FACULTY OF BUSINESS AND MANAGEMENT

BACHELOR OF BUSINESS ADMINISTRATION (HONS.) BUSINESS ECONOMICS

PUBLIC FINANCE (ECO648)

INDIVIDUAL ASSIGNMENT

ARTICLE REVIEW

PREPARED BY:

NAME STUDENT ID

VERONICA ANDREANA SEDAM ANAK RIBUT 2020819258

PREPARED FOR:

SIR WAHI BIN ISMAIL @ REDUAN

SUBMISSION DATE:

2 JANUARY 2023
 TABLE OF CONTENT

TABLE OF CONTENT PAGE

Introduction 2
Current Issues on Public Finance in Malaysia
2.1 Malaysia's Inflation to Remain Elevated in Near Term, says 3
PublicInvest
2.2 Malaysia risks not being a high-income economy even over the 4
next 20 years
2.3 Malaysia Public Expenditures: Managing the Crisis: 5
Challenging the Future 6
2.4 Bursa expects short-term market volatility in 2023
Conclusion 7
References 8
Appendix 9-10

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1.0 INTRODUCTION

Public finance is the study of the significance of the government in the economy. It is the
discipline of economics concerned with the assessment of government revenue and
government spending by relevant entities, as well as the modification of either or both in
order to accomplish desired results and prevent unwanted consequences. Public finance is
responsible for three aspects: the effective deployment of existing funds, the distribution of
wages among residents, and the economic security. Revenue collection, social support
expenditures, and the fulfilment of a financial strategy are the major operations that comprise
public finance (such as issuing government debt). Tax collection, disbursements, the national
budget, the deficit/surplus, and the national debt are indeed the major components.

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2.0 CURRENT ISSUES ON PUBLIC FINANCE IN MALAYSIA

2.1 Malaysia's Inflation to Remain Elevated in Near Term, says PublicInvest

Based on the news that was published by Public Investment Bank BHD (PublicInvest) on
Tuesday, 27 December 2022, Malaysia's headline inflation is expected to average at 3.4 per
cent this year and remain within the range of 3.0-3.5 per cent in 2023. Public Invest said this
was subject to changes in domestic policy measures. Malaysia's economic uncertainty likely
continue significant for the short term; however, the rate of growth might slope lower in the
fourth quarter (Q4) 2022 and Q1 2023. This became attributable to more constant inflation of
non-food commodities, with the exception of transport-related products. On the management
side, the Producer Price Index (PPI), an inflation gauge at the producer and manufacturer
level, increased to a year-on-year (YoY) growth rate of 4% in October, up against 4.9 percent
in September. The PPI has now been dropping for the fourth month running on a year-over-
year basis, signalling probable respite from pass-through producers to consumers. Following
the formation of the coalition government, detailed explanation of the schedule and plans for
the deployment of focused subsidies that would assist the B40 and M40 income categories, as
well as small companies, was envisaged. Despite global commodity price changes triggered
primarily by continued regional tensions and sustained supply-related delays, the current
price limits and subsidies remain to carry significant upside risks. Public Invest reaffirmed its
assessment that the central bank will most certainly pursue current monetary policy
normalization cycle, albeit considerably more gradually. We genuinely think Bank Negara is
unlikely to mimic the US and other Asian federal reserve in significantly raising its policy
interest rate in 2023, and only presume some other hike to 3% in the first half (1H) of 2023,
most likely at the January meeting, with the presumption that the alignment of fiscal policy
respectively growth and inflation stays elevated toward the latter, notwithstanding the
ringgit's enduring weakness.

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2.2 Malaysia Risks Not Being a High-Income Economy Even Over the Next 20 Years

Based on the news written by Dr Sukudhew (Sukhdave) Singh on November 22, 2020,
Malaysia risks for not being a high-income economy even over the next 20 years. He is
becoming greatly worried about a number of unfavourable tendencies that have endured and
are not obtaining the attention they require. If these current trends persist, they might have a
serious negative impact on Malaysia's industrial growth and the economic well-being of its
people. If these negative tendencies are not addressed, Malaysia's chances of becoming a
high-income country are jeopardised, and the country may even deteriorate from its current
position. There are several tendencies that are cause for concern, such as slow productivity
growth. Slow productivity growth, for example, is one of numerous worrying trends. Since
abroad markets are more robust than domestic markets, the external sector is expected to
outperform the domestic sector in terms of efficiency. Another issue that is lowering
productivity and will continue to do so in the future unless addressed is the low participation
of women in the labour force. Females aged 15 and above engage at a rate of 51% in
Malaysia, 61% in Singapore and Thailand, and 73% in Vietnam, as reported by the
International Labour Organization. As a consequence, our most qualified people could
struggle to find work. Then there was the over-reliance on cheap foreign labour, which not
only keeps wages low but also retains the economy sluggish and diminishes incentives to
invest in higher-value-added sectors. Aside from that, the population is rapidly aging, with a
growing number of people over the age of 60. In the next ten years, this generation is
expected to be responsible for 15% of Malaysia's population. This might not only be a drag
overall future trends, but it may also make preserving poverty levels difficult. Perhaps it is
not too late yet, but if these current trends persist for a further generation, it most likely will
be. Examining Vision 2020's goals is a great place to start. We can no longer defend
institutionalized discrimination as the cultural norm. We cannot continue down the same path
as in the past, enabling dishonest people to profit whereas the Malaysian economy suffers.
Special treatment cannot be granted based on race or religion.

