KUALA LUMPUR:Malaysia's statutory debt ceiling could be lifted by the government again soon to 70 per cent, MARC Ratings Bhd said.
The debt ceiling has been lifted twice and was supposed to be a temporary move.
The first increase was to 60 per cent of gross domestic product (GDP) and then to 65 per cent.
"After all, the government expects statutory debt in 2022 – comprising Malaysian Government Securities, Malaysian Government Investment Issues and Malaysian Islamic Treasury Bills – to rise to 63.0 per cent of GDP (2021: 59.7 per cent)," said the rating firm in a statement.
In 2021, Malaysia's fiscal deficit had risen further to 6.4 per cent of GDP from the previous year's 6.2 per cent.
MARC's fiscal deficit forecast for this year stands at 6.0 per cent, which aligns with the government's projection.
"In tandem with the rising fiscal deficit, total direct federal government debt rose to 63.4 per cent of GDP in 2021 from 62.1 per cent previously. Debt service charges have also surged past the administrative ceiling of 15 per cent of revenue, which stood at 17.8 per cent at end-2021.
"As such, we do not foresee the government introducing more stimulus packages to support the economy in 2022," it said.
Meanwhile, MARC noted that the US Federal Reserve's aggressive rate hikes, the Russia-Ukraine military conflict in Europe and China's zero-Covid strategy had sent shockwaves globally.
Southeast Asian economies appear to rebound strongly in 2022, but the firm said rising food and energy prices might not sit well from the socio-economic perspective.
"The latest projections by major multilateral banks (MDBs) are in concert that growth in 2022 will come in lower than their earlier estimates. By extension of the downward revision of global growth, major economies – the US, Euro area and China – are expected to grow slower than in 2021.
"The good news, however, is that Southeast Asian countries are likely to perform better in 2022," it said.
MARC said Malaysia's growth recovery momentum should continue as the economy reopened.
However, the conflict's indirect impact, coupled with pressures from other major economies, is straining Malaysia's fiscal position and policymaking.
For 2022, the firm expects GDP growth to come in at 5.5 per cent (2021: 3.1 per cent), which is at the lower bound of the government's 5.3 per cent-6.3 per cent revised forecast range.
The unemployment rate for 2022 will likely average around 4.0 per cent (2021: 4.6 per cent).
Given supply chain bottlenecks and supply shocks triggered by the military conflict, MARC also projected this year's average pace of inflation would likely rise to 2.7 per cent.
"Bank Negara Malaysia's two consecutive 25-basis point (bp) hike to 2.25 per cent did not only signal the improving economic conditions, but it was also a pre-emptive measure to brace Malaysia for external headwinds driven by unprecedented global monetary tightening.
"Amid this backdrop, we expect the ongoing rate hikes to continue to 2.75 per cent by year end," it added.