Malaysia Faces Unavoidable Recessionary Pressures

Prime Minister Tan Sri Muhyiddin Yassin unveiled a large RM250bn, or about 17% of GDP, economic stimulus packages, but this figure also includes initiatives from the previously announced PRE2020 measures. The three key thrusts focus on protecting people, supporting businesses and boosting the economy. The allocation of the stimulus packages are comprised of RM128bn for people’s welfare, RM100bn for businesses and SMEs, as well as RM2bn to strengthen the economy (together with the RM20bn stimulus announced on 27 February 2020).

Some of the main measures to provide for daily living assistance and targeted incentives for households for the B40 group as well as M40 group include; i) a cash assistance of RM1,600 to households less than RM4,000 (about 4m recipients), ii) RM1,000 to households earning between RM4,000 and RM8,000 (1.1m), iii) RM800 for single Malaysians earning less than RM2,000 (3m), iv) RM500 for single Malaysians earning between RM2,000 and RM4,000 (400k) and v) RM200 for students of higher education institutions (1.35m). On top of that, the measures added cash assistance of RM500 to public servants below grade 56 (1.5m), RM500 to government pensioners (850k) and RM500 to e-hailing drivers (120k). As for front-liners for Covid-19, they will receive cash assistance of RM600/month for healthcare/ medical staff and RM200/month for police, immigration, RELA & others involved in MCO. The cash assistance amounts to an estimated RM11.6bn in total (excluding front-liners’ monthly allowance), where the Government will extend the payout of RM7.4bn in April and RM4.2bn in May 2020. The latest stimulus encompasses a much wider base of recipients, and in this package, M40 group also stands to benefit in the form of cash assistance. These measures will provide some support to overall consumption spending, which has been hit hard by the ongoing Covid-19 disruptions.

Direct Fiscal Injection From Government Amounts to RM25bn

In a briefing by Finance Minister YB Tengku Dato' Sri Zafrul Aziz, the total direct fiscal injection to the fiscal stimulus package from the Government amounted to RM25bn, out of the total of RM250bn announced (10% of the total stimulus). About 40% of the RM25bn fiscal injection will be directed to Bantuan Prihatin Nasional, which is expected to benefit 3.9 million households, 3.1 million B40 individuals and 2 million M40 individuals. The stimulus package will roughly add to Malaysia’s real GDP growth by an estimated 1.5% percentage point (ppt). In addition, the Finance Minister also highlighted that aside from the ECRL and MRT2 projects, other approved mega infrastructure projects will also be continued and accelerated.

In view of the sharp drop in global oil price, the Finance Minister also guided that the oil price assumption has been lowered to US$35-US$40/barrel from its previous assumption of US$62/barrel in Budget 2020. As a result, the country’s fiscal deficit target has been reset higher to 4% of GDP from 3.4% of GDP previously, after taking into account the lower oil price assumption, the fiscal stimulus packages and expected GDP growth in 2020.

Although the fiscal deficit target has been raised, it was reiterated that Government revenue will continue to be supported by various companies, agencies and large institutions in the government ecosystem, possibly through dividend payments. Furthermore, the Finance Minister also guided that the Government is committed and remains firm to fiscal discipline and will not fund its operating expenditure through borrowings. This will ensure that the debt level will remain below the self-imposed 55% of GDP.

For the remaining RM225bn which will not be directly financed by the Government, RM100bn (44.4% of remaining RM225bn) will be through the deferment of all loan/financing repayments for a period of six months effective 1 April 2020 which was announced by Bank Negara Malaysia (BNM) on 25 March 2020, RM40bn from the withdrawal from the EPF Account 2, RM50bn in loan guarantees from Danajamin Nasional Bhd to struggling companies seeking to raise funds for working capital, while the remaining RM35bn will be from various government agencies, see Appendix 1 for detail of measures.

Source: Affin Hwang Research - 30 Mar 2020