Expansionary Fiscal Policy Needs Hours, Economists Say
Posted on: Saturday May 29, 2021
Kuala Lumpur: The government can increase its debt level to improve the well-being of the population and ensure that the country’s economic stimulus package is on track, but spending must be careful. the deficit target was not unexpected as the government currently needs it. be ahead of the curve in supporting and stimulating the economy amid slowing private sector investment. Dr Mohd Afzanizam Abdul Rashid, chief economist of Bank Islam Malaysia Bhd, said the nature of the shocks the country is currently facing is due to the health crisis, which is said to take time to subside.
In that sense, the government should set the right priorities and, in this case, plans to narrow the budget gap should be put on hold, he said. âIt is not so much about the government’s ability to borrow, but rather about programs that can really help the rakyat overcome the current challenges, especially those who have been out of work and small and medium enterprises (SMEs) and other businesses that are struggling to repay debts, pay rent or other expenses due to cash flow issues, âhe told Bernama. The Ministry of Finance (MoF) announced on Thursday that the deficit target had been revised to 6% from 5.4% of gross domestic product (GDP) for 2021, after taking into account continued measures of economic stimulus plans 2020, as well as the PERMAI and PEMERKASA packages were launched in the first quarter of this year. Therefore, the federal government’s statutory debt is also expected to drop from 58% in 2020 to 58.5% by the end of 2021. âThis is still below the statutory limit of 60 percent, which has been approved. by Parliament in August 2020. âThe country’s debt profile remains favorable with over 90 percent of ringgit-denominated public debt, supported by abundant domestic liquidity and a long maturity. issues that support funding flexibility, âthe finance ministry said in a statement after the Fiscal Policy Committee meeting chaired by Prime Minister Tan Sri Muhyiddin Yassin. In a study by the Bank for International Settlements, the threshold for public debt before it becomes a drag on economic growth is 85% of GDP. According to Mohd Afzanizam, the government has the capacity to raise funds on the capital market. âSo far the market response whenever the government issues Malaysian government securities (MGS) or government investment issues (GII), they are constantly oversubscribed, suggesting that there is a good demand from bond / sukuk investors, âhe said.
In terms of spending, Professor Datuk Dr Shazali Abu Mansor, an economic analyst at Asia e University, said the government should allocate the money for immediate spending that involves small-scale, nation-wide projects such as construction works. repairing drains, repainting school buildings and restoring Internet services. As for financial assistance to the population, he said workers paid by the day should be the top priority. âIt’s normal to have high debt (during this pandemic), but the government must be held to account. The more we spend, the faster the economy can grow, âhe said. Shazali hopes that borrowing will be done as much as possible in the country to maintain a circular economy and avoid the depreciation of the ringgit due to cash outflows. Besides increasing borrowing, he suggested that the government consider increasing income through the tax system – increasing the tax rate among the top 20 income groups, implementing a one-off tax on industries that benefit greatly from the Covid-19 crisis and to reintroduce the tax on products and services. (TPS) but on certain items. Meanwhile, Sri Murniati Yusuf, director of public finance at the Institute for Democracy and Economic Affairs, said that when the government decides to go for a higher level of debt, the allowance for the service of the debt would be even higher. As a result, a higher debt allocation would impact the allocation for other important needs in the future such as maintenance of schools, hospitals and roads. âOf course, it should be noted that this percentage automatically increases with the increase in indebtedness. âIt can decrease if the economy develops better and if the government generates more revenue. Economic growth is therefore one of the key factors in keeping debt sustainable, âshe said. In addition to providing assistance to vulnerable people, she said the government should have effective policy measures to reduce the digital divides between regions and the general regional disparities that the government has tried to bridge over the past decades. Effective policy measures would require the federal government to work closely and coordinate with state governments, she said. âThe success of policy measures aimed at combating the current pandemic and restoring the economy after the crisis will require close coordination between these two levels of government,â she added. The International Monetary Fund, in its April 2021 Fiscal Monitor report, found that public deficits and debt had reached unprecedented levels, thanks to major budget support, as well as a sharp drop in income caused by production contractions. He said that the average overall budget deficits as a percentage of GDP in 2020 reached 11.7% for advanced economies, 9.8% for emerging market economies and 5.5% for low-income developing countries. Global public debt soared to 97.3% of GDP in 2020, an increase of 13 percentage points from the level projected before the pandemic. The report noted that many emerging and developing countries have faced borrowing constraints, especially economies with high indebtedness, large gross financing needs, and a high share of external or denominated debt. in foreign currencies.