Socio-Economic Research Centre executive director Lee Heng Guie.
PETALING JAYA: A reduction in the national debt from various measures, including the fuel subsidy rationalisation, could see various effects on the economy in the longer term.
But any gains accrued to the national coffers from such savings should be prudently managed to avoid repeating history and going into the same cycle of debt for expenditures.
Any immediate gains could be reprioritised to repay off more debt which will result in greater savings on interest payments, or invested into areas that would enhance productivity, economists said.
Through this, the effort to reduce the national debt will pay off by enhancing the country’s competitiveness, they noted.
Prime Minister Datuk Seri Anwar Ibrahim said in late July that the country is aiming to reduce the annual borrowing to RM86bil this year as a short-term measure to boost its financial capacity and stability.
He highlighted the country’s yearly borrowings have been on a downward trend from RM93bil in 2023 and RM100bil in 2022.
Anwar also said the government will ensure future spending will be used as funds for development expenditure or to settle existing debts.
Socio-Economic Research Centre executive director Lee Heng Guie said total outstanding debt will be reduced gradually as the government continues to consolidate and reduce its deficit over time.
“The government’s reduced borrowings are due to lower budget deficit levels in 2024, reflecting a gradual fiscal consolidation by the retargeting of subsidies and price controls; optimisation and rationalisation of expenditure; and some revenue enhancement measures,” he told StarBiz.
But there are also questions if the impact on the people at large will be mitigated by as much as possible, as they are to bear some of the impact on their personal finances as well.
A case in point is the diesel rationalisation, which saw people who do not qualify for subsidies anymore having to pay more at the pump when refuelling.
Lee said that it is inevitable that fiscal consolidation measures will have a varying degree of impact on businesses and households.
“There will definitely be some impact on certain segments of society such as those who do not qualify for targeted subsidies anymore, which results in them having to pay more for fuel, for example.
“Having said that, there are additional cash handouts that are usually planned, which will be given to the targeted households that meet the criteria,” Lee said.
“As long as there are arbitrage opportunities from the big price difference at the pump, there will be opportunities for smugglers operating at the borders.
“I have heard of cases of some foreign-registered cars going to the extent of swapping to Malaysian number plates to fill petrol and reverting back to their original plates when reentering their country of origin. With the huge price difference, the opportunity for some profit is too great to let go,” he added.
Lee also noted that the coming pay hike for civil servants would necessitate the government to enhance the country’s revenue further, as it would mean added operating expenditure.
“The savings from the fiscal consolidation measures such as subsidy cuts can be re-channeled to productive sectors such as public transportation, education and skills training, healthcare and elderly community programmes.
“The government has to assure the public that these saved resources are being used responsibly to expand the nation’s productive capacity; to improve the people’s well being and their incomes,” Lee said.
Economist and the chief executive officer of the Centre for Market Education Carmelo Ferlito said it may seem counter-intuitive, but emphasised that fiscal consolidation is an indirect way to help the people at large.
“In fact, when the government borrows money which is later injected into the system, this increases the quantity of money in circulation and can potentially create inflationary tensions, which deteriorate the people’s purchasing power.
“The idea that government spending is beneficial for the people is fallacious,” Ferlito said.
He noted there should be a renewed approach and thinking when handling the finances of the country should it improve further.
