KUALA LUMPUR: The establishment of an independent fiscal institution in Malaysia is critical for the assessment of the budget's economic impact, providing alternative forecasts and conducting independent analysis of potential policies, particularly as the country moves towards economic recovery while preparing for potential economic challenges posed by COVID-19 variants, an economist said.
Geoffrey Williams, professor and dean of the Institute of Postgraduate Studies at Malaysia University of Science and Technology, said the body could assess the costs and benefits of various options and the historical impact of policies, while conducting a comprehensive economic and social impact assessment of policy proposals to assist policymakers and the general public in comprehending the implications.
“The body is crucial because Malaysia had two years (2020 and 2021), where official economic forecasts indicated that the economy would grow at a rate of 5.0 per cent to 6.0 per cent or even more, and as a result, the government felt confident that the economy would withstand the lockdowns. Then two recessions occurred, resulting in massive economic losses.
“We are once again at a stage where official and international forecasts are bullish, but we are resisting easing Standard Operating Procedures for example.
“We also had virtually no assessment of the budget implications and no independent assessment of the 12th Malaysian Plan (12MP) implications for growth and development in light of the structural damage caused by the COVID-19 crisis,“ he told Bernama.
Williams cautioned that poor forecasts result in ineffective policies, thus, Malaysia requires a diversity of forecasts and forecasters to evaluate policies from a variety of perspectives.
“We need to be aware and prudent in light of the current economic situation and quantify the economic losses associated with the COVID-19 lockdowns; the economic and social costs associated with Employees Provident Fund withdrawals; and the full economic impact of the 12MP,“ he told Bernama.
Williams asserted that more importantly, the independent body would be able to conduct an independent analysis of the budget proposals prior to their debate in Parliament.
Commenting on the Financial Sector Blueprint 2022-2026 (FSB3), which was launched recently and dubbed as complementing the 12MP, he highlights the importance of having an independent assessment of FBB3.
“We need a body that can independently assess that for Parliament to debate. Will it have a good impact or not? Who assessed that? It cannot be independently evaluated by the same individuals who present it,“ he said, adding that currently the auditor-general, or the finance ministry’s Debt Management Office, and even the new Economic Action Council all report to the government and the officials are all civil servants.
Williams emphasised the importance of an independent fiscal oversight body that reports to Parliament and is composed of independent individuals or even aggregates multiple independent inputs.
Meanwhile, Bank Islam Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said the FSB3 envisions a financial sector that would promote structural reform such as investment among businesses, especially the small and medium enterprise (SME) sector by improving access to credit.
He said the reform can be from traditional sources of financing such as banks and development financial institutions (DFIs), as well as from alternative financing.
At the same time, he said embracing change via digitalisation in a more effective manner, one that will improve efficiencies and productivity.
“Sustainability elements through the value-based intermediation (VBI) will continue to be the driving force for sustainable economic development that will give special attention to climate change and environmental risks.
“Financial literacy is also part of the important agenda in the blueprint that aims to promote financial resilience among Malaysians who will be served by well-qualified financial advisors or planners who are properly licensed,” he said. - BERNAMA
Source : https://www.thesundaily.my/home/set-up-independent-fiscal-institution-to-assess-budget-impact-says-economist-EM8835305