Quicken pace of fiscal deficit reduction when times are good: Experts

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KUALA LUMPUR: Malaysia should better prepare for any major external shocks by reducing its fiscal deficit at a faster pace in the good times, industry experts opine.

Speaking at the 2018 Post-Budget Dialogue organised by the Malaysian Economic Association (MEA) on Monday, former United Nation assistant secretary-general for economic development Jomo Kwame Sundaram said it is important to look at a balanced budget by 2020 in the event of any adverse external developments, such as the reversal of the quantitative easing in developed countries, which might shake up the global market.

Given the significant increase in operating expenditure under Budget 2018, Jomo doubts how the government would manage to cut its fiscal deficit from 3% in 2017 to 2.8% in 2018.

While recognising there is also non-tax revenue coming from sources such as Petroliam Nasional Bhd (Petronas) and government-linked companies, he said the government should make it transparent on the source of the money.

Treasury Secretary-General Tan Sri Mohd Irwan Serigar Abdullah, however, said the gradual reduction in fiscal deficit is for the good of the people.

“We can come to surplus overnight because it is only RM39 billion (deficit), but we need to see it (the measures) shock the market or not,” he explained.

He added that the government will receive an additional RM3 billion in dividends from Petronas next year, which can be redistributed to the people.

Employees Provident Fund (EPF) general manager for economics and capital markets Nurhisham Hussein suggested that the government form a fiscal council to provide independent views on the Budget. “Right now we are not having debate on fiscal policy in an objective manner, but in political manner.”

On another note, senior research fellow at the Institute of China Studies of University of Malaya Cheong Kee Cheok is concerned about the huge amount of contingent liabilities, especially the non-government guaranteed debts.

“The government is taking on debts that are not guaranteed, like billions of ringgit in Pembinaan PFI.”
Pembinaan PFI is 99.9% owned by Finance Ministry Incorporated. Its nature of business is to source for financing to undertake government projects. The Federal Land Commission holds one share in Pembinaan PFI.

Irwan, however, gave the assurance that the government will evaluate the particular project or company background before taking on any government-guaranteed debts.

“If a company can finance the project in the long run, then we give government guarantee and it is given to viable companies such as Khazanah Nasional and the East Coast Rail Line project.”

RAM Ratings said in its recent report that the government-guaranteed debt load has risen from 11.8% of gross domestic product (GDP) in 2011 to 16.9% in the second quarter of 2017.

Over the longer term, the rating agency expects the contingent liabilities to increase at a measured pace amid continued rollout of infrastructure projects which are essential for Malaysia’s development.

Based on Nurhisham’s estimation, the contingent liabilities would have accounted for 55% to 60% of GDP if implicit ones were included with the likes of Kumpulan Wang Persaraan (Diperbadankan) and Perbadanan Insurans Deposit Malaysia.

However, compared with the US and European countries, he said, Malaysia’s contingent liabilities “are not very big”.

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