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The views expressed in this presentation are the views of the author and do not necessarily reflect the

views or policies of the Asian Development


Bank Institute (ADBI), the Asian Development Bank (ADB), its Board of Directors, or the governments they represent. ADBI does not guarantee
the accuracy of the data included in this paper and accepts no responsibility for any consequences of their use. Terminology used may not
necessarily be consistent with ADB official terms.

Ministry of Finance, Malaysia


Fiscal Governance and The Way Forward

INTERNAL
Presentation Outline

Part I : Background 3
Part II : Fiscal Policy Institutions 6
Part III : Annual Budget Preparation 10
Part IV : Fiscal Challenges & Initiatives 13
Part V : Conclusion 17

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PART I
Background
Fiscal Policy
Objectives Fiscal instruments

1 Revenue 4 PPP
Development • Macroeconomic Stability
Agenda & 2 Expenditure 5 Government Guarantee
• People’s quality of life
People’s
• Business & investor friendly
Welfare 3 Debt 6 SOEs

Related regulations
Financial Procedure Act 1957
Revenue Expenditure Debt and Borrowing Others
• Income Tax Act 1967 • Development Fund • Loan (Local) Act 1959 • Minister of Finance
• Sales and Service Tax Act 1965 • Government Funding (Incorporated) Act
2018 Act 1983 1957
• External Loan Act • Loans Guarantee
1963 (Bodies Corporate)
• Treasury Bills (Local) Act 1965 (Revised
Act 1946 1972)
• Housing Loan Fund
Act 1971
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Charting the New Malaysia

❑ The new Federal Government stands for competency,


accountability and transparency
❑ The new Malaysia runs on rule of law that will promote greater
investor confidence in public institutions
❑ New economic priorities: sustainable, equitable growth
coupled with institutional reforms
❑ Robust growth provides fiscal room for reforms
❑ Fiscal discipline as the core objective to ensure deficit/GDP
ratio remains low

Malaysia’s strengths are anchored on the new


administration’s commitment to institutional reforms and
inclusive growth

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PART II
Fiscal Policy Institutions
Who manages & formulates fiscal policy?
Fiscal Policy

Ministry of Economic Affairs Ministry of Finance


• undertakes medium-term & long-term • Undertakes short-term planning (i.e.
socio-economic planning (i.e. Eleventh Budget 2017)
Malaysia Plan (2016-2020)) • determines the annual public expenditure
• determines the development expenditure (both operating expenditure &
ceiling for the Malaysia Plans development expenditure)
• approves public development projects &
programs ~ scope & ceiling

Fiscal Policy Committee

▪ Chaired by Hon. Prime Minister


▪ Fiscal Policy Office (FPO), MOF as the secretariat
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Roles of Related Divisions

Ministry of Finance
MOF
Treasury of Malaysia

National Budget Office Tax Division


NBO TAX
Expenditure Tax revenue

Fiscal and Economics Division Strategic Investment Division


FED SID
Economics and fiscal management On-lending and guarantees

Fiscal Policy Office


FPO
Fiscal Policy Formulation

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Fiscal Rules
Fiscal Governance and Reporting Federal Government Balance (% of GDP)
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018P 2019E
0
1 Federal Constitution
-1
-1 -0.9
-1.1
2 Financial Procedure Act 1957 -1.3 -1.2
-2 -1.7 -1.6

-2.3
3 Loan (Local ) Act 1959 -3 -2.7
-3.1 -3
-3.2
-3.4 -3.4 -3.4
-4 -3.8 -3.7
4 Government Finance Statistic Manual
-4.3
-5 -4.7 -4.7

