KUALA LUMPUR (Nov 6): To have an expansionary budget to stimulate economic growth, the federal government needs to borrow RM181.49 billion, which is equivalent to 12.6% of gross domestic product (GDP) in 2020.

The gross borrowings of RM181.49 billion are 31.5% higher against the original estimate, according to the Ministry of Finance’s (MoF) Fiscal Policy Review 2021. 

Of the grand total, RM86.45 billion is allocated for deficit financing in 2020, which is substantially higher than RM51.49 billion in 2019. 

Meanwhile, a sum of RM94.74 billion is for debt repayment (domestic: RM94.4 billion; offshore: RM333 million), an increase of 14.1% from RM83.05 billion in 2019. This translates into net borrowings of RM86.74 billion by the federal government in 2020 compared with RM51.73 billion in 2019.

The federal government’s gross borrowings were at RM134.78 billion in 2019. 

In the report, the MoF attributed the higher estimates to a projected widening of the fiscal deficit to 6% of GDP owing to economic stimulus packages and the recovery plan as well as lower economic growth estimates and global crude oil prices this year.

The report pointed out that domestic borrowings will remain as the primary source of funding, amounting to RM181.46 billion or 99.9% of total gross borrowings, while the balance RM30 million will be drawn down from offshore project loans.

For 2020, the issuance of Malaysian Government Securities (MGS) is expected to amount to RM73 billion or 40.2% of total gross borrowings, followed by Malaysian Government Investment Issues (MGIIs) at RM76.5 billion or 42.1%.

Additionally, Treasury bills of RM32 billion — raised for cash and liquidity management — had doubled, compared with the average issuance over the past five years, the report pointed out.

“Almost the entire financing operations, including the finance stimulus packages, are raised via domestic sources to minimise foreign exchange risk exposure,” the report highlighted.

The report said sufficient liquidity in the domestic market had enabled the government to swiftly raise its borrowings, and Putrajaya is well positioned to manage the cash flow requirement.

Moving forward, against the backdrop of an uncertain economic environment in 2021, the gross borrowing requirement is expected to remain substantial at around 11% of GDP.

“The government will continue to finance stimulus measures during the transition phase in 2021 to fully support the economic recovery, emphasising on ensuring the well-being of the rakyat, protecting businesses and revitalising economic activity,” the report read, adding that the government will remain committed to prudent debt management strategies over the medium term while adhering to the stipulated debt rules.

For more stories on the Economic Report 2020/2021, click here.