KUALA LUMPUR: Malaysia should consider using less cash when disbursing expenditures as a means to reduce the need to borrow more and ultimately arrest its ballooning debts, economists said.
They said overall, Malaysia needed a long-term focus as it was not easy to immediately reduce the debts in the current conditions given that the government, among others, must spend on expansive fiscal budget.
UniKL Business School's Associate Professor Dr Aimi Zulhazmi Abdul Rashid said one possible solution was to sell, finance or refinance the country's assets to generate cash to pay off the debts. This included a listing of Petroliam Nasional Bhd (Petronas).
"However, such special situation needs comprehensive analysis on the Petroleum Development Act (PDA), which includes the country's secrecy and amending the power of the government on Petronas," Aimi Zulhazmi told the New Straits Times today.
He was responding to former second finance minister Datuk Seri Johari Abdul Ghani's warning that the economy would collapse and cause immense suffering to future generations if Malaysia's RM1.5 trillion debt and continually widening budget deficit were not remedied.
Aimi said there was a long list of measures the government could execute as deliberated by Johari.
This included increasing government income, reducing leakages such as corruption, tightening enforcement to resolve smuggling issues, reducing black economy, increasing digitisation and avoiding all forms of wastage.
"Nonetheless, the government needs to come up with a strategic plan for the short- to long-term period," he added.
Putra Business School's Associate Professor Dr Ahmed Razman Abdul Latiff said the government should look into various strategies of not using much cash when disbursing expenditures, apart from continuing the current effort of reducing leakages, wastages and corruption.
This includes the netting concept, which can be applied when giving subsidies.
"Instead of making cash payments to businesses to compensate for the subsidies, the government can contra the payment with the tax obligation of these companies. So no cash is needed and this will reduce the need to borrow more cash," Ahmed Razman said.
He said the International Monetary Fund had stated in its report that having a debt at 70 per cent of the gross domestic product (GDP) was still acceptable.
"If Malaysia can ensure that the country's debt is within this range, we will be able to maintain investors' confidence and attract investments to the country, and at the same time, allow the government to continue its efforts in reducing this debt gradually," Ahmed Razman added.
Johari, in an interview with FMT, said the national debt should not be taken lightly even though Malaysia was blessed with natural resources, and that it could no longer rely on oil revenue to keep its economy afloat.
He also said the government was lucky it was able to rely on the contributions from Petronas during the pandemic lockdown years.
"That is why we were okay. But these resources don't last forever. So this is why we need to plan (the economy) urgently," said Johari, who is also Titiwangsa member of parliament.
Oil and gas exports by Petronas contributed to Malaysia's foreign earnings, and dividends, taxes and royalties paid by Petronas provided about 25 per cent of federal government revenue.
Economist Dr Nungsari Ahmad Radhi, meanwhile, suggested that the previous administrations had their chances to address its debt issues.
"It has been obvious for more than a decade, but all the governments we have had did not address it. The biggest problem with government debts is not its size, huge though they are, as the government can still service the debts, albeit by having to pare down other expenditures.
"The biggest problem with the debt is it was accumulated via inefficient and unproductive expenditures. It was not the kind of expenditures that had built government capacity or induced private investments.
"They were largely unproductive expenditures, and were likely to have also included wastages and pilferage/corruption. So, the Prime Minister is right to prioritise governance first to ensure that these inefficiencies will be minimised."
Nungsari said there had to be a total relook at expenditures and reprioritisation of existing programmes.
"Perhaps postpone or scale down projects that require even more borrowing. Such a fiscal consolidation may not reduce spending, but will make the spending more effective and efficient.
"It will benefit more people and create better positive externalities," he said, adding that growth was the best way out of indebtedness as long as spending was controlled and made more efficient.
At the same time, Nungsari said, there had to be attempts at broadening the revenue base of the government.
"Growth itself will result in more revenues but there should be a serious relook at our taxation policy. As long as there is growth in investments and good quality growth at a robust level, revenues will grow.
"But the deficits as a percentage of current GDP must be kept below real growth of the economy and a clear trajectory to get to a balanced budget in five years or so."
He said if deficit as a percentage of GDP was smaller than real GDP growth, the country would be fine.
"They should legislate some of these fiscal rules so that there is some discipline in government finances. As for individuals or households, they too must have the capacity to spend if the need arises as a contingency," Nungsari said.
