Summary

● In terms of share of GDP, Malaysia's stimulus package is relatively large compared to other ASEAN economies, standing at 17.6% of GDP (SG: 12.0%; TH: 12.0%; ID: 2.5%).

● As the impact of COVID-19 pandemic is unprecedented, ASEAN countries haverelaxedtheirfiscaland monetaryruleswhile intend to finance their stimulus package almost entirely through domestic debt.

● Although it may have additional support measures should the pandemic situation worsens, hindering economic activities for a prolonged period, we view that the federal government has limited fiscal space. It leaves the government with little choice but to borrow more.

● Whilst retaining compliance to the three statutory debt limits, the government has an estimated remaining debt space of RM15.2b (1.0% of GDP) should the need for additional fiscal injection arise.

● Issuance of additional debt is feasible as the banking system has ample liquidity to absorb the debt (statutory agencies’ banking system deposits: RM78.2b, outstanding excess liquidity placed with BNM: RM156.0b, temporary BNM financing: RM30.6b).

● Lessons can be learned on how Singapore able to tap into its well-managed national reserves in times of emergency.

Malaysiahas issued a total ofRM260.0b (17.6% of GDP) stimulus packageto weather the economic damages arising fromthe COVID-19 pandemic

- RM20.0b: schemed to mitigate the impact of COVID-19, stimulate people-centric economic growth and foster quality investments.

- RM230.0b: out of total, RM128.0b will be used to protect and sustain the livelihood of the citizens, RM100.0b to provide breathing space to businesses and RM2.0b to stimulate the economy.

- RM10.0b: additional allocation provided to the Small & Medium Enterprises (SMEs) to help ease the financial strain and reassure that 66.2% of the labour force will remain employed.

- Overall, direct fiscal injection amounted to RM35.0b (2.4% of GDP) and is expected to be financed via government borrowings, lifting up the nation’s fiscal deficit to 5.6% (MoF: 4.7%; 2019: 3.4%) of GDP amid lower oil price and weak economic growth.

As a share of GDP, Malaysia’s stimulus package is larger compared to other major ASEAN economies

- Singapore: The government committed a fiscal injection worth SGD59.9b (USD42b or 12.0% of GDP), subsequently raising its fiscal deficit projection to 8.9% for this year. The stimulus includes tapping into its past reserves amounting to SGD21.0b (USD14.5b).

- Indonesia: The government has temporarily scrapped its fiscal rules, allowing Jokowi’s administration to exceed the legal limit of its budget deficit of 3.0%. The government has set asideafiscal stimulus worth IDR436.1t (USD26.4bor2.5% of GDP), raising its budget deficit forecast to 5.1% of GDP.A large chunk of thestimuluswillbefunded viaissuance of pandemic bonds together with IDR-denominated bonds and sukuk.

- Thailand: The government approved its third stimulus package totallingTHB1.9t (USD58bor12.0% of GDP),likelytoexceedits initial fiscal deficit target of 2.7% for this year. Of the total, THB1.0t will be financed through bond issuance (mostly THBdenominated), while remaining THB900b via central bank measures in the form of soft loans and corporate bonds purchases.

Source: Kenanga Research - 10 Apr 2020