INCREASING DEBT LIMITS HAPPENING GLOBALLY TO SUPPORT ECONOMY

By Siti Noor Afera Abu

KUALA LUMPUR, Sept 20  -- Rising concerns over numerous COVID-19 variants has intensified the need for government intervention to support the economy as well as protect households and vulnerable groups by adapting expansionary fiscal policy and increasing their debt limits in the short term.

Last year, Malaysia had increased the statutory debt limit to 60 per cent from 55 per cent of the Gross Domestic Product (GDP),  and plans are underway to increase to 65 per cent to provide the government with the necessary room for funding needs.

Countries such as the United States, China, United Kingdom and South Africa also took the same path.

“Debt to gross domestic product (GDP) ratio of anything under 75-80 per cent is considered manageable, so there is nothing to be concerned about since it (Malaysia’s debt to GDP) is in line with market players’ expectations,” said Juwai IQI chief economist Shan Saeed to Bernama.

According to the International Monetary Fund’s World Economic Outlook database, Japan, which has a population of 127.18 million, has the highest national debt in the world at 257 per cent of its GDP.

China’s national debt is currently 54.44 per cent of its GDP, a significant increase from 2014 (41.54 per cent).

In a recent statement, the Institute of International Finance (IIF) said that the global debt -- which includes government, household and corporate bank debts -- jumped US$4.8 trillion to US$296 trillion at the end of June 2021. 

It noted that the rise in debt levels was the sharpest among emerging markets.

Shan said that an expansionary fiscal policy would provide more room for the government to come up with stimulus measures, especially for small and medium enterprises and vulnerable groups.

Since last year, the government has rolled out seven stimulus packages worth a total of RM380 billion.

University Malaya senior lecturer Dr Goh Lim Thye said that increasing the statutory debt limit was acceptable as long as it is spent wisely and generate positive returns through the multiplier effects.

“However, the downside is that the government has to serve the extra financial interest with the borrowed funds. The question is, what is the investment or expenditure plan for the extra funds? Can the country generate positive returns?

“If policymakers are planning to utilise the extra funds to generate additional incomes and new employment opportunities for the country, then the move should be welcome. Otherwise, the policymakers should go back to the drawing board to find a new strategy and solution,” he opined.

Recently, Finance Minister Tengku Datuk Seri Zafrul Aziz said that necessary fiscal support would be provided to preserve the well-being of people and businesses and strengthen the healthcare system, while minimising scarring to the wider economy. 

He said that once the crisis subsides, the government will resume its fiscal consolidation, guided by the Medium-Term Fiscal Framework and supported by the gradual implementation of the Medium-Term Revenue Strategy which aims to improve the country’s revenue base.

“This will balance short-term fiscal requirements with long-term fiscal and economic sustainability,” he added.

-- BERNAMA