Fiscal Policy in Malaysia
Fiscal policy in Malaysia
1. Background
In the 1970s, the Malaysian government played a key role in the economy. The government ventured beyond its traditional functions and took on a more direct and active role in the country’s overall social and economic development process. This period saw the government’s direct participation in the private sector through the establishment of large commercial enterprises. Government participation in the economy expanded further in 1980-82 as it pursued an expansionary countercyclical fiscal policy aimed at stimulating economic activity and sustaining growth to ride out the effects of the global recession. The countercyclical policy led to “twin deficits” in the government’s fiscal position and the balance of payments. When confronted with this twin deficit problem, the government implemented comprehensive structural programmers to reduce spending and reordered national objectives consistent with domestic resource availability and to ensure prudence in its recourse to external borrowing.
The new direction in public policy also sought to promote the private sector as the main engine of growth for the economy. The most significant development was the reduction of the public sector’s commercial activities, implemented through the privatization programmer. Subsequently, government intervention has been largely in support of private sector initiatives towards overall development of the country. The tax structure was also reformed to increase international competitiveness as well as promote national savings to meet future levels of growth and investment requirements.
The shift in emphasis towards private sector-driven growth contributed to a marked improvement in the government’s financial position as well as a reduction in its borrowing requirements. As a strengthened fiscal position emerged in the late 1980s, the government was able to prepay its external debt, thereby improving the nation’s external debt profile. It
1. Background
In the 1970s, the Malaysian government played a key role in the economy. The government ventured beyond its traditional functions and took on a more direct and active role in the country’s overall social and economic development process. This period saw the government’s direct participation in the private sector through the establishment of large commercial enterprises. Government participation in the economy expanded further in 1980-82 as it pursued an expansionary countercyclical fiscal policy aimed at stimulating economic activity and sustaining growth to ride out the effects of the global recession. The countercyclical policy led to “twin deficits” in the government’s fiscal position and the balance of payments. When confronted with this twin deficit problem, the government implemented comprehensive structural programmers to reduce spending and reordered national objectives consistent with domestic resource availability and to ensure prudence in its recourse to external borrowing.
The new direction in public policy also sought to promote the private sector as the main engine of growth for the economy. The most significant development was the reduction of the public sector’s commercial activities, implemented through the privatization programmer. Subsequently, government intervention has been largely in support of private sector initiatives towards overall development of the country. The tax structure was also reformed to increase international competitiveness as well as promote national savings to meet future levels of growth and investment requirements.
The shift in emphasis towards private sector-driven growth contributed to a marked improvement in the government’s financial position as well as a reduction in its borrowing requirements. As a strengthened fiscal position emerged in the late 1980s, the government was able to prepay its external debt, thereby improving the nation’s external debt profile. It