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KUALA LUMPUR, Nov 6 -- In a crisis situation, a responsible government must be proactive and agile by providing the fiscal space needed to implement measures in protecting the safety and ensuring the well-being of its rakyat.
The Finance Ministry (MoF) said the formulation of the COVID-19 Act signified the government's effort in addressing the devastating socioeconomic impact of the pandemic within the legal framework with added flexibility and good governance in place.
Among temporary measures introduced in the COVID-19 Act is increasing the debt ceiling amount raised under both the Loan (Local) Act 1959 (Act 637) and Government Funding Act1983 (Act 275) to 60 per cent from 55 per cent of Gross Domestic Product (GDP).
"As the Act is temporary in nature, the government will resume its fiscal consolidation path once the economy recovers to ensure the long-term sustainability of public finance," said MoF in its Fiscal Outlook and Federal Government Revenue Estimates 2021 report released today.
The ministry said the increased debt limit is effective for three years until Dec 31, 2022, and this provided an adequate time frame for the government to resume its fiscal consolidation path and return to the previous debt threshold.
The ministry said as at end-September 2020, the Federal Government debt registered RM874.3 billion or 60.7 per cent of the GDP, comprising 96.7 per cent of ringgit-denominated securities.
The remaining balance stood in foreign currency, reflecting ample domestic liquidity supported by a developed domestic debt market and robust institutional investors, it added.
"This allows the Federal Government to raise its financing needs domestically, thus reducing the exposure to foreign exchange risk," said MoF.
As at end-September 2020, domestic debt increased to RM845 billion compared to RM764.2 billion at end-2019, comprising Malaysian Government Securities (MGS) which amounted to RM436.6 billion and Malaysian Government Investment Issue (MGII) totalling RM360.3 billion.
The ministry said the MGS remained as the primary debt instrument at 49.9 per cent of total federal government debt, followed by MGII with a sizeable share of 41.2 per cent.
Outstanding Treasury bills stood at RM24 billion, representing 2.8 per cent of total federal government debt, with Malaysian Treasury Bills (MTB) constituted RM6.5 billion while Malaysia Islamic Treasury Bills (MITB) stood at RM17.5 billion as of September 2020.
MoF said offshore borrowings, which comprises market securities and project loans, remained stable at RM29.3 billion -- well below the statutory limit of RM35 billion.
Debt service charges remain manageable at RM34.5 billion or 15.4 per cent of total revenue in 2020, despite being higher than initial estimate of 14.3 per cent during the 2020 Budget.
"The increase in the ratio was due to the anticipated drop in revenue collection given the COVID-19 pandemic and lower crude oil prices. Financing costs for domestic debt instruments are expected to contribute the largest share at 97.7 per cent, while the balance is for offshore borrowings," said MoF.
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