeast Asia's third-largest economy to shrink by 3.3 percent in 2009, and to grow by 3.7 percent in 2010 with a projected 5.0 percent expansion in 2011.

"But let me also caution while the worst is over and we are moving into the growth trajectory, the future is really uncertain," Mohamed Ariff said on the sidelines of an economic outlook conference.

"The recovery will be very fragile and I still think there is a 50 percent chance of a relapse in the United States in the first half of next year," he said, adding that Malaysia may then need a third stimulus package.

Malaysia has announced two stimulus packages, the most recent in March billed as containing some RM60 billion in measures to pump-prime the economy.

Second Finance Minister Ahmad Husni Hanadzlah defended the 5 percent growth target, saying it was "achievable".

"We have identified several sources of growth and we will enhance our capacity through domestic demand. We are also looking to strengthen the private sector's contribution to the GDP through government-linked companies."

"We are reasonably confident that a target of 5 percent is achievable," the minister told the conference.

- AFP