KUALA LUMPUR (Oct 5): Finance Minister Tengku Datuk Seri Zafrul Aziz has said Malaysia's debt levels are set to rise as the country embarks on measures to support businesses and citizens to deal with the economic fallout from the Covid-19 pandemic.

"We're anticipating and forecasting that deficit will go up this year for Malaysia," said Zafrul in an interview on CNBC's "Asia Squawk Box". He reiterated that the fiscal deficit is expected to be around 5.8% to 6% this year.

Zafrul said so far, fiscal injections into the economy stand at around 20% of gross domestic product (GDP), according to a CNBC report today.

"We are still focused on fiscal responsibility, of course. We have debt-to-GDP now at around 53%. It will end at around 56%. We have approval from Parliament to go up to 60%," the minister said.

In August, Parliament voted to allow the government to borrow up to 60% of its GDP as part of temporary measures to ease the blow of the pandemic on businesses.

Malaysia has rolled out about RM305 billion in stimulus packages so far this year, to help inject cash into the economy and prop it up.

Most recently, the government rolled out the Prihatin Supplementary Initiative Package (Kita Prihatin) amounting to RM10 billion.

CNBC noted that even before the pandemic broke out, Moody's had warned about Malaysia's debt.

Moody's Investors Service said in January that Malaysia's debt burden was "significantly higher" than that of other countries with an "A" sovereign credit rating. A sovereign credit rating is an assessment of a country's creditworthiness, and an "A" rating means low credit risk.

"However, deep domestic capital markets and high savings provide a stable funding pool for the government's debt, and partly offset these fiscal weaknesses," Moody's said at that time.

The bright spot, according to Zafrul, is that the government is "optimistic" that the economy next year will expand by around 5.5% to 8%, from negative growth this year. For 2020, GDP is expected to contract by between 3.5% and 5.5%.

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