Economist: Don’t pull brakes on development spending
KUALA LUMPUR: While sovereign rating is an important factor to consider in relation to managing fiscal balance, it should not be to the extent of pushing the economy towards a recession, says panelists at an economic summit.
Malaysian Rating Corp Bhd associate director of research and chief economist Nor Zahidi Alias said the government should not pull the brakes on development expenditure, although operating expenditure may need to be controlled, moving forward.
“When it comes to Budget 2019, I agree that we care about sovereign ratings, but not to the point where we squeeze the economy to the brink of recession.
“We shouldn’t pull the brakes on development expenditure too drastically to the point where we suffer in terms of headline growth,” he said during a session at the Malaysian Economic Summit.
Nor Zahidi noted that the government’s fiscal balance tends to move in tandem with sovereign ratings.
“If you want to have a good sovereign rating, you have to make sure the fiscal balance is good.
“I suppose this is why the government is so concerned about consolidating the fiscal position and trying to reduce the deficit to below 3%,” he said.
On government expenditure, he noted that operating expenditure has increased by about 5.5% per year on a compounded annual growth rate basis between 2010 and 2017.
“If you look at emoluments itself, it has increased by 8% per annum.
“Debt services have grown about 9% and pension and gratuity by about 11% per annum.
“I think the government is looking very closely at this, although some are very sensitive,” he said.
Institute of Public Accountants Australia (KL branch) council member, Dominic Shum, is of the opinion that cutting expenditure is the best way forward.
“The government must understand that we must be able to sustain this deficit.
“If you spend on something that does not improve productivity in the long run, then it is not sustainable,” he said.
He said the country would not achieve a balanced budget unless drastic action is taken.
“For example, Malaysia has a much smaller population than the United Kingdom but we have about the same number of universities.
“We have quite a number of public universities – one in each state – is that really necessary?” he asked.
Shum, however, said he is still optimistic about the economic situation in Malaysia.
“We should think about how we can fund major public projects instead of the current model.
“During our prime minister’s previous tenure, there was a lot of privatisation – maybe we should relook this as a way to reduce expenditure,” he said.