Malaysia overdue for law on fiscal responsibility to manage debt and deficit, says World Bank economist

KUALA LUMPUR, Feb 3 — The World Bank’s lead economist Apurja Sanghi today said that Malaysia is late in enacting a Fiscal Responsibility Act (FRA) to manage its debts and deficits.

Having an FRA in place would help rebuild the country’s fiscal buffers, he told reporters here at a press conference of the World Bank’s Malaysia Economic Monitor February 2023 Edition “Expanding Malaysia’s Digital Frontier”.

“The FRA is important because given the concerning fiscal situation, Malaysia needs a critical set of rules to manage debt and deficits in the form of a well-designed and -implemented FRA,” he said.

He pointed to Malaysia’s fiscal deficit, which increased from 3.4 per cent of its gross domestic product (GDP) in 2019 to 5.8 per cent by the end of 2022.

“We expect it to narrow a bit this year but it is still higher than what is set in the medium-term fiscal framework,” he said.

Back in 2019, the framework had projected Malaysia’s overall fiscal deficit to average at 5 per cent of its GDP from 2022 to 2022, local business paper The Edge reported previously.

Apurja said that Malaysia has posted consistent financial deficits, which he found surprising when he first visited the country last year.

“A fiscal deficit over 5 per cent is higher than what it should be for a medium income country,” he said.

To Apurja, it should be closer to 4.4 per cent over the next three years.

This is why an FRA is “greatly” important, he said, adding that reducing the fiscal deficit is a priority.

He said that Malaysia also needs to boost revenue and cut down government spending at the same time.

“It’s not an either or; we need to do both,” he stressed.

Malaysia is now a low-revenue and low-spending equilibrium, compared to a decade back when it was medium-revenue and medium-spending, he said.