The government has to formulate a specific approach to tackling the country’s broad-based subsidies and embark on a more effective and targeted subsidy rationalisation to lessen the pressure on the government’s annual budget.
“Targeted mechanism can be implemented by improving the current cash assistance programme through consolidating the existing programmes currently undertaken by various agencies.The mechanism should also leverage the latest technology advancements and adopt digitalisation to minimise operational costs, followed by close monitoring and assessment to achieve the intended results.
The MoF added that subsidy rationalisation may create more fiscal space for spending on high multiplier impact programmes and projects; thus, a policy intervention supported by close engagement is required to smoothen the transition towards a gradual and targeted subsidy mechanism.It said that efforts to rebuild and increase fiscal space would have to be driven by both higher revenue collection and efficient resource utilisation.
The MoF said the World Bank has highlighted that Malaysia needed to phase out broad-based subsidies and move towards targeted subsidies through a cash transfer mechanism to support vulnerable groups better.
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