Towards an expansionary fiscal policy
The Malaysian government has proposed an expansionary fiscal policy with a 2023 budget with a total allocation of RM373.3 billion compared to RM385.3 billion in 2022.
This was done with the aim of balancing the interest of the rakyat with sustainable economic growth in the event of a more difficult year ahead, due to a weaker global economic outlook amid political tensions and restrictions. budgets.
The budget of RM373.3 billion represents 20.5% of Gross Domestic Product (GDP), while 73.1% of the amount or RM272.3 billion (RM284.7 billion in 2022) has been allocated to operational expenditure (OE) and 95 billion RM (71.8 billion RM) or 25.5% for development expenditure (DE).
Putrajaya has also allocated RM5 billion under the new budget for overdue payments of Covid-19 Fund commitments (RM28.8 billion in 2022) made in 2022.
With an increase of around 400% in operating expenditure over the past two decades, the government has embarked on a public expenditure review and targeted subsidy initiatives to shore up its fiscal position to ensure fiscal sustainability. long-term.
The slightly lower year-on-year OE under the 2023 budget is based on expectations of a reduced allocation for subsidies and social assistance, which is expected to reach RM 42 billion in total as prices commodities are moderating, rolled up with the gradual implementation of a targeted subsidy mechanism.
Subsidies and social assistance amounted to RM80bil last year with 45% of the amount spent on fuel subsidies. This brought government spending on subsidies and social assistance programs to RM485 billion from 2000 to 2021.
The OE however remains high due to a higher allocation for emoluments, pension charges, debt service charges (DSC) and grants to statutory bodies.
Civil servants’ emoluments remain OE’s highest expenditure at 33% or totaling RM90.8 billion due to the granting of special annual salary increases and the adsorption of contract staff into permanent positions , particularly in the education (18,100 teachers) and health (5,700 doctors) sectors. officers). Pension expense is expected to increase by 1.4% to RM29.1 billion or 10.7% OE under the 2023 budget, 75.3% or RM21.9 billion of the amount going to payments pension for around 958,700 mainly retirees.
The Department of Finance’s 2023 Budget Outlook report predicts that pension liabilities will increase as the country becomes an aging nation.
Some RM46.1 billion from OE is allocated to DSC alongside higher funding requirements for DE and the Covid-19 Fund. About 98.4% of the money will go to coupon payments on domestic debt and the remaining amount to offshore loans.
The DSC to revenue ratio is estimated at 16.9%, slightly above the 15% threshold in accordance with international best practices.
The RM95bil DE under the 2023 budget aims to support economic growth and see allocations channeled into programs and projects with high socio-economic impact.
Of this amount, 56.9% of the amount was allocated to the economic sector and 26.5% to social expenditure under the new budget.
Some RM16.5 billion or 17.3% of DE will be channeled into the transport sub-sector for the construction of projects such as the Trans Borneo Expressway, Sarawak Sabah Link Road Phase 2, Pengalat-Papar bypass in Sabah and the upgrading of the Pasir Gudang highway in Johor. .
According to the government report, some US$3 billion (RM13.9 billion) of the DE will be used to redeem a 1Malaysia Development Bhd bond maturing in March next year.
Given the need to maintain a sustainable fiscal position, the fiscal outlook report says the government will review its current spending practices, including subsidy programs, pension reform, public-private partnership spending and pledges. financial resources, as well as grants to statutory bodies.
It will also seek to improve the efficiency and effectiveness of public spending to reduce leakages and provide better transparency in financial reporting.