Print more money rather than borrow, Putrajaya urged

Money supply is controlled by Bank Negara Malaysia. An economist has suggested that the government increase the money supply instead of taking more loans.

PETALING JAYA: An economist says the government’s move to raise its debt ceiling will give it more room to borrow money for programmes to stimulate economic recovery, but believes Putrajaya should opt for a different approach.

Kameel Mydin Meera, a former dean of the Institute of Islamic Banking and Finance at the International Islamic University Malaysia, believes the government should opt for quantitative easing instead.

Quantitative easing allows the government to increase the supply of money in the economy without borrowing. It involves printing or creating new ringgit and the idea is to boost spending within the economy and in doing so, stimulate the economy.

Speaking to FMT, Kameel said the government will need to roll out a large stimulus package of around RM150 billion to “jump start” the economy which has been affected by Covid-19 and the movement control order.

But while increasing the debt-to-GDP ratio allows the government to borrow more money, Kameel says it need not do so.

Earlier this week, the government tabled the Temporary Measures for Government Financing (Covid-19) Bill 2020 in the Dewan Rakyat which provides for a temporary increase in the national debt ratio from 55% to 60%.

Under the current law, the government cannot raise loans to amounts beyond 55% of the gross domestic product.

Kameel Mydin Meera

“In my opinion, the government should utilise its power to ‘create ringgit’ namely quantitative easing,”
Kameel said.

He contends that quantitative easing would not create inflation as it might in normal times because there is a large liquidity gap in the market as a result of the restrictions to combat Covid-19.

Kameel said Malaysia did not need to follow other countries who have higher debt-to-GDP ratios.

“Debt will have to be repaid principal plus interest, which ultimately will have to be borne by the people.”

Kameel said, in taking advantage of the increased debt ceiling, the government should not channel funds to pay for wage subsidy programmes but should focus on boosting domestic consumption and support for the most needy, including the bottom 40 (B40) and unemployed.

Lee Heng Guie

However, another expert, Lee Heng Guie of the Socio-Economic Research Centre, said the government has to increase the debt-to-GDP ratio given that its debt stood at RM823.8 billion, which is estimated to be in excess of the 55% GDP mark.

“The debt to GDP ratio should not be a cause for alarm in the current moment from a historical perspective as we had far higher debt to GDP ratio between 60.1% of GDP and 93.1% of GDP during 1982 to 1991.

“A debt-to-GDP ratio of 60% is quite often noted as a prudent limit, suggesting that crossing this limit will threaten fiscal sustainability.”

But, he cautioned, this did not mean it was an optimal level as there was a need to consider future growth and revenue paths as well as the country’s capacity to repay the loans.

The increased debt means that the government will have to spend more of its operating expenditure on repaying its loans.

“When the economy has recovered, we must control the growing debt either by increasing taxes or cutting expenditure including rationalising the exponential growth in operating expenditure stemming from emoluments, pensions, supplies and services,” he said.