(Bloomberg) -- 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.
“We are calculating the impact and what I can say is that there will be a revision that is required given the closure of some major economic sectors,” Zaful said in a briefing Tuesday. “There will be an impact to deficit due to the revision in GDP.”
The government may have to borrow more to fund the $9.7 billion plan announced by Prime Minister Muhyiddin Yassin late Monday, Zafrul said. The other options are to save on expenditure and use dividends or income from the government ecosystem, which includes statutory bodies and state-linked companies, he said.
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%.
READ: Malaysia's Lockdown Leads Economists to Lower Growth Estimates
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.
“We will continue to support where we can, responsibly, as the government,” he said, responding to criticism that Monday's package isn't sufficient to help the people. “We need to balance the short-term needs to the long-term success of the economy, which will help all Malaysians.”
READ: Malaysia Unveils $9.7 Billion Aid Package as New Lockdown Begins
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