New statutory debt limits to balance financing needs – Yamani Hafez

KUALA LUMPUR, Dec 16 – The government's rationale for increasing the national statutory debt limit to 65 per cent of Gross Domestic Product (GDP) is to balance the financing needs by taking into account the country's financial capability and revenue.

Deputy Finance Minister II Yamani Hafez Musa said the increase was made after taking into account the need to finance the increase in the COVID-19 fund ceiling and funding sources to implement the 12th Malaysia Plan (12MP).

“After taking into account the need to finance the increase in the COVID-19 fund ceiling and funding sources to implement the 12MP, the new statutory debt limit was increased to 65 per cent of GDP and the new limit was set to balance funding needs taking into account financial capability and national revenue.

"Any increase in the debt limit will increase the government's debt service charges (DSC) which is projected to reach 18 per cent to revenue and the prudent level for DSC to revenue should not exceed 15 per cent to create fiscal money for other expenditures that can generate national revenue," he said in parliament today.

He was responding to an oral question from Datuk Dr Mohd Khairuddin Aman Razali (PAS-Kuala Nerus) who asked the debt management measures planned by the government after the intention to raise the statutory debt limit to 65 per cent compared to 60 per cent of GDP previously.

Apart from that, Yamani Hafez said the proposed limit also took into account the government's indebtedness limit as well as the government's financial sustainability in the medium term.

"It is the government's responsibility to ensure the financial position remains stable so that the government is ready and able to implement development plans and economic counter-cycle measures if necessary.

“Therefore, in order to ease the debt burden and debt service charges, the federal government must ensure that expenditure must have multiple positive impact on the economy and the people.

"With the hope for the economy to strengthen and recover, government revenue will also increase and this will provide the necessary fiscal space for the government," he said.

Answering an additional question from Mohd Khairuddin who wanted to know to what extent the government was confident that the new taxes and funding alternatives could cover the government's rising debt burden now, Yamani Hafez said all the government's plans in introducing new taxes were not 'a silver bullet to solve the problem' but the government wants to find creative ways to collect revenue without impacting too much on the economy and at the same time try to ease the debt burden at present.

"We take note of the suggestions given by YB and will try to further expand the Waqf method mentioned," he said.

Meanwhile, Datuk Mahfuz Omar (PH-Pokok Sena) during an additional question asked the government to explain the steps taken in optimising and managing the country as well as the benefits of debt repayment

Yamani Hafez said that in the medium term and once we expect the economy to recover, the government will re-implement consolidation measures and fiscal consolidation initiatives including broadening the revenue base, strengthening tax administration and compliance and improving spending efficiency as well as enacting fiscal responsibility acts which are expected to strengthen governance, management and fiscal discipline.

"In line with the conservative fiscal trajectory, the government's loan requirement will hopefully be reduced and subsequently the country's debt level under control.

"Efforts to improve governance and institutional reform are being implemented and this measure will help improve the government's financial position in the future," he said.

On the benefits of debt repayment, Yamani Hafez said it was a rollover strategy where the government ensured that if the government could borrow at a lower rate to pay off higher initial debt in the medium or short term, the government would implement it if necessary.

"This is the government's strategy to reduce the debt ratio," he said.