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Malaysia's 2010 budget deficit will be lower than this year as the government will cut its operating expenditure by 15 percent, Second Finance Minister Ahmad Husni Hanadzlah said on Tuesday.

Malaysia is readying its 2010 budget after a year in which the government projects the economy will shrink by 5 percent, its first big recession since the 1998 Asian financial crisis. The budget deficit is expected to balloon to 7.6 percent of gross domestic product this year.

The International Monetary Fund last week urged the government to introduce a goods and services tax to boost revenues and the Fund forecast the deficit would hit 7.7 percent of GDP this year and only decline slightly to 7.1 percent of GDP in 2010.

"We are looking at it (GST) seriously," Husni told a press conference, although he added that: "The government does not want to cause any pain to the people".

Malaysia's budget deficit excluding oil revenues will be 11 percent of GDP, according to the IMF, and with lower oil prices in 2009 than in 2008, the income from oil will shrink in 2010 as it is based on 2009 prices.

Malaysia may however introduce changes to its fuel subsidy regime as early as next year and switch to a means tested formula, Husni said.

PUTRAJAYA, Malaysia, Aug 18 (Reuters)

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