PETALING JAYA: The government’s efforts to adopt austerity measures will strengthen Malaysia’s finances, economists say.
MIDF Research head Imran Yassin Md Yusof sees prioritisation in fiscal spending as a step towards strengthening the government’s fiscal position in the longer term.
He pointed to Standard & Poor’s June upgrade of Malaysia’s sovereign credit rating outlook to stable, which the ratings agency said was driven by the country’s consistently strong growth trend that was outperforming sovereigns at a similar income level.
The agency also noted the government’s strong political commitment to resume fiscal consolidation post-pandemic.
“Malaysia’s fiscal position is relatively robust which is expected to improve further on the back of a better economic outlook,” Imran told FMT Business.
“Any spending adjustment, however, will not significantly affect the government’s service delivery and support for the rakyat.”
Sunway University economics professor Yeah Kim Leng expressed similar views, saying the cost-cutting measures signalled the government’s commitment to fiscal responsibility.
“If nothing is done, we may see the mandatory debt ceiling of 65% breached resulting in increased repayments,” he said.
“Global energy and food price shocks have resulted in an under provision of subsidies.”
The government earlier estimated that fuel and food subsidies for the year would balloon to RM77.7 billion compared to RM31 billion allocated in Budget 2022.
Yeah said that if no action was taken, those subsidies would push the country’s fiscal deficit up by 1% to 2% now to 8% against a deficit target of 6% outlined for this year.
On the whole, he sees the move as a readjustment of government spending, rather than a cutback. He said guidelines on public expenditure savings, which the government introduced last week, would have minimal impact on the economy.
“These cuts are not significant enough to derail Malaysia’s projected growth although GDP figures might come in the lower bounds of the range,” he said.
For 2022, Bank Negara Malaysia has projected growth to be 5.3% to 6.3%, underpinned by strong domestic demand, continued expansion in external demand and further improvement in the labour market.
The central bank believes growth would also benefit from the easing of restrictions, reopening of international borders and implementation of investment projects.
For their part, the World Bank and the International Monetary Fund have forecast a GDP growth for Malaysia of 5.5% and 5.75%, respectively.
Socio-Economic Research Centre executive director Lee Heng Guie expressed reservations over plans to achieve at least 5% savings in the allocation balance given that there are just over five months left to the year end.
“The government could, however, look at the auditor-general’s annual report to identify where savings may be had and plug leakages in government spending,” he said.
“The best way to achieve the target is by replacing blanket subsidies with targeted ones. The current subsidy regime is skewed, as the affluent are the ones who benefit the most.”
Source: https://www.freemalaysiatoday.com/category/highlight/2022/07/21/cost-cutting-measures-are-positive-fiscal-signals-economists-say/