Economic Action Council (EAC) Adds Incentives to Support Economy

Prime Minister of Malaysia announced additional measures to the existing Economic Stimulus Package (PRE2020) following the first meeting by the Economic Action Council (EAC) under the Perikatan Nasional (PN) Government. The announcement of the additional stimulus measures came less than a month after the PRE2020 was rolled out on 27th February 2020. The EAC highlighted four main steps to strengthen the existing PRE2020.

First, the Government will allocate about RM120mn for workers who have been forced to take unpaid leave. Each worker who has been given notice to take unpaid leave beginning 1 March 2020 as well as contributors of the Employee Insurance System (EIS) with a monthly salary not exceeding RM4,000 will be eligible to a financial assistance of RM600 every month over a maximum period of 6 months. The Government expects 33,000 workers to benefit from this measure.

Second, there will be an allocation of RM500mn to provide a 2% discount in monthly electricity bills given to industrial, commercial, agriculture and domestic users. The Government estimates that 10 million users will benefit from this discount. This is on top of the 15% discount which will be provided to hotels, travel agencies, airlines, shopping malls, conventions and exhibition centres beginning April until September 2020.

Third, the Government guided that the payment of RM200 to all Bantuan Sara Hidup (BSH) recipients (that was initially scheduled for May 2020) will be brought forward to 16 March 2020 as previously stated in the PRE2020. The early disbursement is expected to amount to RM760mn and benefit 3.8 million recipients. Furthermore, there will be an additional RM100 to BSH recipients to be paid in May 2020, where this incentive is anticipated to amount to RM500mn and benefit 5 million BSH recipients.

Lastly, the Government also highlighted that small projects focusing on rural infrastructure worth RM2bn previously announced in the PRE2020 will begin implementation from April 2020. Unlike in previous economic downturns, such as in 2008/09 Global Financial Crisis (GFC), this time round, the Government did not announce additional allocation to boost construction activities through higher government development spending. Nevertheless, the Government noted that the implementation of projects announced in Budget 2020 including the East Coast Rail Link (ECRL), MRT2, and the National Fiberisation and Connectivity Plan (NFCP) will continue.

We believe the additional new measures through development expenditure to support the domestic economy may be limited as this reflects some concerns on possible deterioration in the country’s fiscal deficit position. We believe low crude oil prices have affected petroleum income tax (PITA) and corporate income tax (CIT) in 2020. The statement made by the Prime Minister in the EAC meeting also indicates Government’s firm commitment towards fiscal consolidation. When the previous government unveiled the RM20bn economic stimulus package in late February 2020, the country’s fiscal deficit target was raised to -3.4% of GDP in 2020, slightly higher than the initial target of 3.2% of GDP, but the additional allocation by the Government amounted to only RM3.5bn, see Fig 1. If the Budget 2020 is recalibrated, we believe the country’s budget deficit target is likely to be revised only slightly higher from the current official target of -3.4% of GDP in 2020, as sovereign rating agencies will continue to monitor Malaysia’s macroeconomic fundamental and developments.

Source: Affin Hwang Research - 17 Mar 2020