Dec. 31 (Bloomberg) -- Malaysia will reduce the entertainment budgets of ministers and freeze applications to renovate government offices as Prime Minister Najib Razak widens efforts to cut public spending. The ringgit rose.
Eleven measures to curb government expenditure will start tomorrow, the official Bernama news service reported yesterday, citing a statement by Najib. Some civil servants will be asked to travel on economy class on domestic flights, while electricity utility costs at all government offices will be reduced by 5 percent, it said.
“Markets will perceive this quite positively,” Vishnu Varathan, a Singapore-based senior economist at Mizuho Bank Ltd., said by phone. “It’s going to be construed as positive for fiscal consolidation.”
Having earlier wooed voters with cash handouts for the poor and civil service pay increases, the prime minister is adjusting his focus to improve state finances and avert a credit-rating downgrade. After being re-elected in May, he has raised fuel prices, scrapped sugar subsidies and unveiled plans for a consumption tax in 2015. Electricity prices are due to go up from tomorrow, while property rates are being increased in Kuala Lumpur.
Officials will come up with new ideas to ease cost of living pressures, Najib said in his New Year’s message today. The government will still spend 42 billion ringgit ($12.8 billion) next year subsidizing essential items, almost as much as it has budgeted for development, he said.
“We must accept that we have to make changes to keep our finances in order,” said the prime minister. “People will say too many costs are rising, and populist measures will seem attractive. But the government has to take action now.”
Fitch Ratings cut its Malaysia outlook to negative in July, citing concern over deteriorating public finances. Malaysia’s fiscal deficit will shrink to 3.5 percent of gross domestic product in 2014 from 4 percent in 2013, meeting targets set previously, the finance ministry said in October.
The ringgit strengthened 0.4 percent to 3.2819 to the dollar as of 3:30 p.m. in Kuala Lumpur today, its biggest gain since Dec. 9. The FTSE Bursa Malaysia KLCI Index dropped 0.5 percent after the stocks benchmark closed at a record yesterday.
The latest measures to cut spending include reducing entertainment allowances of ministers and deputy ministers by 10 percent and that of certain senior officials by 5 percent to 10 percent, Bernama said.
The government will scale back on using event-management companies, while decreasing the awarding of souvenirs and the amount of food and drinks at some government events, the official news service reported. It didn’t specify how much money these measures are expected to save.
Najib’s cutbacks come after former Prime Minister Mahathir Mohamad last week called on the government to review its own spending to ease the public burden of increased taxes and prices.
“All its costs can be examined to determine which are truly necessary, which costs can be reduced, which services can be curtailed and modified,” Mahathir wrote on his blog. “The cost of living for everyone has increased. Should the taxes and rates come all at the same time?”
Police and government officials have urged the public against holding an illegal New Year’s Eve street rally in Kuala Lumpur this evening to protest price rises.
“The sharp rise in the cost of living, which naturally hits the lower classes most badly, is made more unacceptable by the fact that serious measures to lower waste and government inefficiencies, and limit leakage through rampant corruption are not forthcoming at the same time,” Ooi Kee Beng, deputy director of Singapore’s Institute of Southeast Asian Studies, said in an e-mailed response to questions from Bloomberg News today. “For the Home Minister to forbid demonstrations of economic despair by the public at such a time will make things much worse than they have to be.”
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