KUALA LUMPUR: Malaysia needs to develop both a medium and long-term fiscal reform strategy to remain competitive in the global market, says United Nations Resident Coordinator for Malaysia, Kamal Malhotra.

He said Malaysia was a highly dependent economy on trade and foreign direct investment and the country needs to develop a fiscal strategy that would reduce the national budget dependency on oil.

Malhotra said the fiscal strategies should encompass three elements such as subsidy reforms, reduced dependency on oil as a source of revenue and an increase in the taxation net to cover a larger number of taxpayers.

"Malaysia has relatively few people who pay taxes. The country needs a clear fiscal strategy to diversify as well as to reduce dependency on your current sources of revenue such as oil," he told Bernama.

Malhotra, who is also United Nations Development Programme (UNDP) Resident Representative for Malaysia, Singapore and Brunei, said the proposed goods and services tax (GST) could be seen as one part of the fiscal strategy as long as it was well designed and not regressive in terms of its impact on the socially vulnerable population.

The socially vulnerable group would likely be impacted most, particularly in the 2013 Budget, because social services such as education, training, health and housing had the largest cut of 18.5 per cent, he pointed out.

Malhotra suggested that the government look into matching cyclical and structural components of its revenue with expenditure by developing a more coherent and counter-cyclical fiscal strategy, going-forward.

While saying that this would go a long-way in reducing dependence on oil and gas revenue, he added that subsidy reforms should be done prudently so that it would not result in negative shocks to the lower-income group.

Malhotra said subsidy reforms were crucial and a fairer subsidy regime has been eluded to in the recent budget announcement, although, there were no game-changing proposals made other than a piecemeal downward adjustment to the sugar subsidy and a range of cash transfers to a broadened group of recipients.

He added that the first National Human Development Report on inclusive growth reform would be published next year and it would approach many current issues such as equity, income distribution, subsidies, education and poverty.

"Issues relating to fiscal strategy will be part of this report. We will be making recommendations to the government on fiscal and subsidy reforms as part of this National Human Development Report.

"We will also look at the issue of fiscal decentralisation and how to target subsidies if the government wishes to protect the socially vulnerable segment of the population," he said. -- BERNAMA