My question was answered by Prof Madya Dr Aznan Hasan in his keynote speech at the International Conference on Interdisciplinary and Strategic Studies (ICRIS) 2021 organised by IRIS Institute last Thursday, 12th August 2021. Prof Madya Dr Aznan Hasan expressed his concern about Malaysia’s budget deficit that has been prolonged since 1998 and exacerbated by the Covid-19 pandemic. According to him, the country’s financial position may be able to withstand the rising debt now but this is dangerous for the economy in the long term.
He offered some solutions to revive the economy and achieve sustainable fiscal position. He called for the restructuring of fiscal reform which includes improving the efficiency of tax collection as well as improving the efficiency and productivity of government spending. According to him, the government should maintain reasonable tax rates and more importantly, encourage and facilitate businesses to grow thereby providing more job opportunities and increasing tax revenue. At the same time, government spending should provide a return on investment through development expenditure not just cover operating expenditure such as paying for the salaries and pensions of civil servants.
In addition, he proposed that the government utilises Islamic financial instruments such as zakat & waqf to complement government spending and tax collection in stabilizing the economy. During the expansion phase of the business cycle, the government can reduce zakat expenditure to close the inflationary gap. This action helps increase the zakat surplus in the Baitul-Mal. Likewise the zakat expenditure could be increased, by using the zakat surplus accumulated during the boom periods, when the economy is in the contraction phase to spur aggregate spending and economic activities. On the other hand, waqf can be used to benefit everyone in the country regardless of their religion. He mentioned that the Ottoman Turkish Empire used to utilize waqf as the main source of fund for government spending.
This economist with vast experience as the advisor for various central banks around the world concluded that Malaysia has good economic growth prospect if we can manage this pandemic well. High government spending is inevitable during this pandemic but restructuring fiscal reform can recover the country’s fiscal deficit given that all sectors of the economy can be reopened as soon as possible with our high vaccination rate.
Dr Adilah Zafirah
Chief Columnist and IRIS Institute Researcher