Malaysia to raise debt-to-GDP limit to support economy

Kuala Lumpur

AFTER clearing a key vote in Parliament, Malaysia is set to raise the limit on government debt for the second time in a little over a year as it seeks to fund additional pandemic support measures and bolster its economic recovery.

A majority of lawmakers in the Lower House voted for increasing the statutory debt ceiling to 65 per cent of gross domestic product (GDP) until the end of 2022, from 60 per cent.

The bill will next head to the senate, controlled by Prime Minister Ismail Sabri Yaakob's coalition, before it is signed into law by the king.

The increase will enable the government to fund RM45 billion (S$14.6 billion) in extra spending on economic aid and stimulus packages, Finance Minister Zafrul Abdul Aziz said during the second reading of the Bill on Monday.

Malaysia intends to boost its Covid Fund to RM110 billion, from RM65 billion currently, said the Bill.

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"Most importantly, it will ensure continued support to all parties, particularly the B40 group and the affected families so that they can receive assistance to lighten their load," Zafrul said, referring to the poorest 40 per cent of the population.

The bill also aims to strengthen the public health systems and support small- and medium-sized businesses, he added.

Malaysia is among several South-east Asian nations seeking additional ways to fund support programmes as they recover from one of the world's worst Covid-19 outbreaks.

Thailand in September raised its debt limit to accommodate higher borrowing and spending, while the Philippines is nearing a key threshold.

Indonesia also recently passed a new tax law to expand its revenue base and trim its budget deficit.

Malaysia's previously announced pandemic aid packages require an additional allocation of RM27 billion, Zafrul told lawmakers.

"Based on the current status of the Covid Fund, the Ministry of Finance projects that this year's allocation is insufficient," he said.

As of the end of September, the government has spent RM60 billion in total, leaving the fund with a balance of just RM5 billion, he said.

The Bill did not face any hurdles during voting. Opposition Member of Parliament Dzulkefly Ahmad said all lawmakers would support the move, and their only reservations were on how the government planned to spend the funds.

"This may not be the time for us to immediately carry out fiscal consolidation, or, in other words, be too prudent about the national debt," the former health minister said.

Tight movement restrictions most of the year tipped GDP into a quarterly contraction during April-June. The previous administration, which collapsed in August over its handling of the pandemic, had revised its growth forecast and budget deficit twice this year.

The economy is expected to rebound in 2022, helped by the recovery in the global economy and trade through the second half of 2021, and into next year, the finance ministry said last month.

A speedy vaccine roll-out in recent months has helped Malaysia turn a corner. Over the weekend, the prime minister announced an end to the months-long ban on interstate travel and allowed citizens to travel overseas without prior approval from Oct 11.

The nation's main equities index rose 0.4 per cent to a one-month high, while the ringgit climbed to the highest in more than three weeks following the easing of travel curbs. BLOOMBERG