EAC Will Announce a Comprehensive Stimulus Package on 30 March

Prime Minister of Malaysia announced a second round of measures to the existing Economic Stimulus Package (PRE2020) after the second meeting of the Economic Action Council (EAC). The EAC unveiled further key initiatives, where the main measure is allowing EPF members below the age of 55 to withdraw a maximum of RM500 a month for a period of 12 months from their second account effective April 2020. The Government expects an estimated withdrawal of RM40bn with 12m EPF members to benefit from this incentive. Second, there will be an allocation of RM500mn to the Ministry of Health (MOH) to support in mitigating Covid-19. The provision will be used to finance the purchase of medical equipment such as ventilators and ICU equipment, in addition personal protective equipment (PPE) for public medical service personnel as well as laboratory requirements for Covid-19 screening. On top of that, RM100mn will be provided to MOH to employ 2,000 new contract healthcare workers. Third, the Government also agreed to allocate RM130mn to other states to help the state government deal with the Covid-19 crisis. Finally, the Government has also agreed to extend National Higher Education Fund Corporation (PTPTN) loan repayment from 3 to 6 months which amounts to RM750m. The delay takes effect immediately until September 30, 2020 and it is expected to benefit 1.5m lenders.

Simulation and Impact Estimates of Covid-19 on Real GDP Growth

We are currently maintaining our real GDP growth forecast of around 3.3% for 2020, which is at the lower end of the official forecast of between 3.2- 4.2% (4.3% in 2019), with weak growth in domestic demand and exports. However, there is increasing downside risk to our growth forecast, where we believe the prolonged Covid-19 outbreak will not only weigh on tourismrelated sectors but also across all other sectors of the economy, especially the disruptions within the global supply chain in the manufacturing sector. Based on our preliminary estimate, assuming if the Covid-19 outbreak lasted until the end of June 2020, affecting the Malaysia's economy over the course of two quarters, the impact is likely to drag and weigh down country’s real GDP growth by 2.5 – 3.0 percentage points (ppt) in 2020. This indicates that Malaysia’s GDP growth may only be expanding by around 0.3 - 0.8% for 2020 as a whole, from our current base case assumption of 3.3%, if the Covid-19 crisis drags on. As such, it is necessary for the Government to take further and possibly larger fiscal stimulus measures to safeguard and support the economy from slowing down sharply.

A Larger Comprehensive Economic Stimulus Package Is Necessary

Prime Minister guided that the Government will announce a comprehensive Economic Stimulus Package on 30 March 2020. The Government noted that the National Security Council (NSC) will decide on the same day if the current two-week movement control order (MCO), which began on 18 March 2020, will be extended from 31 March 2020. Apart from economic stimulus package, we believe the Government may also provide some guidance on the need for possible recalibration of the 2020 Budget, as well as the likelihood of resetting its fiscal deficit target to above the initial target of 3.4% of GDP for 2020, after taking into account additional fiscal spending and lower global oil price assumption. Nevertheless, we believe government will likely roll out a larger and more comprehensive fiscal stimulus package, with household consumption continues to be the prime beneficiary from the stimulus measures, as well as businesses (especially SMEs) in those sectors and industries affected by Covid-19. We believe the stimulus package will also include direct spending by the Government on development and infrastructure expenditure. All the stimulus packages so far, if implemented effectively, will support the country’s economic growth.

Source: Affin Hwang Research - 24 Mar 2020