KKUALA LUMPUR: The establishment of an independent panel is needed to scrutinise and improve the country's fiscal position, economists say.
They also commended His Majesty Sultan Ibrahim, King of Malaysia's decree to scrutinise public expenditure and accelerate the implementation of the Finance and Fiscal Responsibility Act 2023 to improve the country's fiscal performance.
Professor of Economics, Geoffrey Williams from the Malaysian University of Science and Technology believes that a shift in fiscal policy, particularly in expenditure, is required to remove some committed costs from the budget.
He cited setting up a Superfund to finance civil service pensions as an example for the government to reduce its commitment.
"His Majesty is highlighting a very important issue which is the lack of fiscal headroom. A great deal of the government budget is already committed before they can spend on other things.
"These commitments include civil service pay and emoluments, civil service pensions, debt charges and subsidies. Once all of these are paid only around 25 per cent of the budget is left for priorities such as health and education.
"In addition, leakages and corruption cut into the budget and reduce the impact further which makes it hard for the government to implement new initiatives and stimulus packages," he said.
He called for the government to establish an independent panel to look into the fiscal deficit.
Earlier today, His Majesty Sultan Ibrahim expressed his dismay over the country's stagnant fiscal deficit position since 1998, which has caused a large debt burden to the government.
His Majesty said the weak financial position had made it difficult for the government to implement new developments, or to provide financial incentives to stimulate economic growth in the country.
In response, he pledged to scrutinise government expenditures to ensure they serve the intended purpose and called for comprehensive policies, including the introduction of the Finance and Fiscal Responsibility Act 2023, to enhance transparency and accountability in public financial management.
Centre for Market Education (CME) chief executive officer Dr Carmelo Ferlito said His Majesty's decision to scrutinise public expenditure and speed up the bill was greatly needed in addition to a gradual withdrawal of the government from the economy.
He said the government should open the market to industry players as the Gross Domestic Product (GDP) for 2023 showed that the public sector grew at double speed as compared to the private sector.
"GDP data from 2023 showed that the public sector grew at double the rate of the private sector, which is a source of concern because this dominant position is a negative incentive for private investments, can cause misallocation of resources, distort the production structure, and ultimately generate inflation," he said.
Ferlito expressed scepticism about the efficacy of increasing government spending to stimulate the economy, cautioning against oversimplifying Keynesian economics.
"This is quite an oversimplification of what Keynes preached in the 1930s, in particular after the publication of his General Theory in 1936.
"Keynes was advocating for government expenditures during periods of recession; and also in that case I am sceptical it is going to work.
"Operating outside of the market, the government is in the ontological impossibility to know what products or services to provide and at which price," he said.
Putra Business School economic analyst Associate Professor Dr Ahmed Razman Abdul Latiff agrees with His Majesty that there should be more scrutiny, openness, and accountability when the federal government manages its finances.
This, he said, could be achieved through the introduction of Public Finance and Fiscal Responsibility Act 2023 as there will be a greater responsibility on the government.
