11MP mid-term review – fiscal deficit to linger beyond 2020, govt to trim development spending

PETALING JAYA: The remainder of the Eleventh Malaysia Plan (11MP), which runs from 2016-2020, will see the government cut back on development expenditure, consolidate operating expenditure and prolong the fiscal deficit, which was to have been balanced by 2020.

This will occur as the government undertakes comprehensive reforms to strengthen the administrative capacity and improve governance, which will require amendments to the Federal Constitution and respective legislation.

Part of the reforms include enforcing prudent public finance management, with efforts intensified to ensure government matches policy priorities with budget allocation, and that targeted outcomes are achieved.

According to the mid-term review of the 11MP document presented by Prime Minister Tun Mahathir Mohamad today, the development expenditure ceiling for the overall 2016-2020 period will be cut by 15% to RM220 billion from an initial RM260 billion, to consolidate its fiscal position.

The government said the move is necessary taking into account lower government revenue contributed by volatile crude oil price during the review period and abolishment of the goods and services tax this year.

The government expects the private sector to pick up the slack from the drop in public sector investments, with the government focusing spending on strengthening public infrastructure and developing economic enablers. It expects to continue with over 4,000 ongoing projects among others, the building of affordable houses, schools, hospitals and roads.

The fiscal deficit to gross domestic product (GDP) is expected to remain at 3% by 2020, up from the initial target of 0.6% by 2020.

On consolidation of operating expenditure, measures include reforming government agencies, securing procurement process of all supplies, and services including through open tenders as well as restructuring debt. The management of projects will be reviewed, in particular the governance structure of project appraisal and selection to reduce risk of delays and cost overruns.

Some RM92 billion was allocated for development expenditure during the 2016-2017 period, but only RM86.9 billion was disbursed due to delays in securing land and finalisation of project design despite initiatives to improve the project management process. A total of RM427.9 billion operating expenditure was expended during the review period.

With spending curtailed to a certain extent, growth will be spearheaded by productivity improvements and sustained domestic demand by productivity improvements and sustained domestic demand as reflected by the revised macro multidimensional goals. This is expected to achieve GDP growth of between 4.5% and 5.5% annually for the 2018-2020 period, slightly lower than the original target of 5-6%.

This time around, the mid-term review was divided into two parts, the first a report on progress made during the first two years of the plan, and the other was in acknowledgement of the change in government, with new priorities and emphasis for the remaining period of the 11MP.

The document is the first policy document to be produced under the Pakatan Harapan government, and encapsulates 57 of the 60 promises in the Pakatan Harapan election manifesto.

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