![\"kl\"](\"https:\/\/newmalaysiatimes.com\/wp-content\/uploads\/2020\/06\/Screen-Shot-2020-06-15-at-11.01.09.png\")
<\/figure><\/div>\n\n\n\nAs to whether Malaysia will nearly double its fiscal deficit this year due to COVID-19, Yeah said a one-off spike in fiscal deficit is deemed unavoidable given the simultaneous supply and demand shocks caused by the lockdown measures.<\/p>\n\n\n\n
\u201cThe projected doubling of fiscal deficits this year is therefore not a concern as long as the fiscal relief and stimulus measures are implemented effectively with minimal leakages and wastages and the government resumes the fiscal consolidation path as soon as the economy normalizes,\u201d he told Bernama today. <\/p>\n\n\n\n
On whether the fiscal deficit would rise to around 6.0 percent of annual economic output this year because of the stimulus (2019:-3.5 percent), Yeah said based on the current levels, there is still scope for total government debt as a share of gross domestic product (GDP) and for its debt servicing ratio to increase slightly without igniting debt and fiscal sustainability concerns and triggering sovereign rating downgrading alarms.<\/p>\n\n\n\n
\u201cThe government may, however, need to consider smoothing out the debt loads by stretching new and existing mega infrastructure project schedules, increasing asset and equity sales, and pursuing public-private partnership (PPP) approaches in rescuing government-linked companies and industries hit hard by the pandemic,\u201d said Yeah.<\/p>\n\n\n\n
Meanwhile, on Bank Negara Malaysia\u2019s (BNM) stance amidst the pandemic, Yeah said the central bank responded early and aggressively to lower interest rates and loosen monetary policy in response to the COVID-19-induced economic crisis.<\/p>\n\n\n\n
\u201cThe coordinated monetary and fiscal support via the multiple stimulus packages will have a greater synchronized impact on alleviating economic hardships and preparing the economy for a quick recovery.<\/p>\n\n\n\n
\u201cBy reducing corporate and individual bankruptcies and saving businesses and jobs, the economy will have a greater capacity to bounce back as public health and economic conditions normalize,\u201d said Yeah.<\/p>\n\n\n\n
On Malaysia\u2019s aim to narrow the fiscal deficit down to less than 4.0 percent of GDP over the next three years or so (2019:-3.5 percent), Yeah said the 4.0 percent medium fiscal deficit trajectory is a realistic target given the uncertainty over the shape of the global economic recovery.<\/p>\n\n\n\n
\u201cSome economists and analysts are betting on a V-shaped recovery led by a vaccine discovery in 2021.<\/p>\n\n\n\n
\u201cThe more sanguine ones are predicting that the recovery will be U-shaped being dependent not only on an effective vaccine or treatment but also on the new realities of more intense US-China trade war and decoupling.<\/p>\n\n\n\n
\u201cWhile targets are easy to set, the challenge facing the government is to gain credibility and demonstrate its commitment and capability to achieve the target through prudent and effective fiscal and financial management,\u201d said Yeah.<\/p>\n\n\n\n
Accordingly, freelance economist Dr. Baayah Baba said that a deficit of 6.0 percent is assuredly not too high.<\/p>\n\n\n\n
\u201cIf the economy does well we could reduce the deficit back to around 3.0 percent,\u201d she said, adding that the fiscal policy is faster (in results) and can be used to generate economic activities faster than the monetary policy, although doing both (monetary and fiscal policy) is good.<\/p>\n\n\n\n
On Finance Minister Tengku Datuk Seri Zafrul Tengku Aziz\u2019s reiteration that Malaysia\u2019s outstanding public debt currently stands at about 51 percent of GDP and highlighting of a possible ceiling increase beyond the current 55 percent when needed, Yeah said while the stimulus plan and size of deficit spending will likely attract contentious debate in parliament, both sides of the political divide, however, are expected to approve the increase in the debt limit since it is for the greater good of the economy\u2019s smooth functioning that ultimately benefits the people, markets, investors and consumers alike.<\/p>\n\n\n\n
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