Insight - Fiscal rules: Credibility matters

Lee Heng Guie: While it is expected that the budget deficit will improve and debt will decrease marginally in the next few years as the economy recovers, these developments raise questions about how deficit can be lowered and high debt can go without being disruptive. Any loosening of fiscal discipline and unsustainable debt could bode ill for the country’s credit ratings.

A credible set of fiscal rules is needed to reduce fiscal deficits and debt-to-gross domestic product (GDP) ratios to sustainable level, promote inclusive economic growth, mitigate room for fiscal manipulation and encourage politicians to prioritise among the many demands on the annual budget.

The government’s massive fiscal support that has salvaged the Malaysian economy and businesses by saving lives and jobs has worsened both the budget deficit and public debt since 2020.