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2.3 Malaysia Public Expenditures: Managing the Crisis: Challenging the Future

Based on journal from World Bank Group that issued on May 22, 2000 says that prior to
1997, Malaysia saw remarkable economic development and rapid poverty alleviation. As a
consequence, burden on state expenditure was relieved, so when the regional financial crisis
occurred in 1997, the budget was in imbalance, and public debt was about 30% of GDP.
However, the recession drew attention to vulnerabilities in public spending administration
that might have overlooked in a fast-growing economy: significant and expanding off-budget
obligations that threaten fiscal restraint, accountability, and efficiency in the utilization of
public funds. The government is reconsidering its role in tertiary education, tertiary health
care, provident fund, and development. In such sectors, the private sector has a future role in
providing and finance, and the government's function is increasingly transitioning from one
of supplier to one of financial backer and regulator. The government's purpose in this
expanding public-private collaboration is to lower the budgetary pressure while guaranteeing
fairness in public service delivery and sustainability in designating and employing public
resources. This public spending study attempts to examine accomplishment and potential
problems in education, health, poverty reduction, and infrastructure, as well as to analyse
fiscal concerns stemming from the downturn.

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2.4 Bursa expects short-term market volatility in 2023

Based on the news that published by Save Malaysia, Bursa anticipates short-term market
volatility in 2023 based on news published on Tuesday, January 3, 2023. The local bourse's
research arm declared in it refers to the basis report on Tuesday (Jan 3) that significant
downside risks in 2023 include significant global inflation expectations, coupled with
increasing worldwide bond yields fuelled by the US Federal Reserve's (Fed) aggressive
interest rate rises, which hindered economic recovery. Moreover, it cautioned that other
deflationary pressures include a deteriorating global economic outlook as a result of extended
geopolitical uncertainty, global supply shortages, and a coming recession in key nations. The
depreciation of the local currency with respect to the greater US dollar raises the cost of
imported materials, placing pressure on company profitability. Other positive aspects include
an improved forecast for wage growth and good governance, as well as the prospect of
important supportive policy measures in the next federal budget to promote consumption
expenditure. The Malaysian equities market was not immune to global impediments, with
general mood compounded further by local political uncertainty. Internally, there was market
confidence in early 2022, mostly due to favourable tailwinds such as the lifting of frontier
barriers beginning in April 2022, which fuelled a robust domestic economy recovery with a
spike in oil products and crude palm oil prices amidst the Russia-Ukraine crisis. The
Malaysian equities market has valued in more risks and larger possibilities coming from the
interest rate implicit, that caused higher borrowing rates for firms but boded well for banks in
the second half of 2022. Other causes include the ringgit's depreciation versus the US dollar,
which creates stress on the profit margins of publicly traded corporations, and uncertainty in
the domestic political environment with the 15th general election. Energy and agriculture
have profited from economic uncertainties and higher inflationary pressures as a result of the
Russia-Ukraine war. The energy industry increased by 10.3% year on year (y-o-y), while the
plantation sector increased by 8.1%. The financial services sector shown good efficacy, rising
6% year on year on the back of the overnight monetary policies upcycle, with increased net
interest margins bolstering banks' profit forecast. The Malaysian equities market saw a
rebound of RM4.4 billion in foreign fund inflows in 2022 (against to an outflow of RM3.2
billion in 2021), correcting the four-year outflow trajectory.

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3.0 CONCLUSION

Jonathan Gruber, an economist, has developed a framework to evaluate the broad field of
public finance. In the event of a market failure, Gruber proposes that the government
intervene in and equalize both wealth and earnings. The government has the authority to
interfere by determining the particular technique or sequence of events to be used. For
example, by taxation, subsidies, or government provision. Finally, competent public financial
management not only promotes overall development but also reduces inflation, poverty, and
price volatility.

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REFERENCES

1)GROUP, W. B. (2000, May 22). Malaysia Public Expenditures: Managing the Crisis:
Challenging the Future. Retrieved from Public Expenditure Review:
https://openknowledge.worldbank.org/handle/10986/15186?show=full

2)Malaysia, S. (2022, December Tuesday). Malaysia's Inflation to Remain Elevated in Near

Term, says PublicInvest. Retrieved from I Investor:
https://klse.i3investor.com/web/blog/detail/savemalaysia/2022-12-27-story-h-302786757-
Malaysia_s_inflation_to_remain_elevated_in_near_term_says_PublicInvest#:~:text=Malaysi
a%27s%20inflation%20to%20remain%20elevated%20in%20near%20term%2C,in
%202023%2C%20Pub

3)Malaysia, S. (2023, January 03). Bursa Expects Short-term Market Volatility in 2023.
Retrieved from I Investor: https://klse.i3investor.com/web/blog/detail/savemalaysia/2023-01-
03-story-h-301986310-Bursa_expects_short_term_market_volatility_in_2023

4)Singh, D. S. (2020, November 22). Malaysia Risks Not Being a High-Income Economy
Even Over The Next 20 Years. Retrieved from Theedgemarkets.com:
https://www.theedgemarkets.com/article/malaysia-risks-not-being-highincome-economy-
even-over-next-20-years

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APPENDIX

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10 | P a g e