The PM announced additional RM10bn economic stimulus package specially for SMEs. Under the package, government has increased the wage subsidy package to RM13.8bn (previous: RM4.9bn), and provide RM2.1bn grant to SMEs. The RM10bn amounts to 0.7% of GDP and could potentially increase government fiscal deficit to -4.7% of GDP, assuming government’s earlier target of -4.0% of GDP. On economic impact, the wage subsidy bill accounts for 1.5% of private consumption which could provide some support to private consumption in the 3-month period. Nevertheless, we opine downside risks remain and maintain our 2020 GDP forecast at -2% YoY (2019: +4.3% YoY).

NEWSBREAK

PM Tan Sri Muhyiddin Yassin announced another RM10bn economic stimulus package for SMEs. This package is in addition to the RM250bn economic package that was announced on 27th March 2020. Under the package, wage subsidy will be increased to RM13.8bn from RM5.9bn. All companies with local workers of salary RM4k/month and below will receive the subsidy below for a period of 3 months:

• >200 workers: Wage subsidy of RM600/worker (total number of workers covered with wage subsidy increased from 100 to 200 pax).
• 76-200 Workers: RM800/worker.
• 1-75 workers: RM1,200/worker.

This scheme is open for companies who are registered with SSM or local authorities before 1st Jan 2020 and with PERKESO. Government estimates 4.8m workers will benefit. Nevertheless, this wage subsidy scheme comes with a condition that employers must retain their staff for at least 6 months (3 months during the wage subsidy period, 3 months after the wage subsidy period ends). Other government initiatives include:

• RM2.1bn Geran Khas PRIHATIN. Government will provide RM3,000 for each company and is expected to benefit 700,000 micro SMEs.
• Abolish interest rates (previous: 2%) for Skim Kredit Mikro under Bank Simpanan Nasional (RM500mn) and TEKUN Nasional (RM700mn).
• Rental waivers or discount on rental payment if premises are owned by GLC. Private landlords are also encouraged to follow suit with tax deduction for rental waived during Apr-Jun 2020.
• 25% levy reduction to all companies whose worker permit ends between 1 Apr 2020 to 31 Dec 2020.

HLIB’s VIEW

The total economic package of RM10bn (increased wage subsidy of RM7.9bn and Geran Khas PRIHATIN of RM2.1bn) amounts to 0.7% of GDP. This fiscal stimulus package could potentially increase the fiscal deficit to -4.7% of GDP, working on the base of the government’s announced fiscal deficit target of -4% of GDP. On economic impact, while the RM13.8bn wage subsidy is expected to provide some support to private consumption (1.5% of private consumption), this can only provide some short term relief as the payout is only for a period of 3-month and comes with condition that companies are expected to retain the employees for at least 3 months after the wage subsidy period ends. For now, we maintain our 2020 GDP forecast of -2.0% and expectations for OPR to be cut by -50bps as soon as the May MPC.

Source: Hong Leong Investment Bank Research - 7 Apr 2020