Government aims to lower its fiscal deficit position over next 3-4 years

Finance Minister (FM) reiterated that the country’s fiscal deficit target has been raised to 5.8%-6% of gross domestic products (GDP) in 2020 due to the direct fiscal injection of RM45bn from both the Prihatin and Penjana stimulus packages to support domestic demand and economic activities. Although the total government debt as a share of GDP currently stands at 52% of GDP, the debt level could reach or exceed slightly above the selfimposed limit of 55% of GDP by end of 2020 due to the implementation of the stimulus measures.

However, most of Malaysia’s government debt (in the region of between 97% and 98%) will be domestic debt, which limits the country’s exposure to foreign currency fluctuations. FM also guided that the Government is committed in lowering the fiscal deficit position back to below 4% over the next 3 to 4 years. We believe Ministry of Finance (MOF) will remain committed towards fiscal discipline and will maintain its self-imposed guiding principles to ensure healthy public finances (i.e. ensuring government spending to be prudent) going forward. This will likely be demonstrated in the enactment of the Fiscal Responsibility Act in 2021, as well as the fiscal strategy in the Fiscal Outlook Report to be announced in November 2020, together with the 2021 Budget.

In the tenth update of the PRIHATIN stimulus package, from between 12 to 19 June 2020, Finance Minister guided that a total of RM40mn has been disbursed to 40,000 BPN recipients. Up until 19 June, a total of RM10.88mn has been disbursed to 10.19 million recipients which is equivalent to an achievement rate of 97%. Meanwhile, 181k appeals have been approved where a disbursement of RM162mn will be carried out by 24 June. For the EPF i-Lestari, the number of applications approved increased to 4.3m as of 19 June, from 4.22m in the previous week, with a total payout of RM2.01bn a month. In addition, the Finance Minister announced the Bantuan Prihatin Elektrik Tambahan to assist households in lowering the cost of electricity bills. Under this measure, an allocation of RM942mn will benefit 7.66mn users. In particular, 4mn users with electricity bills below RM77 a month (or 300kWh) will enjoy free supply of electricity for three months from April.

As for measures to support businesses such as the Wage Subsidy Program, as of 19 June, the applications approved have increased to 303.6k employers representing 2.4 million workers (2.31mn workers previously), where RM4.89bn had been approved (RM4.08bn in the previous week). Under BNM's SME Soft Loans Funds, banks have approved loans worth RM8.2bn for over 19,253 SMEs, an increase of RM0.4bn from 18,449 SMEs previously. For Small Scale Government Projects, as of 19 June, the amount allocated has increased to RM3.76bn out of the total allocation of RM4bn. Finance Minister also reported on the update of PENJANA where initiatives from the package have begun to be rolled out this month, while some are still in the early stages of implementation. Among these measures rolled out include the expansion of the Wage Subsidy Program (RM5.3bn), 1GB free internet (RM3bn), MY30 Unlimited Travel Pass (RM200mn) and support for the agriculture and food industry (RM400mn).

Source: Affin Hwang Research - 24 Jun 2020