The additional expenditure is justified as the govt’s debt-to-GDP is below 60%, says economist

By SHAHEERA AZNAM SHAH / Pic By MUHD AMIN NAHARUL

THE fresh RM15 billion Covid-19 relief plan is deemed necessary to cushion the impact of last year’s recession despite its impact on Malaysia’s financial position.

Institute for Democracy and Economic Affairs senior economist Adli Amirullah said the additional expenditure is justified as the government’s debt-to-GDP ratio is below 60%, and about 78% of the debt is domestically sourced.

“The government must spend more now during the recovery period so that we can cushion out the recession impact from last year.

“We should be comfortable increasing our domestic borrowing and spending in the economy during a crisis.

“Another yard stick to see if our government can repay all of its loans is to look at the percentage share of debt servicing charge to total government revenue,” he told The Malaysian Reserve recently.

Adli said provided that it is less than 20%, Malaysia has room to expand its fiscal spending through borrowing.

“As of 2019, Malaysia’s debt servicing charge was about 12.46% of total government revenue.

“Malaysia will face a lot of fiscal challenges, hence we should push for more transparency and accountability of the government’s spending, so that every penny spent is worth it and for the right reason,” he said.

Universiti Kuala Lumpur Business School economics lecturer Assoc Prof Dr Aimi Zulhazmi Abdul Rashid said adjusting fiscal policy within a country’s respective financial capacity is among the strategies that can be adopted during a challenging time to support the people.

“Permai (Malaysian Economic and Rakyat’s Protection Assistance Package) is indeed a timely booster to the country’s economy even though Budget 2021 was just recently approved.

“The third wave of the pandemic, which has been sweeping Malaysia since October last year, has forced the country into reimposing the Movement Control Order (MCO), hindering the economic engine,” he said.

Aimi Zulhazmi believes the additional RM15 billion is well within the government’s capacity and would not incur serious repercussions.

“Malaysia’s debt, according to the World Bank, still has a ceiling of raising the debt ratio to GDP below 70%.

“As of the recently approved Budget 2021, the debt ratio is about 65% as approved by the Parliament, then.

“The government can afford the additional RM15 billion as the people’s welfare is second to none, hence borrowing to help citizens and spur the economy is of utmost importance,” he said.

On Monday, Prime Minister Tan Sri Muhyiddin Yassin announced the Permai assistance package with new measures, including the third round of the wage subsidy scheme, additional special grant for small businesses and subsidies for essential items.

Under this package, RM1 billion will be allocated for the Wage Subsidy Programme 3.0, which expands to all employers operating in the states under MCO for a month.

The government will also allocate RM650 million via the Permai Prihatin Special Grant to provide RM1,000 to 500,000 small and medium enterprises (SMEs) in the states under MCO, and RM500 to 300,000 businesses in other states