Malaysia’s Prime Minister Anwar Ibrahim said his government will work to gradually lower the nation’s debt and narrow the budget gap, without resorting to raising taxes that hurt the poor.
“We have reached the ceiling and we should gradually go down,” Anwar told Bloomberg Television’s Haslinda Amin in an interview Monday in Singapore. Otherwise it would be irresponsible to the next generation, he said.
Malaysia had raised the debt limit to 60% of gross domestic product from 55% in 2020 in the early days of the pandemic, and lifted it further to 65% in 2021 to make room for additional borrowings to fund fiscal stimulus. Malaysia’s actual debt is at 61% of GDP, and the law under which the ceiling was raised lapsed on Dec. 31.
While Malaysia remains A-rated by credit agencies Moody’s Investors Service and S&P Global Ratings, a reduction in government debt ratio will be key to winning a higher credit score from Fitch Ratings Ltd., which is currently the only one of the three main rating companies to have a lower BBB+ rating on the Southeast Asian nation.
Anwar, who doubles as finance minister, is set to table the revised 2023 budget to parliament on Feb. 24 and has been preaching fiscal prudence as the Southeast Asian nation stares down still-elevated debt levels in the wake of a Covid-era spending drive. A reformist who heads a multiracial coalition, Anwar has made protecting low- and middle-income groups from rising prices the top priority of his administration.
While he acknowledged that the goods and services tax remains the most transparent and efficient taxation system, he said his government isn’t in a hurry to reinstate the tax that was abolished in 2018.
“I have a huge issue of having to introduce taxation policies or new initiatives when it affects the plight” of the low-income group, he said.
He said Malaysia is fortunate that the revenue from taxes has increased slightly, along with petroleum products.
Malaysia, which runs Southeast Asia’s widest fiscal deficit after the Philippines, has seen its budget strained by the cost of keeping essentials at below-market prices. Government subsidies were forecast to reach a record 80 billion ringgit ($19 billion) in 2022, with concessions on fuels and cooking gas alone projected to account for about half the amount.
In December, the government said it would raise electricity prices for multinational companies and heavy users, part of Anwar’s bid to channel subsidies and spending toward the needy. Small- and medium-sized firms and those involved in agriculture and food production will not be affected by the increase.
Earlier this month Anwar had warned that this year’s fiscal position won’t be comfortable, with about 1.5 trillion ringgit in total debt and liabilities and a budget deficit setting around 5.8% of gross domestic product as of last year. He said “we cannot be content” with these figures and added that maximum debt service is approaching unmanageable levels. –BLOOMBERG