KUALA LUMPUR: The country’s fiscal deficit target of 3.2% of gross domestic product (GDP) for 2015 is based on the current cash accounting standards which do not reflect off-budget expenses, said Minister in the Prime Minister’s Department Datuk Seri Abdul Wahid Omar.

Therefore, the implementation of accrual accounting in the public sector, which is currently adopted by many other countries worldwide, will put a value to the assets and liabilities and reduce wastage.

Wahid, however, was unable to disclose the timeline for the government to implement the accrual accounting system as it falls under the purview of the Ministry of Finance.

However, Wahid pointed out that the government has managed to reduce its fiscal deficit from 3.4% from last year to 3.2% this year.

“... and we actually look from the context of fiscal consolidation,” he told reporters at the Dewan Rakyat after tabling the 11th Malaysia Plan (11MP) yesterday.

He was asked the reasons for not including the country’s ballooning off-budget expenses and the delay by the federal government in migrating to accrual accounting standards.

It was earlier reported that the federal government would implement the accrual accounting system costing RM260 million as early as January this year. Public Accounts Committee (PAC) chairman Datuk Nur Jazlan Mohamed said at the time that state governments would also implement the system on Jan 1, 2016 to replace the cash system.

Last week, Nur Jazlan told Parliament that the economic figures, which do not take into account the large off-budget items such as contingent liabilities and expenses, were not reflective of the government’s “real financial position”.

This was revealed in the PAC’s findings on the third series of Auditor-General’s Report 2013 on Pembinaan PFI Sdn Bhd that was tabled in Parliament in the last sitting.

Nur Jazlan noted that as borrowings by Pembinaan PFI, whose loans were the third highest among the government-owned entities in 2012, did not show on the government’s balance sheet, the country’s national budget-to-GDP ratio of 3% and total national debt-to-GDP of 54% were “skewed”.

On this, the PAC opined that off-budget expenditure can create doubts over the figures produced in the budget and does not reflect the government’s real financial position, including its contingent liability, deficit, and debts.

Meanwhile, Wahid said the weakening ringgit has allowed Malaysian exporters to be more competitive even though import costs are higher.

He pointed out that “it is a matter of adjustments” to ride through the current economic situation.

“Basically Malaysia is still a net exporter. We still enjoy (a) trade surplus. Obviously there has been an impact on our currency which has affected our imports and exports. Imports are more expensive, (on the other hand) exports have become more competitive,” he said.

“Look at the items in the oil and gas sector for example … we will benefit from that. It’s just a matter of adjustment. So, those companies that have significant input from imported products will feel the impact but at the same time there are also many industries benefiting from it,” he said.

Wahid said under the 11MP, the government will focus on developing more home-grown champions to expand their businesses at a “global level”.

“Under the various initiatives, we are confident of increasing small and medium enterprise contribution to GDP to 41% in 2020 from 32% in 2010. We also target SMEs to increase their exports to 25% from 15.7%,” said Wahid.

The ringgit has been weakening against the US dollar due to a drop in Brent Crude prices. In the past six months, the ringgit traded at its lowest against the US dollar at 3.76 on June 8 from a peak of 3.52 on Jan 3. The ringgit’s average over the six-month period has been 3.62 against the greenback.

This article first appeared in The Edge Financial Daily, on June 23, 2015.