ECONOMIST: OPERATING EXPENDITURE REALLOCATION TO HELP ACHIEVE 2022'S FISCAL DEFICIT TARGET

By Nurul Jannah Kamaruddin

KUALA LUMPUR, July 19 (Bernama) -- The government's move to restructure its allocations for 2022 is necessary to keep this year's fiscal deficit close to the targeted six per cent of Gross Domestic Product (GDP), says an economist.

Sunway University economics professor Dr Yeah Kim Leng said the move to shift part of its operating budget to cover the sharp rise in subsidies would help Malaysia to avoid borrowings, which, if done, could increase the debt level way above the target.

Out of the RM332.1 billion allocated under Budget 2022, RM233.5 billion or 70.3 per cent was designated for operating expenditure.

The expenditure for subsidies and assistance is projected to reach RM77.7 billion, a substantial increase compared with the RM31 billion allocation approved in Budget 2022.

“Given the sizeable increase in subsidy spending, Malaysia’s budget deficit will likely exceed the targeted six per cent of GDP.

“However, the target may be attainable if there is no increase in total government spending with the budget reallocation and higher revenue from the commodity sector, particularly with the high global oil and gas prices,” he told Bernama.

It was recently reported that the government aims to achieve a savings target of at least five per cent from the remaining operating expenses for this year via the restructuring.

Meanwhile, Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz has reiterated that the Federal government’s debt is under control, while the country’s fiscal position remains intact.

He said the government’s statutory debt stood at 60.4 per cent at the end of June 2022, well below the statutory debt limit of 65 per cent of the GDP.

In a Malaysia Treasury Circular issued recently by the Finance Ministry, the government said the restructuring of the allocation was to help finance part of the additional expenditure relating to subsidies for the people’s benefit.

“Since it involves a shift in allocation, the impact on the economy is much less compared to a cutback in government spending.

“The government ministries will need to be more thrifty and prudent, especially with regards to discretionary items and non-critical supplies,'’ said Yeah.

He added that for now, subsidies are essential to prevent global energy and food inflation shocks from impacting the livelihoods of low-income households.

However, he noted that the general subsidy system is highly inefficient because it benefits everyone regardless of their income level, and it encourages unscrupulous business, leakages and cross-border smuggling.

“A targeted subsidy system will be less costly for the government and the savings can be channelled to more productive uses.

“While there will be some trade-off with higher inflation, it will still enable the poor to cope with rising food and energy prices,” he noted. 

Earlier today, Tengku Zafrul said the targeted subsidies would be implemented in phases to prevent a sharp rise in inflation or an adverse impact on the economic growth momentum.

The finance minister said the government is still in the early stages of testing the targeted petrol subsidy mechanism, which is expected to take three to six months to complete before it could be rolled out nationwide.

This will be followed by more extensive testing, using several methods, and an evaluation of the mechanism’s feasibility for both the urban and rural areas.

To curb market distortions and inflation, the government has raised the ceiling price on chicken by only 50 sen per kilogramme, while providing additional cash aid to the B40 households.  

“In line with this approach, the government will not raise petrol prices immediately to the market price levels in view of the (potential) impact on inflation, although the RON95 price, at RM2.05 per litre, is about 50 per cent lower than the actual price without subsidy,” he said during the ministers’ question and answer session in the Dewan Rakyat.

-- BERNAMA