This article first appeared in The Edge Malaysia Weekly, on October 26 - November 1, 2015.

To ensure the country is committed to its fiscal consolidation, the government has set up a Medium-Term Fiscal Framework (MTFF), putting a cap on operating expenditure (OE) of RM685.7 billion or 17.1% of gross domestic product (GDP) for 2016 to 2018.

Meanwhile, the allocation for development expenditure (DE) is contained within the 11th Malaysia Plan’s (11MP) total ceiling.

“Firm commitments to set an enveloped expenditure for the three-year framework will enhance the government’s capacity to manage expenditure and implement reforms, guided by the medium-term agenda outlined in the 11MP,” the Economic Report 2015/16 states.

The MTFF will set the total ceiling of OE for each ministry in an effort to achieve an optimal level of spending.

“The measures to contain expenditure include gradual subsidy rationalisation through a more targeted mechanism, cost-effective procurement and streamlining the civil service as well as further encouraging government entities to be financially independent and less reliant on grants,” the report states.

The government projects current balance (public revenue minus OE) to remain in surplus at an annual average of 1.1% of GDP in the three-year period between 2016 and 2018 compared with 0.8% estimated in 2015.

The projected improved surplus is supported by a reduction in OE by 1.3% to 17.1% of GDP compared with 18.4% of GDP estimated in 2015, the report states. This is despite a decline in revenue by 1% to 18.2%  of GDP from 19.2% in 2015 amid low commodity prices, it adds.

The medium-term fiscal deficit is targeted to average 2.7% of GDP within the three-year period.

Total revenue during the period is expected to constitute 18.2% of GDP, with tax revenue making up 14.9% of GDP and non-tax revenue at 3.3% of GDP.

Non-oil revenue is expected to grow to 86.6% of total revenue or 15.7% of GDP compared with 80.3% of total revenue and 15.4% of GDP estimated this year.

Oil-related revenue is estimated to account for 2.4% of GDP during the MTFF period compared with the estimated 3.8% this year.

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