Source: MoF

KUALA LUMPUR, Oct 11 -- The introduction of the Fiscal Responsibility Act, expected to be tabled in Parliament in 2021, would reinforce the government's commitment to strengthen public finances through enhancement of fiscal discipline, spending effectiveness and transparency.

The introduction of the act is one of the several reform initiatives announced in 2019 Budget to strengthen fiscal administration.

The Ministry of Finance said Fiscal Responsibility Legislations (FRL) are legal documents which consist of legal standards, rules and procedures relating to fiscal and budget management.

The main purpose of the law is to secure sound public finance while ensuring medium and long-term fiscal sustainability.

"An effective FRL contributes to fiscal stability, transparency, accountability and orderly budget process," it said in the Fiscal Outlook and Federal Government Revenue Estimates 2020 report released today.

It said these can be achieved by incorporating a good fiscal rule framework which focuses on principles, procedures, numerical rules, or any of the combination based on a country's needs.

According to the report, FRL contained fiscal rules which govern the conduct of fiscal policy through numerical targets or ceilings on budgetary aggregates.

"Generally, there are four main types of fiscal rules, namely budget balance, debt, expenditure and revenue rules for national or sub-national governments," it said.

In formulating the FRL, it said a government can consider various essential and optional components to be included in the law.

 Medium-term fiscal policy strategy is one of the essential components of the law which provides fiscal guidance, projections and key policy initiatives, normally for three years.

In addition, it said an annual budget policy strategy is another important component of FRL which complements the medium-term fiscal objectives while other vital components include the regular publication of reports on the performance of fiscal policies and audited financial statements to ensure accuracy and reliability of the information.

It said several optional components can be included in the law to enhance the credibility and transparency of fiscal policy management.

The report said many advanced and emerging countries have adopted FRL to strengthen their fiscal institutions, as well as to promote a more responsible and transparent fiscal management.

"The rules and principles of the law are either embedded in their constitutions, budget system laws and international treaties or enacted as a separate law to govern public finances," it said.

It said countries such as Chile, Ireland, New Zealand and Thailand have adopted FRL as a separate law because of its advantages which, among others, cover other layers of government, focus on fiscal process rather than the budget process, and enhance political commitment for fiscal reforms.

– BERNAMA