Covid-19 crisis warrants exit clause in fiscal policy, says Zafrul

KUALA LUMPUR (Aug 18): The Covid-19 pandemic, dubbed the worst crisis since The Great Depression in the 1930s, warrants an exit clause in Malaysia's fiscal policy, said Minister of Finance Tengku Datuk Seri Zafrul Aziz (pictured).

This exit clause, he said, will enable the government to implement countercyclical measures against external shocks such as unstable commodity prices and capital markets, global recession and geopolitical tension.

"An unprecedented crisis will need an unconventional response. In order to find a solution to the Covid-19 crisis, an Act with a temporary period needs to be introduced," he said during the second reading of the Covid-19 bill in the Dewan Rakyat here today.

"Nevertheless, the exit clause must take into consideration several things before it is enforced such as a clear definition of such crises, a timeline and relevant procedures for the clause, effective control and governance during the exception period," he added.

The Temporary Measures for Government Financing [Coronavirus Disease 2019 (Covid-19)] Bill 2020 seeks to, among others, increase the statutory debt limit by increasing the ratio of Malaysia's accumulated debt to gross domestic product (GDP) from 55% to 60%.

It will also see the official establishment and application of the Covid-19 Fund where money channelled into the fund will be used to support the economic stimulus packages and recovery plans announced by the government and other related finances.

"The unprecedented crisis has had a negative impact on the global economy. International agencies such as the IMF (International Monetary Fund) have projected the world's economic growth to contract by 4.9% this year, making this economic crisis the worst since The Great Depression.

"As a responsible government, we have no choice. Preserving the public's well-being and economy is something that cannot be ignored. Hence, the government has rolled out economic stimulus packages and recovery plans worth RM295 billion or 20% of the GDP with direct fiscal injection of RM45 billion," he noted.

According to the former banker, Malaysia is not alone in providing large economic stimulus packages to address the effects of Covid-19 on the economy, saying that almost all affected countries have done the same with global pandemic-related fiscal measures valued at around US$11 trillion.

Among developed countries, he said, Germany's Economic Stability Fund provides two stimulus packages totalling close to US$1.45 trillion with US$900 billion or 24.3% of GDP government-guaranteed, while Australia rolled out a package worth US$133 billion or 10.6% of its GDP.

Closer to home, he noted, Indonesia has announced a stimulus package worth US$40.3 billion or 3.5% of its GDP, Thailand at US$61.2 billion or 11.8% of its GDP and Singapore at US$65.8 billion or 19.6% of its GDP.

"In general, these fiscal measures are unique to and depend on the countries' macroeconomic fundamentals. Relatively, based on the GDP ratio, the size of Malaysia's economic stimulus packages and recovery plans [combined] is in line with that of other countries.

"Malaysia's fiscal management framework has two disciplinary methods, namely one that is guided by the law via existing Acts such as the statutory debt limit and the other, a self-imposed fiscal limit of keeping the debt service coverage ratio to below 15% of federal government revenue.

"Thanks to these [fiscal] control measures, Malaysia has been rated A- by Fitch and S&P, and A3 by Moody's. Malaysia is also ranked 12th out of 190 countries in the World Bank's Doing Business 2020 report," added Zafrul.

Under the Covid-19 bill, the ceiling amount for the total amount of the sums that may be raised under subsection 3(1) of the Loan (Local) Act 1959 and the total amount of money that may be received under subsection 3(1) of the Government Funding Act 1983 specified in the Loan (Local) (Statutory Ceiling for Borrowing) and Government and Funding (Statutory Ceiling of Moneys Received) Order 2009 at the rate of 55% of the GDP is increased to 60% of the GDP when calculated together.

Money raised from the increase in the statutory debt limit will also be paid into the Covid-19 Fund, but only for repayments of matured loans and payment into the Development Fund, according to the bill's explanatory document.

Clause 5 of the proposed Act provides explanations on how all the money raised can be used.

"Subclause 5(1) seeks to ensure that the Covid-19 Fund shall only be used for the purposes of the programmes under the economic stimulus packages and economic recovery plans.

"Paragraph 5(2)(b) seeks to allow the minister to direct the use of the funds allocated for a programme to be used for another programme if there is surplus from any programme," read the document.

The bill is also seeking to backdate and validate all related sums paid by the government from Feb 27, in line with the announcement of the first RM20 billion stimulus package announced by then-interim prime minister Tun Dr Mahatahir Mohamad following the collapse of the Pakatan Harapan government.

Clause 8(1) of the proposed Act states that any sum payable from the fund shall be paid within six months of the expiry of the Act, with the balance to be then channelled to a development fund under the Financial Procedure Act 1957.

Once passed, the Act is deemed to have come into effect on Feb 27 and will be in operation until Dec 31, 2022.

EdgeProp Malaysia Virtual Property Expo 2020 (VPEX 2020) is happening now! Find out more exclusive projects and exciting deals here

Stay safe. Keep updated on the latest news at www.EdgeProp.my 

Click here for more property stories.