FISCAL POLICY COMMITTEE
The Fiscal Policy Committee (FPC) met today to assess the economic developments and outlook as well as risks to the fiscal position of the Government in the short term, and over the longer term. The FPC will play a lead role in strengthening public finances as well as ensuring fiscal sustainability and long-term macroeconomic stability of the nation.
I chaired the FPC meeting this morning. The permanent members of the FPC are the Deputy Prime Minister, Minister of Finance II, Minister in the Prime Minister’s Department (in charge of the Economic Planning Unit), Chief Secretary to the Government, the Governor of Bank Negara Malaysia, the Secretary-General of Treasury and the Director-General of EPU. The FPC is supported by the Ministry of Finance’s Fiscal Policy Office, and an inter-agency technical group, comprising officers from the EPU, Bank Negara and Ministry of Finance.
The FPC reaffirmed the Government’s commitment to achieve a fiscal deficit target of about 3.0% of GDP by 2015, and a balanced budget by 2020.
In the FPC’s assessment, the external environment is increasingly challenging. The moderation in the current account of the balance of payments (BOP), coupled with continued fiscal deficits pose medium-term risks to the economy. Hence, strengthening the fiscal position is vital to sustaining the resilience of the economy, as well as further enhancing public and investor confidence.
Currently, our subsidy system benefits everyone, including the higher income group and foreigners. Thus, we need to move to a more targeted subsidy system that caters for the vulnerable groups.
The subsidy rationalization will be carried out in many stages. As a first step towards this, the FPC hereby announces that prices of RON95 and Diesel will be increased by 20 sen per litre, effective 12:01 am, 3 September 2013. Currently, the Government is subsidizing 83 sen for every litre of RON95 petrol, and RM1.00 for every litre of diesel. This brings the total fuel subsidy allocation for 2013 up to RM24.8 billion. The reduction of 20 sen in fuel subsidy would mean that the Government will still subsidise 63 sen per litre of RON95 and 80 sen per litre of diesel.
To reduce the burden on the low-income and vulnerable groups following the fuel subsidy rationalisation, BR1M will be increased in Budget 2014, of which the quantum will be announced in the upcoming Budget. Over the longer term, a comprehensive social safety net will be introduced. Further fiscal measures will be included in the 2014 Budget.
To address the narrowing current account surplus in the balance of payments (BOP), public sector projects to be undertaken will be considered carefully. Projects with low-import content and high-multiplier effects will be given priority, without jeopardising economic growth. However, projects with high import components will be sequenced accordingly, so as not to adversely impact the balance of payments position. However, the Mass Rapid Transit (MRT) Lines 1, 2 and 3 will proceed as planned. The Southern Corridor High-Speed Rail (HSR) project is still under negotiations.
Over the medium to longer term, the Government will look at ways to enhance our competitiveness and further diversify our export markets. Tourism, a huge foreign exchange earner, will be given greater focus in the upcoming Visit Malaysia Year 2014.
The above measures will not only address the immediate concerns of the economy and the Government’s financial position, but also strengthen public finances over the medium and long term. The FPC will continue to meet regularly to assess economic developments and the financial position of the Government.
2 September 2013