‘Fiscal discipline cannot be compromised in run up to GE’

Lee: The ringgit is slowly heading towards its fundamental value.

KUALA LUMPUR: The government should not compromise on fiscal discipline when making election pledges for additional spending, said an economist.

Socio-Economic Research Centre executive director Lee Heng Guie (pic) said while there are promises by the incumbent Barisan Nasional government of increasing handouts like the 1Malaysia People’s Aid (BR1M), these have to ultimately be paid through another budget allocation.

“The fiscal consolidation target must remain intact when you pledge for all these additional spending.

“The government that will come into power cannot compromise and must continue to keep the fiscal deficit of the 2.8% of gross domestic product target for this year. It is important that this must not be compromised,” Lee said at a press conference here.

He noted that the cumulative amount for the BR1M would be increased to a bigger amount this year and there would also be another category or group of people that would be eligible for it.

The incumbent government has proposed a new category of BR1M for those with a household income of between RM4,000 and RM5,000.

“Once you have BR1M, you would be stuck at the amount pledged and you can’t reduce it. In the bigger picture, it is better to move on from just pure handouts and this should rightfully only target the very needy groups of people.

“The government must look into how to best utilise the BR1M because it is meant to only be a short-term relief for those who are really underserved and vulnerable,” Lee said.

“But if you continue to widen the scope, it will be a big commitment from the next government. So, it is also encouraging to note that the manifesto has stated that they would like to refine the BR1M mechanism in terms of its conditions and to be tied in with training. So, this is the right path: to empower and enhance the capacity of the people who are receiving rather than fostering a handout mentality,” he added.

Lee said eventually, the next government should work out a system to exit from relying solely on BR1M.

On another matter, Lee said that the likely reasons why the Malaysian Institute of Economic Research’s consumer sentiment index continued to remain below the crucial 100 mark is due to high personal debts.

“Other reasons include the effect of the prolonged weakness in the ringgit exchange rate and higher necessities spending. Despite that, people still desire to go overseas at least once a year.

“But even the retailers are not feeling so good, as some businesses are not seeing that type of growth,” Lee said.

He said that the ringgit is slowly heading towards its fundamental value on the back of brightening economic growth prospects, onshore ringgit stabilisation measures, the possible domestic interest rate normalisation, continued current account surplus and the accumulation of foreign reserves.

SERC’s estimate for the ringgit by the end of the year is at 3.8 to 3.9 to the US dollar.