KUALA LUMPUR (Oct 13): A World Bank official has called for greater independent oversight in the implementation of Malaysia’s Fiscal Responsibility Act (FRA), cautioning that the current framework still lacks the institutional independence needed to fully ensure accountability and discipline.
Dr Apurva Sanghi, the institution's lead economist for Malaysia, said that while the passing of the FRA marked an important milestone in strengthening Malaysia’s fiscal governance, its ultimate success would depend on how effectively oversight is exercised.
“The council in charge of implementing the FRA currently allows a maximum of two independent experts. That is a start, but countries where such fiscal frameworks have been most successful — such as Chile and Peru — tend to have far stronger independent oversight,” Sanghi said at the Post-Budget 2026 Debate organised by the Malaysian Economic Association on Monday.
He said greater independence within the fiscal policy committee would help “make the rule stick better”, reducing the risk of fiscal slippages or politically motivated deviations.
The economist noted that every fiscal rule can be broken, hence the key lies in having credible mechanisms to bring public finances back on track, supported by transparent and impartial monitoring.
Under the FRA, the fiscal policy committee currently comprises the prime minister, deputy prime minister, finance minister, economy minister, chief secretary to the government, Treasury secretary general, Economy Ministry secretary-general, Bank Negara Malaysia governor, and up to two additional members appointed by the committee with “standing and experience in fiscal or public finance”.
Sanghi proposed several refinements to strengthen the FRA, including clearer and simpler fiscal anchors, better-defined correction mechanisms in the event of economic shocks, and more harmonised compliance periods across fiscal indicators.
For instance, he said Malaysia could consider combining its separate rules on government debt and guarantees into a single cap to minimise incentives for off-budget financing through public-private partnerships.
“What matters is not just setting the rules but ensuring that deviations are addressed quickly and transparently,” he said. “The FRA’s biggest advantage is that it transfers certain fiscal powers from the finance minister to Parliament, thereby enhancing oversight and reducing the probability of scandals like 1MDB from happening again.”
Another speaker at the event, MNRB Holdings Bhd (KL:MNRB) senior vice president and group chief investment officer Durraini Baharuddin, said the FRA had played a significant role in boosting investor confidence in Malaysia’s capital markets.
“The FRA is critical not only for the fiscal health of the country, but also for the strength of the capital markets,” she said. “It has contributed strongly to positive inflows of foreign investors into our bond market and allowed local institutional investors to enjoy more stable returns because of the strong principles governing Malaysia’s fiscal health.”
The Fiscal Responsibility Act, passed by Parliament in October 2023, sets several long-term targets, including a fiscal deficit of 3% or less of GDP, federal government debt capped at 60% of GDP, and government guarantees not exceeding 25% of GDP.
Under Budget 2026, Putrajaya expects the fiscal deficit to narrow to 3.5% of GDP in 2026 from 3.8% this year.