KUALA LUMPUR (March 30): The Institute for Democracy and Economic Affairs (IDEAS) has called for fiscal transparency in the implementation of the recently announced RM250 billion economic stimulus package, specifically its source of financing.
IDEAS fellows Tricia Yeoh and Sri Murniati said the origins of the funds for the stimulus package, which was not addressed in the prime minister’s announcement on Friday, should be addressed publicly, as it is the government’s duty to be fiscally responsible.
The RM250 billion economic stimulus package, announced by Prime Minister Tan Sri Muhyiddin Yassin on Friday, is intended to tackle the negative economic impacts of the Covid-19 crisis.
From this amount, Muhyiddin said the actual total fiscal injection amounts to only RM25 billion.
“Will the RM25 billion be drawn from the National Contingencies Fund? Article 11(3) of the Financial Procedures Act 1957 states that the Minister of Finance may make advances from the Contingencies Fund to meet an “urgent and unforeseen need for expenditure for federal purposes for which no other provision exists”, which presumably this would fall under.
“In fact, the available balance in the Contingencies Fund as at the end of 2018 was only RM250 million. While the 2020 Budget allocated RM2 billion to the Contingencies Fund, this is nowhere close to the RM25 billion intended to be spent, and even so it is meant for development, not operating expenditure,” Yeoh and Sri wrote in an article recently.
Yeoh and Sri said the RM25 billion could also be reallocated from the existing 2020 budget, but this would require Parliament's approval.
“Although the Financial Procedures Act is not very clear about the rules of virement between ministries (it only prohibits virement within ministries), any budget reallocation would under normal circumstances require the convening of Parliament, in the interest of democratic oversight, good governance and accountability.
“All national budgets — and supplementary budgets — are by convention tabled, debated and approved by Parliament so that our elected representatives can transparently discuss matters of national interest,” they said.
A third option, according to them, is to fund the stimulus package through borrowings.
“If so, how much will it add to the outstanding debt? As at end-June 2019, the federal government debt stood at RM799.1 billion or 52.7% of gross domestic product (GDP), below the self-imposed limit of 55%.
“Even if a small percentage of the RM25 billion is financed through borrowings, the government needs to be transparent in stating how the debt to GDP ratio will be affected, and whether it breaches the 55% limit,” they said.
They further pointed out that the government should elaborate on the impact of the economic stimulus package on the budget balance.
“If the current source of financing is not from the budget’s reallocation and is in fact an additional expenditure, Malaysia’s 2020 budget will amount to RM322 billion in total.
“This would increase the deficit rate from 3.2% to 4.8% to GDP, calculated based on 2020 GDP estimates, which may change due to the current economic situation.
“A less-efficient budget deficit is not entirely bad considering we are facing a crisis. Countries around the world have also announced equally large economic stimulus packages since the onset of Covid-19, and a balanced budget target is not necessarily the first priority of many governments, given the current economic climate.
“But what is clear is that the government needs to acknowledge the fact that it will likely miss the balanced budget target and be open about it,” they said.
They also said the Fiscal Responsibility Act, which is due to be tabled next year, must include clauses for situations where the government can immediately disburse much-needed financing in a transparent and fiscally responsible manner.
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