● On 6 April, the government has announced additional measures worth RM10.0b (0.7% of GDP) aimed at weathering the financial constraints and bureaucratic hurdles faced by the Small & Medium Enterprises (SMEs) amid the COVID-19 pandemic

- Thus far, the overall fiscal stimulus injected amounts to RM260.0b (17.6% of GDP). Of the total, direct government fund injection is RM35.0b or 2.4% of GDP, of which RM3.5b and RM21.5b were announced in the firstand secondround of stimulus, respectively.

- A wise decision: we view the deployment of additional measures as wisely, given that the SMEs contribute to 66.2% of total employment and 38.3% of GDP. With around 907,065registered business establishments categorized as SMEs, funds injected would be able to trickle down to a wider population base and reaching the final beneficiary at a faster rate.

● Fiscal stimulus to help support businesses whilst the government continues its efforts to combat COVID-19

- As we enter the 20th day (6 April) of the Movement Control Order (MCO), the Ministry of Health (MoH) reported a total of 3,793 number of positive cases and 62 number of deaths, bringing the mortality rate to 1.63% which is relatively low compared to roughly 5.50% globally.

- Malaysia is starting to move towards flattening the curve, with a high recovery rate of 33% and lower number of active cases to 2,490, as government implements enhanced movement restrictions during the second phase of MCO.

- We expect the number of new infections to gradually slow down unless the newly discovered clusters from Kuching church and Bangi wedding widen or if there is a new cluster being found.

● Amongst the measures announced,increase in allocation for the Wage Subsidy Scheme andspecialgrant for microenterprises accounted for a major chunk of the RM 10.0b

- 3-month Wage Subsidy Scheme: Allocation increased by RM7.9b to RM13.8b, with the initial blanket subsidy mechanism shifted to a tiered-subsidy mechanism, ensuring a more efficient usage of fiscal resources. Subsidy provided per employee has also been increased from RM600 to a range of RM600 to RM1,200, with the coverage widened to a maximum of 200 employees (previous: 100 employees).

- Special Grant for MicroEnterprises:Micro enterprises, defined as a firm that employs a maximum of five employees and which accounts for 76.5% of total SMEs in Malaysia, will be given a special grant of RM3,000 each.

- Other noteworthy measures include abolishment of the 2.0% interest rate for the RM500.0m Micro Credit Scheme and a 25% reduction in foreign workers' levy to all companies whose workers’ permits expire between 1 April and 31 December 2020.

● Some measures were directed at reducing the bureaucratic hurdles faced by businesses arising from the MCO

- An automatic 30-day moratorium, effective from the last day of the MCO will be imposed to allow companies to submit statutory documents to SSM.

- Deadline for submission of financial statement is delayed to three months from the last day of MCO for companies with financial year ending 30 September to 31 December 2019.

● Fiscal deficit to further widen amid grim growth outlook

- We revise our fiscal deficit forecast to 5.6% of GDP (previous: 4.9%; MOF: 4.7%; 2019: 3.4%), incorporating the additional RM10.0b direct injection from the government, amid bleak growth outlook and lower crude oil price (KIBB: USD40/barrel; BNM: USD25-35/barrel). Tengku Zafrul, the Minister of Finance, stated that the RM10b will be generated via issuance of domestic debt, which we view as feasible given that there is ample space for the statutory agencies to absorb the debt, amid ample liquidity (statutory agencies’ banking system deposits: RM78.2b as at Feb-20).

- While this would result in higher government debt (2020F: RM874.9b), we deem this measures as necessary and reasonable, noting that the government would still be able to abide to the multiple statutory debt limits (i.e. domestic debt: 55.0% of GDP, foreign currency debt: RM35.0b; conventional Malaysian Treasury Bills (MTB) issuance: RM10.0b).

- On the growth front, we maintain our GDP forecast for this year at -1.9% (2019: 4.3%) as the impact of COVID-19 pandemic would likely be extended, and it will take some time for the domestic economy to normalise.

Source: Kenanga Research - 7 Apr 2020