AYISY YUSOF
PUTRAJAYA: The economic stimulus package is necessary to ensure Malaysia’s economic growth will remain stable as the government’s revenue from direct taxation fluctuates with the performance of the economy.
Affin Hwang Capital analysts Alan Tan and Kevin Low believe the government will be reverting back to the fiscal consolidation path when the economic environment stabilises.
Malaysia’s gross domestic product (GDP) is expected to grow between 3.2 per cent and 4.2 per cent this year due to the impact of Covid-19 outbreak.
Interim Prime Minister Tun Dr. Mahathir Mohamad had on Thursday said the government has allocated a RM20 billion economic stimulus package to ensure economic risks associated with the Coronavirus (Covid-19) outbreak is effectively addressed.
He said various strategies have been formulated to ensure Malaysian economy remains on strong foundations with the projection between 3.2 per cent and 4.2 per cent growth this year.
“In formulating the stimulus package, the government exercised prudence with respect to its fiscal position. As a result of the stimulus package, fiscal deficit is estimated to slightly increase to 3.4 per cent of GDP compared to the original target of 3.2 per cent of GDP,” he said.
Analysts said the country’s sovereign rating outlook will be kept as stable by international rating agencies.
“We believe the RM20 billion fiscal stimulus package, if properly implemented, will help to strengthen the country’s aggregate domestic demand, especially private consumption growth,” they said.
The economic stimulus package included measures to assist certain sectors and industries affected by Covid-19, especially hotels, airlines, travel companies and the tourism-dependent retail industry.
The research firm said the positive effects stemming from the combined accommodative monetary policy and fiscal stimulus expansion in the country will contribute to support the country’s domestic demand and consumer spending.
“We forecast the Malaysian economy will go through a sharp slowdown in the first-half (1H) of 2020 as the economic impact of the Covid-19 sets in.”
Although there remains downside risk to the slower economic outlook continuing into the second-half of this year, analysts said prospects of stabilisation and possible recovery in the global economic environment will likely lead to some improvement in the country’s economic growth during the period.
“Coordinated efforts by major countries, especially in China, to introduce fiscal stimulus and cut interest rates should also cushion the impact from the Covid-19 outbreak globally,” they added.
Bank Islam Bhd expected the local economic growth to pick up its pace in the second-quarter (Q2) onwards, citing that for every RM1 spent by the government, it would result in RM4.50 in GDP.
“Hence, we have revised our full year GDP growth forecast from 4.3 per cent to 4.0 per cent. In 1H of 2020, the economy could record 3.2 per cent growth before picking up its speed at a rate of 4.7 per cent in 2H of this year,” said Bank Islam chief economist Dr Mohd Afzanizam Abdul Rashid.
He said expansionary fiscal policy should be able to provide the right support to the economy alongside with the accommodative monetary policy adopted by the central bank.
Putra Business School business development manager Associate professor Dr Ahmed Razman Abdul Latiff said the budget was comprehensive enough to support Malaysian economy as the government has shown high commitment by pledging RM20 billion to stimulate the economy.
“This will help to bring back the confidence of investors, not just domestic but foreign as well,” he said.
He added apart from giving direct cash and voucher assistance to affected individuals, this package would help the affected industries to revive demands such as tourism promotion, infrastructure projects and development of human capital.
Malaysian Association of Technical Analysts adviser Nazarry Rosli said the budget was very focus to tackle the main issue of Covid-19 to the economy.
“I believe it is sufficient to support the negative impact. The government is releasing money into the system through people spending by reducing EPF contribution, early payment of BSH and creating more jobs will help to boost the economy,” he said.
He said the reduction in the cost of borrowing for businesses in certain sectors especially those hard hit by the Covid-19 would reduce the burden of the affected community.
Asian Strategy & Leadership Institute’s Centre of Public Policy Studies chairman Tan Sri Ramon Navaratnam said the current budget constraints and deficits would have imposed severe limitations on the designers of the stimulus package.
“The world economic decline and the global Covid -19 virus attack, can last longer than we think. Hence we have to be very cautious in our planning and implementation of the Stimulus Package, during these fluid times,” he said.
Navaratnam said the stimulus package would need to be reviewed again but it would depend on how the Covid -19 unfolds and how much the world economy slows down and affects Malaysia.
“The new government will have to introduce more reforms (including security and human rights ) in the country and economy, to make it more competitive and growth oriented and share its prosperity more equitably,” he said.
He added this was essential to build more national resilience to fight socio economic challenges more effectively for now and in future.