Thailand
Malaysia: Calls for more clarity on subsidy rationalisation
PETALING JAYA: Economists have called for more clarity on the subsidy rationalisation measures announced under the revised Budget 2023.
“It is disappointing to see that there are no clear policies on subsidy rationalisation despite repeated indications by the government.
“Shadowed by the six state elections in the middle of this year, we think the government prefers to stay mum as it tries to appease the voter base,” said Nazmi Idrus of CGS-CIMB Research.
On fiscal consolidation, Nazmi said it is on track.
“Fiscal consolidation remains on track with 2023 fiscal deficit to improve to 5% of gross domestic product (GDP) versus 5.5% estimated in October 2022. In addition, the Fiscal Responsibility Act is also planned to be tabled this year, adding to budget prudence,’ he said.
Meanwhile, development expenditure remains substantial at RM97bil to ensure long-term growth potential for the economy.
That said, the budget is contractionary with a decline in both revenue and operating expenditure at minus 1% year-on-year (y-o-y) and minus 1.2%, respectively, reflecting a more normalised economic growth and weaker oil price projection, according to the economists.
The government is targeting a narrower fiscal deficit this year at 5% of GDP compared with 5.5% announced in the previous budget.
Meanwhile, CGS-CIMB Research said the improvement in debt ratio is the first step in the right direction.
“We have discussed worsening fiscal metrics and the lack of government willingness for more stringent fiscal consolidation in our past budget reports, hence the current effort is welcome news,” it said.
It said some of the improvement in ratios came from the better GDP growth performance and shift in Covid-19 funds, but there were also efforts to tame expenditures and raise revenues.
Going forward, the research house said there are more avenues for improvements, adding that clear targeted subsidy measures may provide more leeway for savings.
The government’s total debt ratio also saw a slight improvement to 62% of GDP in 2023, versus 65% estimated in October last year. For 2022, the research house is estimating it to be at 60.4%.
However, it noted that the statutory debt forecast was not provided this time around, although CGS-CIMB Research said it would be lower than the total debt ratio.
“Similarly, debt service charges (DSC) also improved at 15.6% of revenue in 2023, relative to October 2022 estimates of 16.9% (2022: 13.8%). However, the ratio remains above the 15% internal guideline set by the Finance Ministry. Worse, growth in DSC at 11.7% y-o-y surpasses nominal GDP growth of 5.6%, implying an ongoing struggle with debt affordability.
“The rising interest rate environment and pandemic ‘debt scarring effect’ had played a part in the ballooning costs,” it said.
Source: https://www.thestar.com.my/business/business-news/2023/02/28/calls-for-more-clarity-on-subsidy-rationalisation