12-10-2023 (KUALA LUMPUR) Malaysian lawmakers have given their approval to a new legislation aimed at enhancing fiscal responsibility and improving the management of public funds. The move comes as the government seeks to address the financial challenges faced by the country, including the fallout from the 1MDB financial scandal and the need for increased spending on subsidies to combat rising living costs.
The legislation, known as the Public Finance and Fiscal Responsibility Law, outlines a set of targets to be achieved within a period of three to five years. These targets include reducing the fiscal deficit to 3 percent or less of the gross domestic product (GDP) and maintaining debt levels at 60 percent of GDP or lower.
According to government forecasts and reports, Malaysia’s fiscal deficit is projected to reach 5 percent this year, while the federal debt ratio stood at 57.6 percent of GDP last year.
Deputy Finance Minister Ahmad Maslan stated that the law also mandates allocating at least 3 percent of GDP for annual development spending and capping government guarantees at 25 percent. He made these remarks prior to the bill’s successful passage late on Wednesday.
Ahmad further highlighted that the country’s government debts and liabilities have surged to approximately 1.5 trillion ringgit ($317.80 billion). This increase has resulted in higher debt servicing charges and limited fiscal capacity to initiate new projects or prepare for economic shocks.
He emphasized, “This situation has elevated the significance of fiscal policy in supporting economic recovery and growth, while ensuring the long-term sustainability of the nation’s finances.”
The passing of this law coincides with the government’s upcoming presentation of the 2024 budget on Friday. Analysts anticipate that the budget will include cuts to subsidies for the wealthy and a greater focus on providing assistance to low-income households, given the existing fiscal constraints.
