● As Malaysia enters its fifth week of Movement Control Order (MCO), the number of recoveries exceeds the number of active cases as there is a sharp decline in number of new daily cases. Malaysia MCO strategy is proven effective as we are moving towards flattening the pandemic curve with a high recovery rate of 61.1%.

● Against this backdrop, LAKSANA (Unit Pelaksanaan dan Koordinasi Stimulus Ekonomi Antara Agensi Nasional), a special unit to monitor the implementation of the stimulus,

has provided an update on the implementation status of the stimulus package, specifically for the initiatives under the second (supporting businesses) and third goal (strengthening the economy).

● 24 days after the announcement of the second stimulus package, RM10.9b worth of funds (9.0% of RM122.0b allocated funds)have been disbursed to the eligible recipients, with two measures registering a commendable disbursal rate of above 40.0% (refer to Table 1). The rest of the measures specified in the update are still in thepreliminary stageof implementation. Details are as below:

● Apart from the above, the government has also tweaked some of its initiatives to incorporate feedbacks from the citizens

- RM500 one-off cash handout, which was initially meant for 1.4m public servants and 900k government pensioners, has been extended to include 180k veterans (without pensions) of the Malaysian Armed Forces.

- Eligibility criteria for the special allowance for frontline workers has been loosened to ease application process by allowing departments’ heads to provide confirmation on the allowance.

- Expedite preparation of documents and hold a virtual voting session for the small-scale infrastructure projects.

● Continuouspush towards a swifter stimulus disbursement is integral to ensure that the multiplier effect from the injection of fund materialises at a faster rate

- Though consumer activities are restrained by the prolonged Movement Control Order, the implemented support measures would still contribute towards softening the economic deterioration in 2Q20 (KIBB forecast: -5.7%; 1Q20F: +0.8%).

- Of all the measures listed above, we view that the release of EPF money via i-Lestari and reduction in employees’ EPF contribution rate, are amongst the policies that would provide the most direct impact to consumers via an increase in disposable income. Should there be a need for additional measures, we recommend the adoption of direct cash injection, as it benefits a broader population base.

● Continued decline in crude oil price would put additional burden on funding of stimulus, government debt and fiscal deficit

- In relation to the government’s capability to continue supporting the economy in times of need, we would like to highlight an immediate concern, that is the plummeting oil price (USD19.8/barrel; end-2019: USD66.0) due to global storage nearing its maximum capacity, signalling the severity of demand slowdown in major economies, and the insufficient OPEC+ production cut. This is an issue worth monitoring as it exerts a substantial risk on Malaysia’s exports and fiscal coffers, and could possibly limit the government’s ability in pushing for an economic recovery.

- Crude petroleum accounted for 2.7% of total exports in 2019 and its growth has declined by 28.1% YoY (2018: +31.0%). Meanwhile, its contribution to the fiscal coffers registered at 30.9% share of total revenue in 2019. A sustained fallout in crude prices would have an unfavourable impact on the government’s debt burden and its ability to finance the rising deficit arising from the large fiscal stimulus that has been announced thus far.

- If the current oil price slide continues as global demand slows and storage facilities filled to the brim, we may have to revise down our average crude oil price forecast of USD40/barrel for this year as well as our projected fiscal deficit of 5.6% (MoF: 4.7%; 2019 preliminary: 3.4%) of GDP. This is based on our GDP forecast of -1.9% for 2020 (2019: 4.3%). A revision to the projected oil price by USD5/barrel to USD35/barrel would further raise the deficit by about 0.1 percentage point. This is based on the official estimate that every USD1 reduction in crude oil price would translate into a MYR300m loss in fiscal revenue.

Source: Kenanga Research - 22 Apr 2020