• The PERMAI package comprises 22 initiatives in order to combat the pandemic while also safeguarding the welfare of people and businesses
• In total, the stimulus measures introduced have now reached a total of RM320bn or about 20.4% of GDP.
• PERMAI package will be financed through the reallocation of existing funds based on current priorities and through more prudent spending.

The Stimulus Measures of RM15bn to Support Households and Businesses

Following the implementation of Movement Control Order 2.0 (MCO 2.0), the Government announced additional stimulus measures worth RM15bn under Perlindungan Ekonomi dan Rakyat Malaysia (PERMAI). The stimulus package comprises 22 initiatives in order to combat the pandemic, while also safeguarding the welfare of people and businesses. This was on top of the earlier stimulus announced in 2020, such as KITA Prihatin worth RM10bn, Prihatin Stimulus Package of RM260bn and Penjana Stimulus Package of RM35bn. In total, the stimulus measures introduced to offset the negative impact of the pandemic have now reached a total of RM320bn or about 20.4% of GDP (based on Government’s 2021 GDP forecast).

Continuing and Enhancement of Ongoing Stimulus Measures

The 22 initiatives under PERMAI aimed to support households which have been negatively impacted by the pandemic, especially the vulnerable groups and informal workers. As a result, the government announced that the final phase for the payments of Bantuan Prihatin Nasional or BPN 2.0, which was introduced under the KITA Prihatin package will be accelerated from 21 January 2021, which will benefit 11.1 million recipients and will involve a total allocation of RM2.38bn. We highlighted some other key measures, which included the continuation of loan moratorium and restructuring of loan repayment. Under the EPF i-Sinar Program for EPF members whose incomes have been negatively impacted by the pandemic, since 21 December 2020, more than 3 million applications had been approved, with a total of RM24bn payable this year as at 13 January 2021.

Besides that, the government continues to provide support for the labour market through programs like the Wage Subsidy Program 3.0 under SOCSO. The program will be improved to include employers (irrespective of sectors) operating in states that are under the Movement Control Order (MCO). Under the program, for one month, eligible employers will receive a wage subsidy of RM600 for each employee earning less than RM4,000 up to a maximum of 500 employees (maximum of 200 employees previously). A total of 250,000 workers employing more than 2.6 million workers are estimated to benefit from this subsidy with an allocation of RM1bn. Meanwhile, condition for the Employment Insurance System program (SIP PRIHATIN) have also been relaxed for employees who have experienced a loss of employment.

For businesses, among measures announced include the expansion of the current Geran Khas Prihatin Tambahan (Prihatin Special Grant Plus) to 500,000 SMEs in the states under MCO, where each will receive a payment of RM1,000 while 300,000 SMEs in the remaining states will receive RM500 each. The total allocation for this initiative is RM650m. Besides that, the government will also accelerate the implementation of RM1bn microcredit schemes by Bank Simpanan Nasional, Agrobank and TEKUN. See Appendix 1 for other fiscal stimulus measures.

Drag on economic growth under current MCO 2.0 not as severe as in 2Q20

The reinstatement of MCO 2.0 covering states and FTs of KL, Putrajaya, Labuan, Penang, Melaka, Johor, Selangor and Sabah from 13 January to 26 January 2021 accounted for 66.4% of the country’s total GDP. The two biggest contributors are Selangor and KL, with employment in these states accounting for 61.7% of Malaysia’s total employment. Based on our estimate, the current two-week MCO could result in economic losses of roughly around RM0.6bn to RM0.8bn per day, compared with losses of RM2bn per day in previous year’s MCO. As a result, we believe the country’s real GDP growth may likely be dragged by between 0.7 percentage point during this MCO period. We are currently maintaining our full year 2021 GDP growth forecast of +6% in 2021, as compared to -5.0% estimated for 2020, subject to details such as duration of the MCO as well as further fiscal stimulus respond. We also do not rule out the possibility of further stimulus measures being announced if the MCO get extended beyond two weeks, especially if economic activity unexpectedly deteriorates from softness in labour market conditions, shift in consumer spending patterns, as well as declining tourism-related sectors.

With the expediting of stimulus as well as the continuation and enhancement of ongoing measures under the PERMAI package such as BPN 2.0, BPR and Wage Subsidy Program 3.0, we believe these measures should cushion some of the negative economic effects of the current MCO. Government also noted that the current MCO sees more economic activities being allowed to operate, and therefore does not have the same drag on the economy as the previous MCO in 2Q20.

In the upcoming Monetary Policy Committee (MPC) meeting on 20 January 2021, we believe BNM will likely maintain its Overnight Policy Rate (OPR) at its current level of 1.75%. As BNM has lowered its OPR by a total of 125bps last year, from 3.0% to 1.75%, we believe BNM will likely view current level as appropriate and accommodative to provide further support to domestic demand.

In terms of financing, it was guided that the PERMAI package will be financed through the reallocation of existing funds based on current priorities and through more prudent spending. The country’s government debt ceiling rate was increased to 60% of GDP recently (from the 55% of GDP previously), starting February 2020 and enforced until 31 December 2022. This will enable the government to temporarily increase government fiscal position and partly finance economic stimulus packages to mitigate the impact of the pandemic on the domestic economy.

Source: Affin Hwang Research - 19 Jan 2021