FORMER Finance Minister Lim Guan Eng has called for a rollback of austerity measures, as it may dampen growth, despite the pressure to address rising energy prices globally due to the Iranian war and the impasse at the Strait of Hormuz.
"An austerity-aimed budget may dampen Malaysia’s 2026 Gross Domestic Product (GDP) rate and jeopardise the provision of good public services," said the former Pernang chief minister.
He singled out that the needs for public health, education, safety and crime prevention may be compromised if there is a cutback on the proposed funding.
Bank Negara had projected a conservative GDP growth of four to five percent but it may be affected by the prolonged war, which has sent transport costs sky high.
"We should not alter with the need to meet the needs of the public in health, education and security," said Lim in a statement.
He made his observations following reports that the Finance Ministry has proposed that RM10 billion in savings be slashed from the original RM229 billion approved as operational expenses under Budget 2026.
Of this, RM3.06 billion could come from the Health Ministry’s RM46.5 billion budget, while RM2.39 billion could come from the Higher Education Ministry’s RM18.6 billion budget.
The Treasury would cut RM664 million from its own budget, while the Home Ministry and Defence Ministry could reduce theirs by RM647 million and RM508 million, respectively.
Other suggested cost reductions include those from the Rural and Regional Development Ministry (RM571 million), the Education Ministry (RM466 million), and the Digital Ministry (RM508 million).
The public would support short-term measures such as an indefinite freeze on new posts and intakes of civil servants, and postponement of “unnecessary” official events, meetings, conferences, seminars, and workshops, said Lim.
However, austerity-like budget measures that jeopardise the provision of good public services in health, education, crime prevention and safety, infrastructure and amenities would be a different matter altogether, he said.
"Such public services can never be compromised."
Whilst the government faces severe fiscal constraints following the subsidy bill’s surge by an extra RM 43.4 billion, these fiscal shortfalls can be financed through emergency loan measures.
Malaysia’s subsidy bill is projected to surge to M58.4 billion this year, compared to the RM15 billion originally allocated.
This RM 43.4 billion shortfall cannot be overcome by a mere RM 10 billion cut in operating expenses, he added.
"There is no need to re-table the 2026 Budget in Parliament due to the revised budgetary and fiscal estimates; a supplementary Budget will suffice. However, large emergency loan measures will need to be tabled in Parliament by resolution for approval. "
The financial and economic implications of an austerity-like approach have further exacerbated the cuts in expenditure and shrinking investments from the private sector.
A slowdown in economic growth will be disastrous not only for workers but also for businesses, especially Micro, Small and Medium Enterprises (MSMEs), he said.
This is why the RM 5 billion Bank Negara Malaysia's SME Stabilisation Relief Facility, to assist MSMEs, announced by Prime Minister Datuk Seri Anwar Ibrahim, must provide an interest-free and collateral-free component for the first RM 50,000 portion of the loan.
There should also be a one-year moratorium on interest payments for all existing loans, he said. - April 30, 2026.
