Malaysia lockdown to impact growth, deficit targets, says finance minister

Published 01 Jun,2021 via Bloomberg Markets - Malaysia will revise its economic growth and fiscal deficit forecasts as it begins a two-week lockdown to fight a surge in Covid cases, said Finance Minister Tengku Zafrul Abdul Aziz.

The government may have to borrow more to fund the $9.7 billion plan announced by Prime Minister Muhyiddin Yassin late Monday, Zafrul said at a briefing Tuesday, adding the announcement on the new estimates will be made soon.

Malaysia’s economy contracted for the fourth straight quarter in the first three months of 2021, albeit at a slower pace. The government and the central bank expect GDP to expand 6%-7.5% this year after a 5.6% contraction in 2020. The fiscal deficit is projected by the government at 6%.

Benchmark 10-year sovereign bond yields dropped one basis point to 3.24%, while the ringgit and the benchmark equity index traded little changed.

“The bond market is somewhat concerned about the risk of a widening in the fiscal deficit, which could result in higher bond supply,” said Winson Phoon, head of fixed-income research at Maybank Kim Eng Securities Pte. in Singapore. “But subsequent to the stimulus package announcement yesterday, investors took comfort from the fact that the measures are largely non-fiscal.”

The government will need a few days to ascertain the daily cost of the restrictions, Zafrul said. A similar lockdown in 2020 cost the country an estimated 63 billion ringgit.

(Updates with analyst comment in fifth paragraph.)

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