Malaysia to double deficit to fund stimulus, says finance minister

TheEdge Sat, Jun 06, 2020 09:07pm - 3 years View Original


KUALA LUMPUR (June 6): Malaysia aims to borrow its way out of an economic slump brought on by the Covid-19 pandemic, and the finance minister told Reuters it will nearly double its fiscal deficit this year while keeping open the option of raising the public debt ceiling.

Southeast Asia's third-biggest economy has announced incentives worth RM295 billion to soften the impact of the Covid-19 pandemic, with the government vowing to directly inject RM45 billion of that into the economy, mostly raised through domestic borrowings.

Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz told Reuters the fiscal deficit would rise to around 6% of annual economic output this year because of the stimulus, and that a direct fiscal injection of RM10 billion announced yesterday would be raised through domestic borrowing.

"There is only so much monetary policy can do," Tengku Zafrul said in an interview in his office. "So you need fiscal policy to come into play as long as you have the discipline and the commitment in the longer term to going back to where you should be in terms of the deficit."

Tengku Zafrul, who was the group chief executive officer (CEO) of lender CIMB Group Holdings Bhd before joining the three-month-old government, said the goal is to narrow the fiscal deficit back down to less than 4% of gross domestic product (GDP) over the next three years or so. It was 3.2% last year.

"How bad was it during the [global financial crisis]? It was 6.7%. So we have room if we want to borrow," he said, referring to the country's peak annual deficit in 2009.

The region's largest economy, Indonesia, said last month that it expected its budget deficit to swell to 6.27% due to virus-related stimulus.

Tengku Zafrul said Malaysia's outstanding public debt now stands at 52% of gross domestic product (GDP) but that "if we need to, then we should increase the ceiling" beyond the current 55% "to help the people and the economy".

He declined to say how high the government might seek to raise the ceiling, a move requiring the approval of Parliament.

Neighbouring Thailand said in April its latest borrowing plans would increase its public debt to 51.84% of GDP in the current fiscal year and 57.96% in the next one.

Tengku Zafrul, 46, said there is no immediate need for the central bank to cut its benchmark interest rate further from its decade low of 2%, "given the liquidity in the country and given where the currency is going and where we are we as an economy".

Bank Negara Malaysia's (BNM) monetary policy committee next meets on July 7, and some analysts have predicted another cut.

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