KUALA LUMPUR (Nikkei Markets) -- Malaysia's new government aims to curb wasteful public spending as it seeks to reset the economy to adjust to some populist pre-poll pledges, which if implemented, won't strain the fiscal health, adviser Zeti Akhtar Aziz said Tuesday.
"We are working not only on the revenue side but also on the expenditure side, so that we will be reprioritizing projects in an effort to increase efficiency by reducing the wastage of the public sector," Zeti told reporters. "All these will improve the fiscal position."
The comments come as members of the Special Economic Council of which the former central bank governor Zeti is a member, continue to reach out to investors, economists and global rating agencies among others to deter volatilities in the financial markets after the opposition coalition wrested power in an unprecedented electoral outcome. Former premier Mahathir Mohamad, who led the rag tag coalition to a shock poll triumph by ousting the National Front that has ruled Malaysia since it gained independence from Britain in 1957, has pledged to scrap an unpopular goods and services tax, re-reintroduce fuel subsidies and abolish road tolls to cushion a rising cost of living. Investors are concerned that such populist measures will further strain government finances, risking a widening of the budget deficit.
The previous government has been steadily shrinking the fiscal gap - Malaysia has run a budget deficit since the Asian Financial Crisis of the late '90s - over the past few years with a mid-term goal of balancing the budget by 2023. Any potential slippage could weigh on the credit rating of the country whose public debt at 54% of the gross domestic product is a tad lower-than the self-imposed cap of 55%.
Soon after taking over as the seventh prime minister of Malaysia, Mahathir appointed seasoned policy makers as members of special advisory council that is mandated to guide the new government and help design initiatives to follow through pre-poll pledges. While Daim Zainuddin, a former two-time finance minister, chairs the council that will have a shelf life of 100 days, other members include former Petronas CEO Hassan Marican, business tycoon Robert Kuok, who is considered Malaysia's richest, and a former United Nations economist Jomo Kwame Sundaram.
The government will announce within its first 100 days a strategy for abolishing the GST, and it abolition won't have any impact on the credit rating as long as the fiscal position holds up, Zeti said.
"This is a very positive environment to undertake these changes," Zeti said.
The government will also address the revenue and expenditure issues "in an orderly manner as the ultimate objective is to put more purchasing power in the hand of people, especially the middle and lower-income groups," she added.
Malaysia's new government can draw comfort from a steady economic expansion amid a global growth rebound, while rising crude oil price means more cash for the oil-exporting nation.
The country, which is rated investment grade by all three global rating agencies - Standard & Poor's, Fitch and Moody's Investors Service - has the potential to raise its credit worthiness if it improves the fiscal health, Zeti said.
"Especially when the fiscal regime and the fiscal conditions improve, this is the final factor that will contribute to us having a better opportunity to have our ratings improved," Zeti said.
Meanwhile, the advisory council has also formed a five-member committee on institutional reforms.
"Economic reforms on its own cannot bring the desired change unless accompanied by institutional reform," the council said. "The institutional reforms committee will present its findings and recommendations to the council... the council will then present its report to the Prime Minister."
The reform committee includes retired judges K.C. Vohrah, Mah Weng Kwai and Ambiga Sreenevasan, president of the National Human Rights Society among others.
-Sarah Nadlin Rohim