Govt should look into management cost reduction: Economists

KUALA LUMPUR: Reduction in management cost is a key option if the government decides to revise the 2019 Budget, if oil prices continue flowing down to US$50 per barrel, according to economists.

Bank Islam economist Dr Mohd Afzanizam Abdul Rashid said provisions such as supply and services, which represent 11.2 per cent of total management expenses, could be further reduced or deferred especially for unnecessary expenses.

He said the expenses also included travel costs, consulting services fees, stationery, magazine subscriptions and journals.

“It involves procurement processes such as open tenders or direct negotiations, thus this kind of expenditure can be readjusted as it is expected to be RM29 billion in 2019,” he told NSTP Business.

He was commenting on Finance Minister Lim Guan Eng’s recent statement that the government would only review next year’s budget if global crude oil price dropped from the current US$50 per barrel.

The Ministry of Finance tabled the national budget based on crude oil prices of US$72 per barrel.

Brent oil benchmark had hovered around US$50 to US$55 per barrel over the last few weeks.

The last revision of any national budget was made on January 28, 2016 when oil price dropped to below US$35 per barrel.

The 2016 budget was revised from Brent crude oil price estimations of US$30 to US$35 per barrel, compared to US$48 initially.

Afzanizam said the rationale for revising the budget was due to the growing dependence on petroleum-based government revenues.

He said to maintain the target of fiscal deficit of 3.4 per cent in 2019, some provisions may need to be reduced.

“Apart from the reduction in operating expenditure, the government can also consider reviewing development expenditure.

“It is because the figure announced during 2019 Budget is quite high at around RM50 billion compared to an average of RM45 billion posted between 2010 and 2017.”

Putra Business School associate professor Dr Ahmed Razman Abdul Latiff said apart from reducing management costs, the government could also review the allocation given to the Ministry of Defence (Mindef) as well as postpone the development of a mega project.

“The management costs can be reduced as emoluments are the highest, so the government needs to reduce the recruitment of new employees and not offer contracts to those who have retired.

“For Mindef’s expenditures, the government needs to identify non-strategic assets to be sold and ensure the cost and benefit analysis of each new asset is made.”

He argued that the government would not revise the 2019 Budget in the near future as it would likely take a wait-and-see approach until the issue of oil price volatility can be understood more clearly.

“However, cost-saving measures in terms of spending and debt control need to be continued, while increasing oil-based income,” he said.