PETALING JAYA: The MP for Subang, Wong Chen said the government has no choice but to issue more bonds and sukuks to raise funds needed for the extra-budgetary measures required to manage Covid-19 and its socioeconomic impact.
During a forum organised by the Institute for Democracy and Economic Affairs (IDEAS), he said the other two options – selling assets or quantitative easing – were not viable.
“The only remaining option is the fiscal policy solution of issuing more government bonds and sukuks – clearly the lesser of two evils. And we do have a history of issuing RM50 billion every year for the last 10 or 20 years.”
The PKR politician added that there might be a need to raise about RM100 billion this time around.
“I think in this round we need to raise about RM100 billion. Normally, we raise RM50 billion a year in government revenue, so we would need to get an additional RM50 billion.”
However, he said, these were trying times and estimating the fiscal situation remained a big problem, as government revenue might drop even further.
“And if oil prices turn out to be low and constantly low, then we’re going to have a problem with an income tax revenue crash as well. If corporations close, they have no profits to report and they’re not going to pay income tax.
“I think we could even see a situation where we need to raise about RM150 billion from bonds next year,” he said adding that the government could potentially reduce borrowings if corruption and wastage were eliminated.
He said the other options such as asset sales would be “very difficult politically”, as these exercises would be mired in allegations of corruption. “And it would not help in terms of raising the billions that we need.”
Monetary policies, such as quantitative easing, were not a good option, as the country would stand the risk of hyper-inflation and shocks to the currency, he said.
“It would affect the import and export costs, making manufacturing difficult to sustain and to predict. In other words, it would do more damage than good,” he said.
Wong added that issuing more securities might cause a sovereign rating downgrade.
However, he said rating agencies would understand that the issuing of securities needed to be done, especially by smaller countries and economies.
“Hopefully they will not look at this period – the Covid-19 period, which could be for another one or two years – as a blackspot for those smaller countries that have to issue more bonds.”
However, the government will be able to manage this, as there is no need to invite foreign buyers.
He said the buyers of government bonds could be domestic, arguing that the Employees Provident Fund (EPF) had the capacity to absorb these securities.
“But the depositors of EPF – that’s all of us here – we have to see to the question of whether we will be happy or not or whether we can get the returns and whether the financial operations tool is fair or not.”
He added that, as a result of the pandemic and extraordinary financial implications, the government would have no other choice but to increase operating expenditure for the 2021 budget.
“We might have to suspend the sustainability rules (of setting a budget) of the operating expenditure not exceeding government revenue.”
He warned that attempting to maintain budget sustainability might see massive operating expenditure cuts and even civil service layoffs.
The 2021 Budget will be tabled by the Perikatan Nasional government on Nov 6, 2020.
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