OECD: Malaysia’s macro fiscal policies should remain supportive of economy

KUALA LUMPUR: Malaysia has been prompt in facing the economic shocks caused by the Covid-19 outbreak and its macro-fiscal policies should remain supportive, according to the Organisation for Economic Cooperation and Development (OECD).

The intergovernmental economic organisation said Malaysia’s past prudence has allowed it to react boldly in fiscal policy with a series of relief packages amounting to more than 35% of gross domestic product (GDP) that rescued the most affected firms and workers, thus shoring up confidence.

“Financial support has been well targeted and its implementation has been swift. thanks to an established distribution system. An emergency job retention scheme has mitigated the rise of unemployment,” it said in its Economic Survey 2021 on Malaysia, released here yesterday.

OECD said Malaysia’s massive moratorium programmes have alleviated the financial distress of affected households and businesses.

“The policies have been effective, as micro, small, and medium-sized enterprises account for a significant part of the economy. The rise of nonperforming loans has been contained, and financial supervisors consider that capital buffers are sufficient. Nevertheless, the protracted pandemic will force more closures of businesses in severely affected sectors, such as tourism and retail,” it noted.

Despite prospects of a steady economic recovery, the OECD warned that Covid infections are still persistent and risks are mostly tilted to the downside. It recommended that Malaysia keep providing sufficient and targeted support to the affected households and sectors until the recovery is well established.

“Fiscal policy support should therefore not be withdrawn until the situation is fully under control and the recovery is well established, while public debt needs to be reduced under a medium-term fiscal consolidation strategy after the pandemic with further efforts to enhance revenue,” it said.

The OECD also recommended Malaysia prepare a post-Covid19 integrated medium-term fiscal strategy to reduce public debt and contingent liabilities and to consider reintroducing the goods and services tax. – Bernama