KUALA LUMPUR - Malaysia's cabinet has proposed raising the government's statutory debt ceiling to 65% of gross domestic product, as part of measures to deal with the economic fallout of the COVID-19 pandemic, the finance minister said on Tuesday.

This is the second time in as many years that the government has sought to raise its debt ceiling. In 2020, it was raised to 60% of GDP, the first increase since July, 2009.

The cabinet has also proposed boosting the size of the government's COVID-19 fund to 110 billion ringgit ($26.53 billion) from 65 billion ringgit ($15.67 billion), minister Tengku Zafrul Aziz said in a statement.

The two proposals will be tabled to parliament in October for approval and are aimed at strengthening the public health system, improving social aid measures, and providing support to businesses, he said.

The finance ministry has also directed banks to look into waiving interest payments for low-income borrowers that have received moratoriums on their loans, Zafrul added.

Malaysia cut its 2021 growth outlook twice this year as new coronavirus lockdown measures dampened its recovery, and now expects the economy to expand 3-4%, down from an earlier projection of 6-7.5%.

The government plans to table its budget for 2022 next month, aimed at prioritising post-pandemic recovery and reforms. ($1 = 4.1470 ringgit)

(Reporting by Rozanna Latiff Editing by Ed Davies) ((rozanna.latiff@thomsonreuters.com; +61 3 9492 9423 ; Reuters Messaging: @rozlatiff on Twitter))