KUALA LUMPUR, June 26 — Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz said Malaysia’s economy will remain robust as the government believes that its current fiscal policy response is the right course of action.
He added this was in response to the urgent need to ensure substantial stimulus measures and economic recovery plans are implemented expeditiously to protect the rakyat, support businesses and strengthen the economy in the Covid-19 pandemic.
This is despite S&P Global Ratings (S&P) today revising its outlook for Malaysia to negative to reflect the additional downside risk to the government’s fiscal metrics, given the weak global economic climate and heightened policy uncertainty.
“While the outlook revision by S&P has been lowered, the Malaysian government believes that its proactive response to the crisis is both timely and appropriate. Initiatives and measures under the RM295-billion stimulus and recovery packages — Prihatin, Prihatin SME Plus and Penjana — are aimed at protecting lives, supporting businesses, saving and creating jobs, as well as stimulating the economy.
“In fact, through Prihatin measures like wage subsidy programmes and soft loans for SMEs and businesses, more than 2.4 million jobs have been saved, while 800,000 businesses and micro SMEs have been supported.
“Furthermore, under Penjana, the government expects to empower over 2.6 million people through upskilling and reskilling opportunities as well as wage and hiring incentives; and support over 300,000 businesses. Collectively, the Prihatin and Penjana economic stimulus packages worth RM295 billion are expected to contribute more than 3 per cent to Malaysia’s GDP growth in 2020.
“Most of the measures introduced under the Prihatin and Penjana packages are either one-off or temporary, which will not have a permanent impact on government finances in the medium term,” he said in a statement today.
Earlier today, ratings agency S&P in a statement said it affirmed its “A-” long-term and “A-2” short-term foreign currency sovereign credit rating, as well as its “A” long-term and “A-1” short-term local currency ratings on Malaysia.
“The negative outlook reflects our expectation that Malaysia faces heightened risks of a further deterioration in its fiscal settings, related to the Covid-19 pandemic, over the next 24 months,” said S&P.
S&P said downward pressure would arise if the country’s annual change in net general government debt surpasses 4 percent on a sustained basis, or interest paid by the general government exceeds 15 per cent of revenue.
On the other hand, the outlook may be revised to stable over the next 24 months if the pace of economic growth exceeds forecast, which would translate to stronger fiscal performance and quicker improvement in government finances.
Tengku Zafrul stated that the current crisis has impacted many countries’ sovereign ratings, reflecting the significant challenges in the global economy like weaker growth prospects, larger fiscal deficits and higher debt levels.
“These countries with open economies, like Malaysia, have responded with substantial macroeconomic and fiscal measures to reduce the adverse health and economic impact of the Covid-19 pandemic.
“This, in turn, has also led to the lower sovereign ratings outlook for several economies, both advanced and emerging,” he said.
Tengku Zafrul, who was the CIMB’s group chief executive prior to his appointment in March, also said that Malaysia has sufficient liquidity in the domestic market for the government to raise additional financing.
He said that raised the optimistic outlook for economic recovery as the government is also focused on preserving fiscal discipline to maintain the systemic strength and integrity of the economy, and to ensure Malaysia has the ability and capacity to quickly rebound when the economy recovers.
“This optimistic outlook on the Malaysian economy is also shared by S&P.
“In the medium and longer term, the Government remains committed to its fiscal reform agenda and will resume its fiscal consolidation effort once the global economy recovers. Malaysia has a good track record of fiscal management,” he said.
