Malaysia’s fiscal consolidation strategy challenging, says World Bank

 

Malaysia’s revenue level remains low and trails comparative peers, the World Bank said in its latest report. (Reuters pic)

KUALA LUMPUR: Malaysia should explore new sources of revenue to improve its fiscal position, the World Bank said, describing its strategy of achieving fiscal consolidation by reducing spending as challenging.

Malaysia’s revenue level remains low and trails comparative peers, the World Bank said in its latest Malaysia Economic Monitor today.

Government revenue is expected to resume its declining trend in 2023 on moderating crude oil prices, it said.

“Consideration should be given to streamlining reliefs and broadening the tax base of personal income tax and by enhancing the consumption tax framework,” it said, adding that Malaysia continues to under-collect in personal and consumption taxes, lagging behind its peers.

Prime Minister Anwar Ibrahim said on Monday the government will work to gradually lower the nation’s debt and narrow the budget gap, without resorting to raising taxes that hurt the poor.

Anwar, who is also the finance minister, is set to table the revised 2023 budget to Parliament on Feb. 24 and has been preaching fiscal prudence as Malaysia stares down still-elevated debt levels in the wake of a Covid-era spending drive.

The World Bank said relying on cutting spending would be tricky as structural expenditure was already elevated, while operating expenditure on supplies and services have been on a declining trend or are already at low levels.

Malaysia, which runs Southeast Asia’s widest fiscal deficit after the Philippines, has seen its budget strained by the cost of keeping essentials at below-market prices. Government subsidies were forecast to reach a record RM80 billion in 2022, with concessions on fuels and cooking gas alone projected to account for about half the amount.

The bank said a move towards targeted subsidies is required, but warned that the shift should be gradual to avoid a sharp increase in inflation.

It expects Malaysia’s economy will grow 4% in 2023, within the government’s forecast of between 4% and 5%. - FMT