● On 5June, the governmentunveiled a Short-TermEconomicRecoveryPlanor Pelan Jana Semula Ekonomi(PENJANA)worth RM35.0b (2.4% of GDP), aimed to propel economic recovery

- In addition to the PRIHATIN economic stimulus package announced in March and April worth RM260.0b, thetotalfiscalpackage is now around RM295.0b (20.2% of GDP). Of the total, direct government fund injection is RM45.0b (3.1% of GDP), of which RM3.5b and RM31.5b were announced in the first and second stimulus packages respectively, while RM10.0b was announced under PENJANA.

- PENJANA is the fourth of the six-staged strategy (Resolve, Resilience, Restart, Recover, Revitalise and Reform) embarked by the government to deal with the unprecedented health, economic and social impact brought about by the COVID-19 pandemic. The implementation of the Movement Control Order (MCO), injection of stimulus and recent reopening of the economy signify that the nation has passed the first three stages and the government foresees Malaysia is about to embark on the fourth stage or recovery phase in the next three to six months.

- We view PENJANA as a comprehensive plan, touching on keysegmentsof the economy, focussing on cost reduction for affected businesses and employees, whilst providing various incentives (e.g. home ownership campaign, sales tax exemption for purchase of passenger cars, etc) to entice those who are less financially affected by the crisis to spend and reinvigorate the domestic economy.

● PENJANA comes at a timely manner to further support the economy when the COVID-19 infection curve has somewhat flattened and the government has decided to gradually reopen the economy

- Since the COVID-19 pandemic started to unfold in Malaysia on 26 January, the total number of cases has reached 8,322 with 117 deaths. This brings the mortality rate to 1.41%, which is relatively low compared to roughly 5.84% globally.

- On 25 May, Malaysia reported the first three-digit COVID-19 spike involving undocumented migrant workers after three weeks of just double-digit figures due to case detection measures implemented at various immigration detention centres. To date, the number of active cases in Malaysia has fallen to 1,531 with 80.2% recovery rate.

- As the number of local COVID-19 transmission begun to record single-digit count with most of the states being classified as the green zones, Malaysia is ready to roll out its exit strategy and end the 84 days MCO. On 7 June, Prime Minister Tan Sri Muhyiddin Yassin announced that the current Conditional MCO (CMCO) will end on 9 June and Malaysia will enter a period of Recovery MCO (RMCO) for 83 days from 10 June until 31 August. In RMCO, almost all social, business and religious activity including interstate travel and domestic tourism are allowed to resume operation in stages. However, all activities will be subjected to strict Standard Operating Procedures (SOP) and the government will not hesitate to reimpose a lockdown or MCO like what China and South Korea did, should the country see a spike in COVID-19 cases during this period.

- To steer clear of COVID-19 new wave of infections in Malaysia during the RMCO period, it is imperative that the public and foreign workers abide to the stringent SOP, namely on social distancing, travel restrictions, health and hygiene measures, outlined by the Ministry of Health (MoH). Extrapolating on Malaysia’s COVID-19 pandemic trend with the assumption of high SOP compliance rate and zero new cluster of cases, our model predicts that the infection rate in Malaysia would gradually subside, and settle to no more than 8,700 cases by the end of June.

● PENJANA is comprisedof 40 initiatives crafted aroundthe goals ofempowering people, propelling businesses and stimulating the economy

- People: with 37.7% of total RM35.0b directed to the people, the government strives to safeguard jobs, incentivise hiring, prop up income and support the transition towards the new norms of working and learning remotely. Key measures include an extension of the wage subsidy scheme by an additional three months (RM5.3b) and free 1GB of internet data daily for education sites and video conferencing until end-2020 (RM3.0b).

- Business: support for businesses, largely micro enterprises and SMEs, account for 27.5% of the overall funding, with the objective of sustaining operations, uplifting productivity and digitalisation, enhancing entrepreneurial activities and reviving consumer confidence. Main initiatives are financial stress support (RM2.4b) via various tax relief measures (e.g. remissions of penalties related to late tax payments) and an additional financing facility for eligible SMEs (RM2.0b).

- Economy: the advent of new norms induced by COVID-19 is seen as an opportune moment for the nation to tap into new sources of growth and sharpen its competitive edge, particularly in the digital arena. About 20.5% of the total funding is allocated to push for the aforementioned as well as to provide support for the severely-affected sectors (e.g. tourism, entertainment) and to encourage purchases of local products. Of note, RM1.8b and RM1.2b are dedicated for the tourism sector and an investment fund for digitalisation, respectively.

Source: Kenanga Research - 9 Jun 2020