PETALING JAYA: While the economy has begun to revive, the country’s future growth rates are in question, cautions Malaysian Rating Corp Bhd (MARC).

       The rating agency was positive on the fact that Budget 2022 allocated the highest ever development expenditure of RM75.6bil. However, it said the government’s focus appears to remain tightly on economic recovery efforts, given that the economy is still in recession.

       Looking forward, MARC said the government must start addressing underlying structural issues as soon as possible to prepare the ground for strategic economic resetting as set out in the 12th Malaysia Plan.

       “To sustain growth, Malaysia must, first and foremost, reposition itself as an attractive investment destination vis-à-vis its regional peers. However, technology adoption and skills shortage continue to be major concerns

       “It is important to note that Budget 2022 assumes a business-as-usual scenario for international trade.

       “Given the present crisis, continuous improvements in net exports in supporting Malaysia’s overall economic growth is paramount,” it said in a statement yesterday.

       Meanwhile, MARC described the government’s strategy to rely on contributions from state-owned enterprises and other peripheral taxes – such as the one-off Cukai Makmur – to plug fiscal deficits as “unsustainable yet blunt”.

       It also added that concerns over Malaysia’s narrow tax base have become more urgent, following the replacement of the goods and services tax (GST) with the sales and service tax (SST) in 2018.

       “Following the reversal, direct tax rates did not go up to pre-GST levels when the indirect tax base went down,” it said.

       MARC warned that Malaysia’s fiscal position would deteriorate further and faster, if the country’s narrow tax base continues to be an issue.

       On the Covid-19 Fund, whose ceiling was raised to RM110bil from RM65bil, MARC said it could add 6.7 percentage points to the federal government’s total direct debt in 2022 if the RM110bil is fully drawn down.

       “Since the Covid-19 Fund is not meant to fund economic expansion, it will be a burden that will be borne largely by future generations. As such, this is a concern we should all not lose sight of,” it said.

       The Covid-19 Fund is a dedicated trust fund where the proceeds of borrowings needed to finance the additional expenditure on pandemic relief measures are channelled.

       Given the unprecedented borrowings to fund crisis spending, MARC does not foresee the country’s debt ceiling returning to the pre-pandemic level of 55% of gross domestic product by end-2022.

       “We believe the Finance Ministry will either use the proposed Fiscal Responsibility Act or amend existing laws through administrative means to keep the debt ceiling at the current 65%.

       “This would, in other words, allow for the subsequent positioning of the Covid-19 Fund as part of statutory debt under the national budget,” it added.