The government recently tabled a RM191 billion budget which is 11 percent less than the previous year. This is when the gross domestic product has shrunk and the government’s income has dropped by about eight percent to RM148 billion from last year’s.

This budgeting is also in the midst of foreign investment falling and approved new domestic projects dropping in the first half this year, compared with the already low level for the whole of 2008.

With economic problems felt by most importing countries, exports of manufactured products – electrical and electronic - fell by 20 percent year-on-year in the first half of 2009, contributing to weakness in domestic investment and consumption. The country also has to face stiff competition from other countries in the export of agricultural products.

Despite the qualms, the country’s international reserves are still at a healthy ten months of retained imports. The huge revenue from oil has somewhat cushioned the adverse impact of a dire economic crunch, though this income has dropped sharply of late.

The latest budget has, however, taken into account the prospect of a better global economy. There are signs that the economy is gradually recovering after a lot of uncertainties for the past few years. The economy is now expected to improve with global up-trends projected to expand between 2 to 4 percent in 2010.

Some economists are not optimistic about this, though. Some foresee that the uncertainties would remain for another few years subject to the economic recovery in the US.

Consumer and business sentiments are starting to pick up, despite the fact that it is still at a minimal pace. Job opportunities are becoming lesser and unemployment has increased. Graduates and school leavers are finding it hard to get jobs. The inflationary trend faced by the country has affected the prices of goods. The poor are those badly affected by this drift in our economy.

To further boost the economy, the government on its part liberalised 27 service sector industries which would be opened to foreign investment. This includes the financial and insurance sectors. Even the reserved 30 percent equity requirement for the indigenous group was removed for newly-listed companies with the hope that the country would attract foreign investment.

In the budget, it was mentioned that profit-making government agencies would be privatised with the hope that they would generate more income and become more efficient. Critics, nevertheless, feel that the government has to do more to protect local players, industries and their products. Absolute liberalisation, nonetheless, on a non-level playing field would affect the country’s economy in the long run.

In attracting new foreign direct investment (FDI), statistics show that Malaysia was still behind Thailand, Indonesia and Singapore for 2008. FDI in the country fell to a gloomy RM3.36 billion from RM19.7 billion last year.

Malaysia also experienced a US$6 billion net outflow of foreign direct investment in 2008. In other words, capital is leaving the country. When foreign investment has still to pick up, more local companies are seeking opportunities abroad. This may not bode well for the economy.

Even when there are possibilities of risk involved in moving funds to some other country, Malaysian firms are still seeking opportunities abroad to invest. Could this be because of a ‘push factor’ or better short and long-term incentives offered by these countries and the cheap labour available there? Or could this because of the disincentives in the home country?

The government has to look into how to retain these investors and make it more attractive for these firms to invest locally. This would at least make up for the slow flow of FDI into the country. There has to be more incentives for these firms to invest locally to further generate the country’s economy.

Depending on foreign investment has become too competitive these days with the economic liberalisation of many countries in this region and the lure of China and India – the future economic giants.