AN economist has rapped Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz for implying that borrowing will be the “easiest way” to contain the country’s inflation pressures.
Centre for Market Education chief executive officer (CEO) Dr Carmelo Ferlito also noted that this contradicted another remark by Tengku Zafrul that increased private consumption boosted by resumed activities will accelerate the country’s economic growth this quarter.
“I don’t understand why the minister is saying Malaysia has to rely on more borrowing even as the economy is recovering. This sounds a little bit like nonsense to me,” he said.
“If the economy is strengthening, then we should rely on the fact that the economy is getting back on track by itself. Let it strengthen.”
Ferlito added that borrowing should be for “moments of difficulty”, not for moments of strength.
“So this, to me, appears to be a contradictory statement,” he told FocusM.
Yesterday (Aug 14), Bloomberg reported Tengku Zafrul as saying the Government will rely on revenues from high commodity prices, robust tax collections, a one-off prosperity tax on companies and dividends from state entities to tackle the high fiscal cost of curbing inflation.
This comes after the Government held off on raising electricity and water tariffs – a decision that will cost them RM80 bil (according to Bloomberg) compared to the RM31 bil budgeted.
However, the easiest thing to do would be to borrow more, Tengku Zafrul noted, pointing to the debt-to-gross domestic product (GDP) ratio of 60.4% still being below the statutory debt ceiling cap of 65%.
As stated in the Temporary Measures for Government Financing (Coronavirus Disease 2019) (Amendment) Act 2021, the country’s statutory debt limit should not exceed 65% of its GDP.
“But we are committed to a fiscal deficit target at 6% of GDP,” he said, adding that the Government hopes to “eventually” reach its pre-COVID-19 pandemic 3.5% deficit.
“Inflationary pressures far from over”
Ferlito, who previously cautioned the Government against taking debt creation lightly and increasing the country’s debt ceiling following reports of Malaysia’s debts standing at RM1.045 tril or 63.8% of the GDP as of June, said inflationary pressures are far from over.
He also noted that borrowing will only put further pressure on inflation, especially if the quantity of money that enters the country is stronger than the GDP growth.
“So, this has to be monitored very carefully,” said the Institute for Democracy and Economic Affairs (IDEAS) senior fellow.
He added that the best way to move forward is to strengthen the part of the GDP that is crucial for a sustainable recovery path – i.e., private investments.
Meanwhile, responding to Tengku Zafrul’s remark that pent-up demand has boosted economic growth for this quarter compared to the same quarter last year, Ferlito pointed out that the second quarter of 2021 saw a lockdown in place.
“So, we are considering a very low baseline,” he said.
Malaysia’s GDP expanded 8.9% during the April-June 2022 period from a year earlier, with economic recovery aided by a boom in overseas trade after both export and import values hit records in June.
Tengku Zafrul also noted that this expansion was the fastest pace in a year. – Aug 15, 2022
