S&P’s affirmation of Malaysia’s sovereign credit ratings shows govt approach to handling Covid-19 crisis on right track, says budget director

KUALA LUMPUR, June 24 — The government is dealing with the Covid-19 crisis in a responsible manner, and its approach has been recognised by S&P Global Ratings through its affirmation of the country’s sovereign credit ratings, says National Budget Office director Datuk Johan Mahmood Merican.

He said although the government had increased the statutory debt limit to up to 60 per cent, it is keeping its expenditures within a responsible level in responding to the crisis.

“S&P’s affirmation shows that we are still working within a reasonable policy limit for a resilient economy,” he said on the BFM Radio’s Breakfast Grille programme today.

Recently, S&P had affirmed Malaysia’s foreign currency and local currency long-term issuer ratings at A- and A, respectively, with a negative outlook.

The credit rating agency said the ratings reflected Malaysia’s strong external position, monetary policy flexibility and record in supporting sustainable economic growth, although the nation’s elevated government debt stock and evolving fiscal policy settings temper these strengths.

Asked about Malaysia’s fiscal position, Johan said the most important thing now is to ensure sufficient support for industries, the sufficiency of the healthcare system’s capacity to respond to the health crisis, as well as business continuity for those affected by the pandemic.

“This is what we are prioritising, therefore, there might be some flexibility in terms of managing the deficit, particularly for the rest of this year,” he said.

According to Johan, the government had initially forecast a budget deficit of 5.4 per cent of the gross domestic product (GDP) under Budget 2021, but had subsequently revised the deficit target to six per cent.

Johan also spoke about the National Trust Fund (KWAN) which had been set up back in the late 1980s for the benefit of the future generation.

“If this once-in-a-life-time crisis is not a good reason to use the KWAN, I don’t know what is,” he said.

As at December 31, 2020, the fund had an asset value totalling RM19.5 billion, comprising RM10.4 billion from Petroliam Nasional Bhd (Petronas) and RM9.1 billion in returns on the investment put in by the oil and gas giant.

Johan noted that the government had only touched RM5 billion of it and would not touch the principal amount contributed by Petronas.

“Why borrow more when there is a fund that is probably available? This would be a good use of a particular fund in a particular crisis and emergency,” he said.

Johan said Singapore had also dipped into its cash reserves while Norway withdrew from its oil reserves.

“They are utilising their reserves, and it is perfectly reasonable to do so during this crisis,” he said.

On the recently unveiled National Recovery Plan (NRP), he said the Covid-19 crisis has been a steep learning process.

“Sometimes I think the risk of us prematurely publicising something until we really have a better understanding of it is that we then have to hit the reverse gear or change what we have decided.

“Now, after reaching a certain level of understanding after more than a year battling the pandemic, the government felt comfortable enough to put (the plan) out there,” he said.

The NRP is a four-phase exit strategy from the Covid-19 crisis, and the transition from each phase to the next is based on the data from three threshold indicators.

Since the pandemic outbreak last year, the government has unveiled seven economic stimulus packages, with a combined value of RM380 billion.

Four packages were announced in 2020 — the RM250 billion Prihatin Rakyat Economic Stimulus Package, the RM10 billion Additional Prihatin SME Economic Stimulus Package (Prihatin SME Plus), the RM35 billion National Economic Recovery Plan (Penjana) and the RM10 billion Prihatin Supplementary Initiative Package (Kita Prihatin).

This year, the government announced three stimulus packages, namely the RM15 billion Malaysian Economic and Rakyat’s Protection Assistance Package (Permai), the RM20 billion Strategic Programme to Empower the People and Economy (Pemerkasa) and the RM40 billion Pemerkasa Plus stimulus package. — Bernama