Economist: ‘Defined contribution’ scheme for new civil servants puts country in sustainable fiscal position

Economist: ‘Defined contribution’ scheme for new civil servants puts country in sustainable fiscal position

KUALA LUMPUR: The government’s plan to place new civil servants under the “defined contribution’”scheme instead of “defined benefits” pension scheme will put the country’s public finance in a long-term sustainable position, an economist said.

Sunway University economics professor Dr Yeah Kim Leng opined that the decision is an important measure to gradually reduce rising pension liabilities.

“It will not only reduce a key fiscal vulnerability from a national perspective, but also provide employees and the government with greater mobility and flexibility to adapt to the changing economic environment and labour market landscape,” he told Bernama.

Yeah said the desired effect in shifting to a contributions scheme is to reduce the pace of increase in the government’s total accrued pension liabilities.

He said the immediate impact is that the government has to provide an additional allocation to pay its portion of the Employees Provident Fund for the new employees.

“It thus provides the government with the ability to gradually lower the unfunded portion of the total accrued pension liabilities to a sustainable level, thereby avoiding any fiscal cliff or crisis in the future.

“It is thus a strategic move to tackle the liabilities head-on and not pass the problem to future generations,” he added.

On Friday, Finance Minister II Datuk Seri Amir Hamzah Azizan said that at the end of 2023, the national debt is expected to reach RM1.2 trillion or 63.5 per cent of gross domestic product (GDP) and, if guarantees and other liabilities are included, it would reach RM1.5 trillion (more than 80 per cent of GDP).

The government’s burden is how to service or mitigate the debt, he said, noting that in Budget 2024, debt service payments stand at RM49.8 billion or 16 per cent of national revenue.

In terms of the government’s burden on operating expenses, he said that 97 per cent of the government’s expenses are committed expenses and only three per cent are variable.

Of the 97 per cent comprising committed expenditure, 16 per cent is for debt repayment, 48 per cent is for emoluments and pensions, and the rest is for other management.

Thus, the task of the MADANI government is to expand its revenue and ensure more room to spend on important things so that the people can live more comfortably, said Amir Hamzah.

Therefore, Yeah is of the view that the country’s large liabilities and associated fiscal vulnerabilities are being addressed through a gradual but systematic approach in fiscal consolidation and restructuring.

He said reducing fiscal risks while strengthening the country’s public finance, especially in raising the revenue level, will enable the MADANI Economy targets to be more easily achieved.

“This is especially so as a rise in investor confidence in the country’s fiscal management will lead to a virtuous circle of higher investment, stronger employment creation and faster income increases that in turn attract more investments,” Yeah added. -Bernama

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