KUALA LUMPUR: Right-sizing the civil force is a tough move, but it is an essential step for the government to take in order to narrow the national budget deficit to achieve a balanced or near balanced budget by 2020.

Socio-Economic Research Centre (SERC) executive director Lee Heng Guie told The Edge Financial Daily this as he highlighted that the government’s priority now should be in reviewing further its operating spending.

The government’s main focus, he went on to say, should be on public-sector reforms, which, besides right-sizing the civil service, include weeding out redundancies and reviewing pension liabilities.

He said these need to be dealt with eventually, as relatively high federal debt and contingent liabilities continue to limit fiscal space.

“I have voiced this many times before. The government should consider creating a thorough civil service road map to ensure [everyone] contributes fairly and justly.

“Let’s prioritise the issue now, so that the government has more fiscal space to allocate funds for other expenditures, such as healthcare. In my opinion, there is greater demand for better healthcare services; let’s cater to that,” he said. “We need to identify better areas for savings.”

The improving economic conditions now also provide a window of opportunity for the government to exercise more fiscal discipline. “It would be harder if the economy slows down. Take the chance now,” he urged.

Lee acknowledged that the issue of public-sector reforms, particularly the right-sizing of the civil service, has always been sensitive. “The question here is whether there is enough political will to do what is right and necessary,” he said.

Still, he commended the fiscal consolidation efforts the government has undertaken so far. “Yes, they have implemented subsidy reforms and the GST (goods and services tax) has helped to reduce it (fiscal deficit). I understand the government also intends to lower it further to 2.8% under the coming budget,” he said.

But to bring it down from 3%, which is Malaysia’s deficit target for 2017, to a 0.6% fiscal deficit by 2020? “That’s in three years. It’s going to be a challenge,” Lee said.

Meanwhile, Lee said monetary policy should be well calibrated to support growth and anchor inflation expectations, and that policymakers should continue to be vigilant of global financial conditions.

“While the ringgit has continued to stabilise, headwinds remain, emanating from potential risks associated with monetary policy tightening [and] political developments in advanced economies, as well as geopolitical tensions,” said Lee.

He also said that Malaysia’s relatively high household debt-to-gross domestic product ratio — which was at 88.4% as at end-2016 — remains a key vulnerability that requires careful monitoring.

Separately, Lee said he would like to see measures put in place in Budget 2018 to help companies mitigate the cost of doing business, as well as clearer efforts to create a more conducive ecosystem to harness a digital and connected economy.