Malaysia’s statutory debt-to-GDP ratio stood at about 58 per cent when Finance Minister Tengku Zafrul Abdul Aziz announced on September 3, 2021, that he would seek a higher ceiling.
He intended to propose a 65 per cent ceiling, compared with the existing 60 per cent of gross domestic product. The ratio was likely to move above 60 per cent by year-end because of government commitments to support people and businesses.
“Even if we breach it, it will be marginal, but we still have to go to Parliament to increase the limit,” Tengku Zafrul told a press conference.
Cabinet and Parliament
The finance minister said the proposal would go to the Cabinet the following week. It would then be brought before Parliament at the appropriate time.
The announcement was therefore a plan to seek approval, not an already enacted increase in the borrowing ceiling.
Tengku Zafrul acknowledged that the government had limited fiscal space. He nevertheless said it had continued an expansionary fiscal policy to support the economy.
Spending had been revised and borrowing increased, pushing up the deficit. His forecast put the deficit in a range of 6.5-7.0 per cent.
Ringgit funding
Asked whether constrained fiscal room would prompt foreign borrowing, he ruled out foreign-currency loans for the present.
He said sufficient liquidity was available domestically to finance the stimulus packages through the local ringgit market. The ministry did not expect that funding to have a worrying impact on the market.
About 97 per cent of total government borrowing was ringgit-denominated, according to Tengku Zafrul. Only three per cent was in foreign currencies.
Tax and economic reopening
The minister also addressed speculation that the goods and services tax could return in Budget 2022. He said the government was focused on economic recovery and that it was not the right time to restore an old consumption tax such as GST.
Officials were instead examining ways to improve revenue and address leakages.
On the pandemic, Tengku Zafrul said he hoped all sectors could resume operations by end-October under new-normal conditions. Malaysia was then considering when it might enter the Covid-19 endemic phase.
He said standard operating procedures would change once that phase began, with the details to be discussed at a Malaysian National Security Council meeting.
Sources
- Finance minister to propose raising statutory debt limit to 65pc | Malay Mail
- Tengku Zafrul to propose raising statutory debt limit to 65% | The Star
