Prime Minister Muhyiddin Yassin's claim that the government was running low on money was an overstatement of the nation's fiscal burden, said think-tank Research for Social Advancement (Refsa).
In a statement today, Refsa researcher Jaideep Singh said although Muhyiddin had attributed a RM340 billion stimulus package as a burden on national coffers, the actual fiscal injection was RM72.6 billion or only 21.4 percent of the stimulus package.
"A simple way to contextualise the government’s fiscal health is to look at the overall fiscal balance, the difference between government revenue and expenditure as a share of the GDP.
"Granted, the stimulus measures have led to higher spending amid a smaller revenue base, with the estimated fiscal balance standing at six percent of the GDP in 2020 and potentially rising to 6.5 percent this year from 3.4 percent in 2019 according to and extrapolating from the Economic Outlook 2021.
"However, this is not unprecedented. Budget 2009 saw a fiscal deficit of 6.7 percent amid the financial crisis," said Jaideep.
With Brent crude oil prices rising to US$60 a barrel today, up from US$42 as forecasted under Budget 2021, Jaideep said now was not the time for the prime minister to engage in alarmist behaviour.
Instead, he said the government should adopt a more directed and strategic expansionary fiscal policy to promote consumption and encourage private sector investments.
This rather than making unsubstantiated claims on the fiscal situation, added Jaideep.
"We can already expect an increase in government revenue beyond Budget 2021's forecast.
"If anything, the most recent Pemerkasa package [...] suggests that the government still has the fiscal space to introduce substantially new injections," he said.
The Pemerkasa package involved the government borrowing RM11 billion for a fiscal injection.
Negative effect on retirement funds
Similarly, the Institute for Democracy and Economic Affairs (Ideas) described Muhyiddin's claim of Malaysia's apparent insolvency to be "concerning" because it would affect investor confidence and credit ratings.
"Not only is it a misrepresentation of how Malaysia financed its various fiscal responses to the Covid-19 pandemic, it may also affect international investors' perceptions of the country at a time when attracting FDI is more important than ever," said Ideas CEO Tricia Yeoh in a statement.
Yeoh said Ideas' research estimated that only RM79 billion of the RM340 stimulus package introduced since the Covid-19 pandemic came directly from the government.
"From that, only RM65 billion, or approximately 20 percent of the total stimulus package, were direct expenditures while only RM1 billion were direct revenue losses to the government balance sheet as a result of payment exemptions," she said.
Yeoh explained that to avoid raising the debt-to-GDP ratio, the government has relied on statutory bodies, development finance institutes and social security agencies to avoid taking funds from the government's balance sheet.
Most notably, she said, was the move to reduce Employees Provident Fund (EPF) contributions and introduced a special withdrawal scheme known as I-lestari, which the think-tank estimated accounted for 15 percent of the total stimulus package.
Ideas research executive Armand Azra said that many of the initiatives had a negative effect on retirement funds rather than having an adverse impact on the government.
He said that the largest portion of the stimulus package was the bank loan moratorium, which amounted to RM100 billion.
"While the government did collaborate with the banking sector in order to achieve this, it is also important to note that it would have only a temporary effect on the balance sheets given that it is a deferral of payments rather than any direct payments or exemptions.
"The marginal effects of this can be seen in the large profits made by the banking sector the preceding year," he said. - Mkini
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