KUALA LUMPUR: Malaysia will raise its statutory debt ceiling to 65 per cent of gross domestic product (GDP) from the current 60 per cent.
Announcing this today, Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz said the government would seek Cabinet’s approval next week to increase the limit before tabling it at Parliament.
Raising the debt limit would win the government some fiscal wiggle rooms to rejuvenate the economy amid the considerable challenges posed by Covid-19 resurgence, analysts said.
“At the moment, we are still below 60 per cent of our statutory debt limit. However, given the commitment of the government to support the people and businesses, our debt-to-GDP will likely go up above 60 per cent by this year end,” Tengku Zafrul said at a virtual conference today.
Malaysia’s current debt-to-GDP ratio stood at about 58 per cent, he added.
“Even if we breach it, it will still be marginal. But then again, we do still have to go to Parliament,” he said.
He added that the potential breach was due to the government’s commitment to ensuring continued support given to the rakyat and businesses to revive the economy.
The Finance Ministry (MoF) expects the statutory debt limit to reach 60 per cent by the year-end, in line with the revised GDP growth forecast of between 3.0 per cent and 4.0 per cent announced by Bank Negara Malaysia.
Tengku Zafrul said the government was unlikely to increase borrowings in foreign currency but might opt to raise money by tapping into the local ringgit market.
“To a certain extent, we have limited fiscal space, but that has not stopped us from continuing to expand our fiscal policy to support our economy.
“We have revised our spending to increase borrowing. Our deficit has gone up, which is likely reach between 6.5 per cent to 7.0 per cent of GDP in 2021,” he said.
Tengku Zafrul said the country’s fiscal deficit target of about 3.0 per cent would not be achievable soon. But it could narrow in three to four years before returning to a 3.0 per cent to 4.0 per cent deficit level.
“We should continue with our fiscal consolidation exercise and re-embrace fiscal discipline,” he said.
Tengku Zafrul said about 97 per cent of the government’s total borrowing currently denominated in ringgit and the remaining 3.0 per cent in foreign currency.
“We have ample liquidity in the market. We expect to fund more stimulus packages moving forward by tapping into the local market. We have enough liquidity without having a concern about impacting the local economy,” he said.
He said Malaysia’s fiscal deficit could reach between 6.5 per cent and 7.0 per cent of gross domestic product (GDP) in 2021, from the 6.0 per cent recorded in 2020.
“We expect our economy to recover in 2022. We will have to continue to give support that is required so the economy can recover,” he said.
Tengku Zafrul said there would be changes to policies once the adult population had reached 100 per cent vaccination rate while transitioning from pandemic to endemic.
“Changes include standard operating procedures (SOPs) to opening up the economy. This will be discussed again at the next National Security Council (NSC) on what that means when it comes to endemic.
“We at the MoF will be working together with the Health Ministry and other relevant agencies to present to the NSC what it means when it becomes endemic,” he said.
Tengku Zafrul said all sectors of the economy should operate again following the new norm guided by SOPs, which could be defined closer to October.
Meanwhile, he said the government had no overseas debt sale plan and would not re-introduce the Goods and Services Tax (GST).
He said it was not the right time to implement such consumption-based tax or introduce a new tax as it might impact the revival of the economy.
“The government will announce 2022 Budget on October 29, which will focus on reviving economic growth.
“We are looking at ways to enhance our revenue. I’m also looking at plugging the gaps or leakages. We have formed a various task force to minimise the leakages,” he added.
Source: New Straits Times
