THE targeted subsidy mechanism, which prevents the leakage of resources, will improve the country’s financial position, Economy Minister Rafizi Ramli said yesterday.

According to Rafizi, the government meant well by providing subsidies but the spending has swelled amid rising crude oil prices, global supply chain disruptions, the Covid-19 pandemic and the ongoing Russia-Ukraine war.

“What started as small subsidies, if we are not careful, would easily account for 30-40% of our operating budget every year.

“Unless we do something about it, our financial position will become weaker and weaker, and that will take away the country’s ability to allocate resources especially on investments or development expenditure that can redirect and refocus this economy towards those sectors that we have targeted,” he said in Kuala Lumpur yesterday.

Rafizi added that the government has to manage the public’s expectations about prices, while not getting addicted too much to keeping prices artificially low.

Besides financial consolidation, Rafizi said, another challenge for the country is to broaden its revenue base.

“Broadening the base is no longer just an option. It is something that we have to put in place very quickly, especially with the next two to three years expected to be very challenging globally,” he said.

The third challenge, Rafizi said, is restructuring the economy, which means moving from a low wage-based, manufacturing-driven economy to one that is service-based with high tech and value content.

He said that in attracting investors to relocate to or expand in Malaysia, it is no longer just about incentives or tax policies.

“It is more about our ability to provide the right skilled workforce, because we are no longer a low-value, low-wage manufacturing base. We have to move one or two tiers higher than our peers.

“We have to restructure the economy in terms of digitisation. We can unlock 1% or 2% GDP growth if we close our digitisation gap in the economy and government services, which hopefully will lead to higher efficiency and more savings,” he added. – Bernama, January 28, 2023.