KUALA LUMPUR, Jan 20 — Putrajaya is expected to raise its debt ceiling again this year to fund more stimulus package as the country is expected to extend its latest movement control order dubbed MCO 2.0, a multinational financial securities company said today.
In its report, Fitch Solutions Country Risk and Industry Research, a unit of rating agency Fitch Ratings Inc, said the additional stimulus would also be needed for Tan Sri Muhyiddin Yassin to gain support from voters ahead of a planned snap general election.
“The government will likely have to introduce more stimulus, as soon as later in first quarter of 2021, as the lockdown is extended, especially since PM Muhyiddin has pledged to hold snap elections (and hence needs to shore up support) once his administration has succeeded in containing the third wave.
“This development lends further strength to our view that the government will likely raise the debt limit again over the coming quarters in order to finance more stimulus to support the economy,” it said in a fiscal policy report released today.
Earlier this week, Muhyiddin announced an RM15 billion new stimulus package dubbed the Malaysian Economic and Rakyat Protection Assistance Package or Permai, which included extended tax relief for Covid-19 tests, expedited cash aid for 11.1 million recipients, and a
one-off handout worth RM66 million in total to be distributed to cab and bus drivers.
However, former finance minister Lim Guan Eng said the package was merely a rehash of past economic stimulus packages, with only an estimate of RM3.87 billion in direct spending to cushion Covid-19’s impact on citizens.
Fitch Solutions also said today that as the Permai package is merely at 1.1 per cent of the country’s gross domestic product (GDP), with its impact likely be muted
It said any extension beyond the two-week period that is expected to end at January 26 would do increasing damage to Malaysia’s 2021 growth outlook, and pose risks to its initial forecast of Putrajaya’s fiscal deficit this year at 5.5 per cent of GDP.
“We at Fitch Solutions do not believe this will be the last round of fiscal stimulus enacted in 2021 and is likely meant as an initial stopgap to offset the impact of the first two weeks of the lockdown,” the report said.
“We are confident that the lockdown measures will have to be extended, indeed, the previous lockdown in second quarter of 2020 lasted close to a quarter before the outbreak then was contained, and it was a much milder one compared to the current third wave which has seen daily cases exceed 4,000 on January 16.”
On August 24 last year, the Dewan Rakyat approved the Perikatan Nasional administration's plan to raise its debt ceiling for the first time in over a decade, amid the economic downturn resulting from the Covid-19 pandemic.
The approval enables Putrajaya to borrow up to 60 per cent of the GDP, one of the temporary measures to alleviate the effects of Covid-19 on both the public and Malaysian businesses. The previous raising of the debt limit was in 2009 when it was lifted to 55 per cent of the GDP.
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