Frankly Speaking: Debt limit challenge

This article first appeared in The Edge Malaysia Weekly, on September 28, 2020 - October 04, 2020.
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Another RM10 billion worth of handouts under the Kita Prihatin package will be dished out to cushion the economic fallout from Covid-19. This was announced by Prime Minister Tan Sri Muhyiddin Yassin last Wednesday. The amount represents 0.7% of the country’s GDP.

Kenanga Research foresees the additional stimulus pushing the fiscal deficit to 7.5% of GDP, which may increase government debt to 62.6% of GDP by year-end, against the revised self-imposed debt ceiling of 60% approved by parliament last month. The previous debt limit was 55%.

While economists say the spike in the debt ratio is justifiable in the current challenging environment, bear in mind that the economy may get worse in the event of more Covid-19 cases. 

The number of coronavirus cases has been trending higher in recent days following the emergence of new clusters in Sabah and Kedah. Director-general of Health Tan Sri Dr Noor Hisham Abdullah says Covid-19 infectivity remains a concern as the R0 (R-nought) value has yet to stabilise.

The daily standard operating procedures (SOPs) to curb the spread of Covid-19 should not be taken lightly. Malaysia cannot afford another round of nationwide lockdown after losing billions during the six-week Movement Control Order period. 

When the Covid-19 curve has been flattened for good, the stimulus measures will have more effective spillover effects on the economy and stimulate consumer spending. For businesses, the targeted wage subsidy programme could help their survival and, in turn, reduce job losses. As the room to take on more debt is narrowing, any form of support from the government should not be taken for granted.

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