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Reopen economy instead, think tank says on raising debt limit

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The Center for Market Education says increasing the debt limit may cause unintended consequences generated by additional borrowing.

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Free Malaysia Today
Center for Market Education says raising the debt limit will further deteriorate Malaysia’s credibility and investors’ confidence.

PETALING JAYA:
A think tank has called on the government to implement several measures, including expediting the reopening of the economy, following a proposal to raise the current debt limit.

The Center for Market Education (CME) said increasing the debt limit risks several “negative unintended consequences“ generated by additional borrowing.

This includes additional debt transferred to future generations, not only in terms of money but also a weaker currency and fewer job opportunities, its chief executive officer Carmelo Ferlito said.

It would also further worsen Malaysia’s credibility and investors’ confidence as well as limit private investments.

Additional demand for loanable funds, he warned, could push up the interest rate and discourage private investments and limit growth and job creation.

“Economic history also teaches us that governments very seldom spend these resources efficiently or for the common good.

“Therefore, we should be very careful in granting them the favour of additional resources,” he said in a statement.

Ferlito went on to say that it would be better to boost Putrajaya’s revenues without negative unintended long-term consequences.

Apart from reopening the economy, the government could also cut corporate tax by 1%.

“They should also introduce a special fiscal programme for micro-businesses, like the one implemented in Indonesia.

“This will allow micro-enterprises to enter the formal economy by paying a small and flat tax on revenue.”

On Friday, finance minister Tengku Zafrul Aziz said he would propose that the statutory debt limit be raised to 65% from the current 60% of the gross domestic product (GDP).

He said although the statutory debt-to-GDP ratio is currently at about 58%, given the commitment made by the government to support the people and businesses, the debt-to-GDP ratio would probably increase to above 60% by year-end.

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