Sept. 29 (Bloomberg) -- Malaysia’s government will be more “prudent” in its spending as it seeks to trim the budget deficit amid a strengthening economic recovery, Prime Minister Najib Razak said today.

The government may cut its operating expenditure and is looking at ways to broaden its tax base, he told reporters in Kuala Lumpur. Malaysia, which subsidizes the cost of essential items such as sugar and flour to keep prices low, is also considering making those measures “more targeted,” he said.

Malaysia’s budget shortfall will narrow next year to less than the 7.6 percent of gross domestic product projected for 2009 as the government moves to contain spending and restructure state subsidies, Second Finance Minister Ahmad Husni Hanadzlah said in August. Najib has unveiled stimulus measures worth 67 billion ringgit ($19 billion) to counter the global recession.

“Obviously it cannot be indefinite,” Najib said, referring to the stimulus spending. “We are committed to do this until the middle or towards the end of 2010. Beyond that we are hoping that the external economic environment would have improved very considerably.”

The nation’s economy continues to show improvement after the government implemented 13.7 billion ringgit of stimulus projects and the central bank cut interest rates, Najib said today. He is also the country’s finance minister.

The government predicts GDP will shrink as much as 5 percent in 2009 as the world recession slashes exports. It’s due to give an updated forecast and unveil an estimate for 2010 growth when it presents the 2010 budget next month.

‘Rein in’ Deficit

“We have to rein in the fiscal deficit and this would necessitate looking at more targeted subsidies because our subsidies now are right across the board and non- discriminatory,” Najib said. “We should give subsidies to people who deserve to be given subsidies.”

Ahmad Husni said last month the government’s operating expenditure may drop by 15 percent next year and revenue is forecast to decline from about 160 billion ringgit in 2009. Malaysia may introduce a new subsidy structure focusing on helping more vulnerable groups, and is studying whether to introduce a goods and services tax to replace the sales and service tax, he said.

Najib declined to say by how much the government will cut spending or whether the goods and services tax will be implemented.

There may be a “slight reduction” in operating expenditure, Najib said. “Government spending has to be much more prudent in terms of value for money and that includes government procurement.”

To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net

Last Updated: September 29, 2009 01:25 EDT