● The Ministry of Finance (MOF) released additional measures yesterday, aimed to assist individuals and Small & Medium Enterprises (SMEs) in coping with the adverse impact of the COVID-19 pandemic

- Special financing of up to RM1 million without collateral under the special assistance facility to the SMEs affected by the COVID- 19 outbreak. This facility is part of the allocated RM3.3b under BNM’s special fund for SMEs announced earlier.

- The measures are expected to provide some relief to SMEs, which contributed a large chunk of employment in the country at 66% of the country's employment and 38.3% of Malaysia's GDP. Meanwhile, the affected individuals with the existing insurance policy will be assured with hospitalisation facility and extension in their insurance coverage.

- The government, via the Securities Commission and Bursa Malaysia, also reaffirmed that the capital and financial markets would continue to operate in a transparent and orderly manner.

- Meanwhile, to ease taxpayers' difficulties the Inland Revenue Board of Malaysia (IRB) announced the extension ofthe deadline for income tax returns for both on-line and manual submission to 30th June.

- The house view that the additional measures deemed to be right on time amidst rising concerns among citizens and SMEs as public movement and businesses are restricted within the two-week Movement Control Order, which ends on March 31, as the number of COVID-19 cases continue to rise. This may lift up sentiments and provide additional relief to the affected individuals and businesses.

● The number of COVID-19 casesbreached 900, most were related to the religious gathering cluster

- Despite the ongoing nationwide movement control order, Malaysians are still out and about, increasing the likelihood of a third wave infection.

- Currently, Malaysia has the fifth largest number of cases in Asia, slightly behind Japan, with 924 cumulative cases. Out of the total, 64% or almost 2/3 linked to the February 27 to March 1 event, organised by the Tabligh religious group which took place at the Sri Petaling mosque compound.

- More strident action: A stricter movement or mobility policy ala imposed by China or Italy is needed apart from social distancing and self-quarantine in a bid to reduce the number of new cases. Malaysian may have to face draconian shutdown measures if the number of cases spikes drastically in the near term.

● Forecast retained, more additional measures expected

- We reckon the measures outlined by the government would not affect the fiscal balance sheet as the financial institutions and insurance companies will absorb the stimulus. Therefore, we retain our fiscal deficit forecast of 4.3% of GDP for 2020amidlow Brent crude oil prices (currently trading below USD30/barrel). Likewise, we are still maintaining our GDP growth forecast for this year to moderate by 3.1% (2019: 4.3%) as we foresee a growth rebound in 2H20 as the COVID-19 outbreak passed and stimulated by tech upcycle and improvements in the domestic demand and investment climate.

- Despite the additional measures, we believe there is room for the authority to inject another fiscal stimulus to prop up the growth momentum while ensuring extra social security for the people in weathering the challenging economic environment. The government may want to consider additional cash transfer, especially for the B40, and to be expanded to the M40, as this will be faster and effective to partly lift the financial burden of the rakyat as well as small businesses and spur spending during the period of turmoil. This may entail an additional RM3.0b-RM5.0b.

Source: Kenanga Research - 20 Mar 2020