The macroeconomic management of the Malaysian economy in 2013, focused on supporting growth and accelerating the national transformation process while ensuring sustainability of public finances, says the Finance Ministry in its 2013/2014 Economic Report.

The report notes that 2013, particularly the first half had been challenging, especially in terms of the external environment, but despite that the economy expanded by 4.2 percent in those first six months.

Nonetheless, the report identified several areas of concern, such as rising house prices, high household debt and the narrowing of the current account surplus, as issues that had to be dealt with; in addition to the importance of prudently managing fiscal resources.

To deal with these issues, the government established the Fiscal Policy Committee (FPC) in mid-June 2013 to provide guidance and to set the tone on fiscal management.

Chaired by the prime minister, the committee which includes relevant members of the cabinet and key agencies met several times to discuss the direction of the economy and to formulate measures to address fiscal challenges, in line with meeting the government's targets of achieving a fiscal deficit of three percent by 2015 and a balanced budget by 2020.

Rationalising subsidies

One of the FPC's first measures was to re-introduce subsidy rationalisation, which has been on hold since late 2010. In early September 2013, the FPC made the decision to cut fuel subsidies by 20 sen for RON95 and diesel.

Furthermore, says the report, in other to promote fiscal discipline in spending; the government has begun to emphasise the use of IT for efficiency, to control the size of the civil service, cut back on non-critical spending and promote better inter-agency cooperation in implementing programmes.

Other measures include subjecting development projects above RM50 million to value management to ensure value-for-money and productive spending, the report says.

Meanwhile, monetary policy focused on supporting growth, as weaknesses in the external environment affected the domestic economy and financing as financing via the financial institutions and capital market moderated.

That being said, as at end of August 2013, the common equity tier 1 capital ratio, tier 1 capital ratio and total capital ratio of the banking system registered 12 percent, 12.8 percent and 14.1 percent respectively - all of which are above the minimum regulatory levels under the Basel III capital adequacy framework.

We're the world leader in sukuk

In other areas, the report states that Malaysia remains the world leader in sukuk issuance, accounting for 70.5 percent or US$53 billion of new sukuk issued worldwide, with Bursa Malaysia ranking as the top exchange for sukuk listing.

Other notable events in 2013 included the Financial Services Act 2013 and the Islamic Financial Services Act 2013 coming into force at the end of June to strengthen the regulatory and supervisory framework by incorporating several separate laws into a single comprehensive framework, the report adds.

Overall, government expenditure for the year is expected to rise by 3.5 percent to RM261.3 billion, as additional commitments were incurred throughout the year. While in terms of revenue, sustained investment activity, resilient private consumption and stable commodity prices are expected to result in a six percent growth in government revenue, which translates into RM220.4 billion .

The fiscal deficit is expected to be at four percent (4.5 percent in 2012), with a debt-to-GDP ratio of 54.8 percent, the report says.