Government Aims to Revitalise Economy and Restore Confidence

In last week’s update and current twelfth update of the PRIHATIN and PENJANA stimulus packages, it might be interesting to highlight that the progress of Wage Subsidy Programme (WSP) has been encouraging in recent weeks, with the allocation rising from RM4.9bn in mid-June to about RM7.07bn as at late June and RM7.15bn as at 6 July 2020 (roughly 52% of the total proposed allocation of RM13.8bn). To recap, in early April, the wage subsidy programme was expanded from RM5.9bn to RM13.8bn, with an additional extension of three months, from April-June 2020 to AprilSeptember 2020 period. We believe the WSP will assist some employers, who are affected by poor business and cash flow during this period, to get assistance and keeping their workers in employment. As at 6 July 2020, the applications approved have increased to 310.6k employers representing 2.48 million workers (2.46mn workers previously). Similarly, under the BNM's SME Soft Loans Funds, banks have approved loans worth RM8.7bn for over 20,104 SMEs, an increase of RM0.3bn from 19,539 SMEs previously. As at 6 July, the Moratorium on Loan Repayment by financial institutions reached a total of RM51.4bn, where RM17.9bn was utilised by business sector and RM33.38bn utilised by the public. However, both moratorium on loan repayments by banks and wage subsidy programme will end on 30 September 2020.

BNM cut its overnight policy rate (OPR) by another 25bps to 1.75% to provide “additional policy stimulus to accelerate the pace of economic recovery.” Having lowered its OPR by a total of 125bps since early this year, we believe BNM will likely leave its OPR unchanged at 1.75% throughout 2020. Domestic demand is likely to recover gradually in 2H2020 and benefit from the stimulus packages. For instance, the cash assistance as at 6 July, a total of RM10.92bn has been disbursed to 10.245 million recipients, which is equivalent to an achievement rate of 97.5%. Other initiatives from the package include PENJANAKerja (RM1.5bn), with 106k jobs vacancies advertised as at 6 July, amongst others.

Going forward, we believe the Ministry of Finance (MOF) will focus on strategies in preparing for Budget 2021 (to be announced on 6 November 2020). Finance Minister (FM) YB Tengku Dato’ Sri Zafrul Aziz highlighted that Budget 2021 will be outlined along 4 themes, i.e. caring for the people, steering the economy, sustainable living and enhancing public service delivery. This will help to revitalise the economy and restore consumer and investor confidence to sustain economic growth. We expect the expenditure programme in Budget 2021 (likely from higher development expenditure) to be expansionary and supportive of economic growth.

Finance Minister also guided that the Government remains committed to reduce the fiscal deficit position to below 4% of GDP over the next 3-4 years, adding that the stimulus packages are either one-off or temporary which will not have a long-lasting impact on government finances in the medium term. Government will resume its fiscal consolidation effort once the global economy recovers. In his recent briefing, Finance Minister also added the country has a strong external position, supported by current account surplus, adequate level of international reserves and large external assets held by banks and corporations.

Source: Affin Hwang Research - 9 Jul 2020