MARC: Statutory debt ceiling could be lifted to 70%


MARC Ratings Bhd expects Malaysia’s statutory debt ceiling could be lifted by the government again to 70%.

Previously the government has lifted the debt ceiling twice, to 60% and subsequently 65% of GDP.

“It is worth pointing out that the federal government’s operating expenditure/revenue ratio has been hovering near 99% since 2011. Thus, we think it is possible that the current federal government statutory debt ceiling — which has been lifted twice already, supposedly temporarily, first to 60% of GDP and then to 65% — could be lifted again soon to, say 70%,” MARC said in a statement yesterday.

“After all, the government expects statutory debt in 2022 — comprising Malaysian Government Securities, Malaysian Government Investment Issues and Malaysian Islamic Treasury Bills — to rise to 63% of GDP (2021: 59.7%),” it added.

In 2021, Malaysia’s fiscal deficit had risen further to 6.4% of GDP from the previous year’s 6.2%.

MARC’s forecast for this year stands at 6%, which aligns with the government’s projection.

According to the rating firm, total direct federal government debt rose to 63.4% of GDP in 2021 from 62.1% previously. This is in tandem with the rising fiscal deficit.

Debt service charges have also surged past the administrative ceiling of 15% of revenue, which stood at 17.8% at end-2021.

“As such, we do not foresee the government introducing more stimulus packages to support the economy in 2022,” MARC added.

The company also expects GDP growth to come in at 5.5% compared to 3.1% in 2021.

It noted that the forecast is at the lower bound of the government’s 5.3%-6.3% revised forecast range.

MARC also projected this year’s average pace of inflation would likely rise to 2.7%.

“Bank Negara Malaysia’s two consecutive 25-basis point (bp) hike to 2.25% did not only signal the improving economic conditions, but it was also a pre-emptive measure to brace Malaysia for external headwinds driven by unprecedented global monetary tightening.

“Amid this backdrop, we expect the ongoing rate hikes to continue to 2.75% by year-end,” it said.

MARC said that Malaysia’s growth recovery momentum should continue as the economy reopens but the country is exposed to external pressures.

It said that although the Russia-Ukraine military conflict’s direct economic impact on Malaysia is small as trade and investments with these two countries are hardly significant, the conflict’s indirect impact, coupled with pressures from other major economies, is straining Malaysia’s fiscal position and policymaking.

“Despite a narrowing policy space, the Malaysian government has been successful in lessening the possibility of a sovereign rating downgrade thus far. Moving forward, we believe that international credit rating agencies will monitor closely the deleterious economic impact can have on attitudes towards reforms, and consequently, the credibility and effectiveness of institutions and governance processes,” it said.

MARC also called on higher subsidies in 2022 to maintain social harmony, as the pace of recovery for the labour market has been sluggish.

“This is concerning because weak labour market recoveries are among the key causes of economic scarring,” it noted.