MARC: Fiscal priorities may need to translate to bold reforms

KUALA LUMPUR: The Malaysian Rating Corp Bhd (MARC) feels that the government could have taken a bolder step by employing a short-term debt stabilisation policy at the time of crisis.

It said the underlying concern about the 2021 Budget was focused on revenue collection rather than expenditure.

“We applaud the government’s move to expand expenditure as widely as it possibly can to reach every segment of the population.

“However, improving the revenue to gross domestic product ratio must be a continuous effort to enable development expenditure to move in tandem with operating expenditure,” it said in a statement yesterday.

MARC does not anticipate a downgrade on the horizon.

However, it said the government’s medium- to long-term fiscal priorities might need to translate to bold reforms in order to mitigate such risk.

“All in all, economic recovery is contingent upon how quickly governments can normalise economic activities internally as well as externally post-Covid-19.

“As one of the world’s largest trading nations, the reopening of Malaysia’s borders will allow for a speedier trajectory towards full recovery,” it said.

MARC said the government had expected the fiscal deficit to come in at 5.4 per cent next year, which was within the agency’s forecast of five to 5.5 per cent.

“It expects the budget deficit to moderate to an average of 4.5 per cent over the medium term. There are, however, downside risks to this medium-term projection.

“The rise in fiscal deficit is justified in any case given the necessity to support businesses and the rakyat to mitigate the deleterious impact of the pandemic.”

The firm lauded the move to galvanise government agencies to pivot Malaysia towards digitalisation and improve the agility of the people to move towards more innovative and productive livelihoods.

However, it said reskilling and upskilling efforts were more often than not aimed at helping those who had fallen out of employment to find new jobs, rather than moving Malaysia up the technology chain.

Besides, MARC said the issuance of new debt to finance the Covid-19 Fund could keep debt service further entrenched in its current trend.

“With fiscal policy expected to continue playing the main supporting role next year, and assuming that the current recovery momentum continues, we expect the central bank’s monetary policy to remain accommodative.”