Fiscal Responsibility Act framework endorsed

THE government is currently formulating the Fiscal Responsibility Act (FRA) to further enhance governance, accountability and transparency in fiscal management.

In this regard, the Fiscal Policy Committee (FPC) endorsed the FRA framework in May 2021. Subsequently, a consultation paper on the proposed framework has been made available to the public for feedback.

In the Fiscal Outlook 2022 report, the Government says the current fiscal policy framework is governed by various laws and regulations.

The FRA is intended to be a dedicated law to govern the fiscal policy conduct of the Government.

This Act will be formulated based on the Malaysian context to provide a solid framework for prudent fiscal management.

Similar to recent fiscal responsibility legislations in most countries, the FRA comprises a set of principles for sound fiscal management with a strong emphasis on transparency and accountability.

In addition, the proposed FRA framework requires the Government to publish its key measurable fiscal objectives that are consistent with the FRA principles. This includes fiscal objectives relating to sustainable budget balance, prudent debt and fiscal risk management.

Some fiscal responsibility laws also include escape clauses that temporarily exempt governments from complying with the fiscal rules, particularly during unexpected events or crises.

There are four key components in fiscal management, namely revenue, expenditure, debt and fiscal risk.

These components must be managed effectively and prudently, with a high degree and frequency of transparency and accountability for sound fiscal management.

Therefore, the FRA will include provisions relating to these four components to ensure long-term fiscal sustainability regarding sustainable revenue policy, effective spending, and prudent debt and fiscal risk management.

The proposed FRA will include obligatory reporting requirements comprising ex-ante and ex-post documents such as economic and fiscal forecasts, pre-budget statements, mid-year economic and fiscal updates, fiscal risk statement, tax expenditure, mid-year budget performance and annual financial report.

Furthermore, FRA would further strengthen the role of FPC by institutionalising the FPC as the high-level advisory committee on fiscal matters.

The Ministry of Finance (MoF) has received positive feedback from the public on the proposed FRA framework as outlined in the consultation paper published in September 2021.

In general, the public are very supportive of the Government's efforts to enhance its governance, transparency and accountability in fiscal management through the introduction of the FRA.

It says all recommendations will be taken into consideration before finalising the FRA.

In addition, the MoF will continue to engage with the International Monetary Fund for expert advice and technical assistance in formulating the FRA.

At the same time, MoF will continue to consult relevant stakeholders for views and feedback in drafting the FRA.

The draft bill of the FRA will then be tabled to the Cabinet for approval before tabling in Parliament.