5 Fiscal Policy Committee (FPC) -5.3


-6 Overall Balance Primary Balance

-7 -6.7
Fiscal indicators
Fiscal rules Legislative / Statutory Guidelines Administrative
Current balance always in
Borrowings are only to finance surplus to ensure operating
Loan (Local) Act 1959
development expenditure expenditure is financed by
revenue
Domestic debt ceiling Not exceeding 55% of GDP
(MGS, MGII, MITB) Loan (Local) Act 1959 and Government Funding Act 1983
Not exceeding RM35 billion
Offshore borrowing ceiling Self-imposed limit of 55% of GDP
External Loans Act 1963
Not exceeding RM10 billion
Issuances of conventional Treasury bills
Treasury Bills (Local) Act 1946
Allocation for debt service charges are charged items and not
DSC ≤ 15% of revenue or
Limit of debt service charges (DSC) required to be tabled to Parliament
operating expenditure 9
Federal Constitution Article 98 (1)(b)
PART III
Annual Budget Preparation
Budget Preparation Process

JANUARY/ MARCH 2019 APRIL - JULY 2019


FEBRUARY 2019 • Received the proposals and • Budget review with agencies
• Guidelines for Proposed the proposals will be
Budget Expenditure year reviewed by budget officers
2020

AUGUST – SEPTEMBER - 11 OCTOBER 2019


SEPTEMBER 2019 OCTOBER 2019 • Budget 2020 presentation
• Year 2020 budget estimate • Budget book is printed and
is approve by Minister of submitted to Parliament
Finance and the Cabinet

OCTOBER- END OF DECEMBER


DECEMBER 2019 2019
• Parliament debates and • Minister of Finance issues
approves year 2020 budget general warrant for
approved expenditures

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Core players for budget preparation

Fiscal and Economics Division


1. Economic growth
Tax division
projection, Growth
domestic product Policy and Tax
National Budget Office
estimates measures
1. Budget review
Budget team
2. Focus Group,
Budget consultation 2. Budget
Budget speech
for budget consolidation
preparation 3.Expenditure
3. Fiscal position estimates

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PART IV
Fiscal Challenges and Initiatives
Responsible & Progressive Fiscal Reforms

1. Ensure credibility, 2. Run a sustainable,


accountability and inclusive,
transparency growth-enhancing
fiscal policy

Generate new Improve Reprioritise Ensure Adopt accrual Reduce


sources of accountability major public government accounting to gradually
revenue of GLCs and infrastructure procurement better manage debt-liability
other public projects by open asset & level in GDP
assets to responsibly to tender liability terms to
enhance ensure quality minimise
efficiency & spending sovereign risk
revenue
exposure
contribution

These fiscal initiatives are part of wider institutional


reforms the Federal Government is undertaking
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Why Malaysia Needs FRA?

To improve credibility, accountability & transparency


of fiscal policy through better reporting in terms of
standard, comprehensiveness & monitoring.

To strengthen Government’s commitment in the form


of legal requirement, towards a sound fiscal
management.

To address lack of fiscal management principles in the


existing legal framework.

To ensure long-term fiscal sustainability &


macroeconomic stability

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FRA Framework

Optional Essential
Medium-term path
(transparency of fiscal
policy intentions)
Medium-term and
annual budget
Existing fiscal policies
strategy (policies to
versus new measures
support fiscal
stability)

Components of
Debt sustainability FRA Regular reports
analysis

Numerical fiscal Timely audited annual


rules—quantitative financial statements
targets in law (accountability)

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PART V
Conclusion
Conclusion

▪ Fiscal Policy is an important tool to achieve pre-determined socio-economic goals


and macroeconomic stability

▪ Fiscal reform initiatives, while emphasizing the urgency to continue fiscal


adjustment measures, should be in an orderly and stable manner as well as pro-
growth to ensure the economic growth momentum will not be disrupted.

▪ Although, the initiatives have proven fruitful, the dynamic of global economic
environment requires Malaysia to be alert and proactive of changes which pose a
fiscal risks.

▪ What more important is to increase the efficiency and the effectiveness of the
spending (quality spending) to achieve the economic objectives.

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THANK YOU