Malaysia’s lower house voted on October 11 to lift the federal government’s statutory debt ceiling from 60% to 65% of gross domestic product, with the higher limit set to run until the end of 2022. The bill met no resistance in the vote.
Finance Minister Tengku Zafrul Abdul Aziz said the extra room will pay for RM45 billion in additional spending on economic aid and stimulus. The bill also lifts the Covid-19 Fund from RM65 billion to RM110 billion. It still had to clear the senate, controlled by Prime Minister Ismail Sabri Yaakob’s coalition, and receive the king’s signature.
It is the second increase in a little over a year.
Why the fund ran short
Zafrul told lawmakers the earlier pandemic aid packages need another RM27 billion. By the end of September the government had spent RM60 billion from the fund, leaving RM5 billion. “Based on the current status of the Covid Fund, the Ministry of Finance projects that this year’s allocation is insufficient,” he said.
Tight movement restrictions through most of the year pushed GDP into a contraction in the April to June quarter. The previous government, which collapsed in August over its handling of the pandemic, had revised its growth forecast and budget deficit twice this year. The finance ministry expects a rebound in 2022.
Zafrul said the money would go to “all parties, particularly the B40 group and the affected families so that they can receive assistance to lighten their load”. The B40 is the poorest 40% of the population. The bill also covers public health systems and small and medium-sized businesses.
Opposition backs it, with questions
Opposition MP Dzulkefly Ahmad, a former health minister, said all lawmakers would support the move. Their only reservations were over how the funds would be spent. “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,” he said.
Budget 2022
In an interview on Bernama TV and Astro Awani after the budget was tabled, Zafrul said the higher ceiling gives the government room to finance its deficit in the medium term, including the 12th Malaysia Plan. Revenue projections do not cover everything announced for 2022, he said, so the government plans a deficit of 6% of GDP, assuming growth of 5.5% to 6.5%. That works out to about RM100 billion borrowed. This year’s deficit is expected at 6.5%.
Budget 2022 totals RM332.1 billion, the largest on record and above the RM321 billion expected this year. It splits into RM233.5 billion for operating costs, RM75.6 billion for development and RM23 billion for the Covid-19 Fund.
Zafrul said the ceiling matters less than the ability to repay. “If we were to pull the brakes too fast, where we suddenly don’t want to spend or make an expansionary fiscal policy, our economy can’t recover faster than we expected,” he said. The government’s job, he added, is to keep its finances stable enough to act if another crisis hits.
The budget was first drafted before Covid-19 vaccines existed and before variants such as Delta emerged. “We must always expect it and we must have Plan B,” Zafrul said.
Other Southeast Asian countries face the same squeeze. Thailand raised its debt limit in September, and the Philippines is nearing a key threshold.
Sources
- Raising debt ceiling enables govt to finance budget deficit – Zafrul | Malaysiakini
- Malaysia to raise debt-to-GDP limit to support economy
