Govt urged to focus on reducing operating expenses

PETALING JAYA: Local economists, analysts and a think tank have urged Prime Minister Tun Dr Mahathir Mohamad's administration to focus on reducing the government's operating expenditure, which has been persistently high over the years.
The view comes after Mahathir's presentation on the 11th Malaysia Plan's mid-term review in Parliament last week, which saw the government cutting back its development budget by RM40 billion for the 2018 to 2020 period.
The government, which affirmed that the operational budget will not take a hit, lowered its real gross domestic product (GDP) growth target to 4.5-5.5% annually from 5-6% previously.
Inter-Pacific Securities Sdn Bhd head of research Pong Teng Siew, when contacted, told SunBiz that the operating expenditure related to emoluments, pension payments and gratuities rose more than 9% a year in the past 10 years, while nominal gross domestic product rose just more than 4% over the same period.
He noted that the cut in development expenditure is possibly due to the administration's short-term inability to reduce its operating expenditure without public sector layoffs.
CGS-CIMB Research said it believes the government has room to make fiscal adjustments through determined spending cuts without hurting the country's growth prospects unduly if wastages and leakages are curbed.
It opined that operating and development expenditure can be trimmed by RM7 billion in Budget 2019 due to tighter procurement procedures, zero-based budgeting, reviews or deferment of infrastructure projects, more targeted subsidies and cash transfers, and revisions in supply and services contracts, which could limit the need for aggressive revenue-raising measures and steeper cuts to productive areas of spending.
On GDP growth, CGS-CIMB said despite the target being lowered to 4.5-5.5% in the mid-term review, prospects remain supportive of economic activity and labour market conditions.
Disappointed by the government's preoccupation with tax and increasing costs for business, Institute for Democracy and Economic Affairs director of research and development Laurence Todd said "there are indications that the government is moving in potentially the wrong direction".
"Further reforms to strengthen the oversight and performance of GLCs are of course welcome, but it is disappointing that the government does not seem to be proposing more radical reforms, including significantly reducing its holding of assets and equities, which could raise revenue and stimulate private sector growth.
"At the same time, the government is proposing to reduce development expenditure – we would recommend that the government focus on improving its balance sheet in a way that raises revenue and maintains the overall level of public investment," Todd added.
On the flip side, Sunway University Business School Professor of Economics Prof Dr Yeah Kim Leng said the mid-term review, with a strong focus on improving governance, institutional reforms and strengthening the government delivery system, should enable the government to reap some "democracy dividends" on increased investor confidence and sustained private investment activities.
He said the review has lent greater clarity on the policy direction of the new government over the next two years as it has established the priorities, policy thrusts, strategies and targets on what the administration intends to do to address the critical challenges facing the country.
"Understandably, the 'how' part needs fleshing out but it suffices that the focus should be on implementation capacity and capabilities, and, importantly, a consultative approach with all stakeholders especially the private sector, industry groups and NGOs."
However, he pointed out that income gaps, disparities and inequalities across regions, industries and community groups are structural problems, which will require carefully thought-out intervention programmes.
"These are perhaps too 'micro' to be contained in the broad five-year plan and better fleshed out by the implementing agencies that have been streamlined," Yeah said.