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Malaysia’s parliament approves law to better manage government funds, improve fiscal responsibility

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Malaysian lawmakers have approved legislation aimed at improving fiscal responsibility, as the government looks to better manage public funds, reduce debt, and boost accountability.
The Southeast Asian country’s coffers have come under strain in recent years, following a multibillion-dollar financial scandal at state fund 1MDB and increased subsidy spending to tackle rising living costs.

The new legislation, called the Public Finance And Fiscal Responsibility Law, sets out a series of targets to be achieved within three to five years, including lowering the fiscal deficit to 3 per cent of gross domestic product (GDP) or less, and keeping debt levels at 60 per cent of GDP or less.

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Malaysia’s fiscal deficit is expected to reach 5 per cent this year, while the federal debt ratio hit 57.6 per cent of GDP last year, according to government forecasts and reports.

The law also requires annual development spending to be at least 3 per cent of GDP and government guarantees to be capped at 25 per cent, Deputy Finance Minister Ahmad Maslan said before the bill was passed late on Wednesday.

Government debts and liabilities have risen to about 1.5 trillion ringgit (US$317.80 billion), resulting in an increase in debt servicing charges and a narrowing of fiscal space to implement new projects or prepare for economic shocks, Ahmad said.

Malaysian fifty ringgit banknotes. Malaysia’s parliament just approved a law to better manage government funds. Photo: Bloomberg

“As such, this situation has increased the importance of the role of fiscal policy in supporting economic recovery and growth, as well as ensuring the sustainability of national finances in the medium and long term,” he said.

The law’s passage comes as the government prepares to present its budget for 2024 on Friday.

Analysts expect the budget to cut subsidies for the wealthy and prioritise aid for low-income households amid fiscal strains.

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