KUALA LUMPUR (REUTERS) – Malaysia’s fiscal deficit will nearly double to around 6 per cent of annual economic output this year because of the government’s recent efforts to revive the economy, the finance minister told Reuters, adding it could seek to raise the debt ceiling to finance the stimulus.

South-east Asia’s third-biggest economy has announced incentives worth 295 billion ringgit (S$96.4 billion) to soften the impact of the coronavirus pandemic, with the government vowing to directly inject 45 billion ringgit of that into the economy, mostly raised through domestic borrowings.

A direct fiscal injection of 10 billion ringgit announced on Friday (June 5) will be raised through domestic borrowing, Finance Minister Tengku Zafrul Aziz said in an interview in his office on Saturday.

“There is only so much monetary policy can do… So you need fiscal policy to come into play, as long as you have the discipline and the commitment in the longer term to go back to where you should be in terms of the deficit.”

Tengku Zafrul, who was chief executive of lender CIMB Group Holdings before joining the three-month-old government, said the goal was to bring the fiscal deficit back to under 4 per cent of gross domestic product (GDP) in the next three years or so. It was 3.2 per cent last year.

“How bad was it during the (global financial crisis)? It was 6.7 per cent. So we have room if we want to borrow,” he said, referring to the country’s peak annual deficit in 2009.

Tengku Zafrul said Malaysia’s public debt is now 52 per cent of GDP but that “if we need to, then we should increase the ceiling” beyond the current 55 per cent “to help the people and the economy”.

He declined to say how high the government might seek to raise the ceiling, a move that would require approval from Parliament.

The 46-year-old said there was no immediate need for the central bank to cut its key interest rate further from its decade low of 2 per cent, “given the liquidity in the country and given where the currency is going and where we are as an economy”.

Bank Negara Malaysia’s monetary policy committee next meets on July 7, and some analysts have predicted another cut.

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