Analysts and industry players hope govt will introduce a stimulus package to revive consumer and business sentiments
by RAHIMI YUNUS / pic by MUHD AMIN NAHARUL
A REDUCTION in the Employees Provident Fund (EPF) contribution rate; incentives and tax rebates for affected sectors; lower borrowing rates; and fast-tracking of key projects could mitigate the economic fallout from the current coronavirus outbreak.
Malaysia’s airlines, hotels, tourism and retail sectors are expected to take a nosedive as countries try to contain the spread of the virus on soaring death toll past 560 (at press time) yesterday due to the virus which originated from Wuhan, China.
An immediate economic stimulus package could cushion the fallout from the outbreak, however, Putrajaya has limited financial firepower to inject into the economy.
“With an already expansionary Budget 2020, there is limited room for the government to further expand its expenditure, given the current fiscal position and its commitment towards fiscal consolidation.
“Possible forms of a stimulus package could be on tax incentives, discounts and rebates toward the virus-affected sectors,” Alliance Bank Malaysia Bhd chief economist Manokaran Mottain told The Malaysian Reserve (TMR).
Manokaran said the tourism-related and transport sectors are among key areas that would immediately be impacted by the coronavirus outbreak.
He added that stimulus for the services and manufacturing sectors is also essential to maintaining economic growth.
“The main goal from the stimulus package will be to revive consumer and business sentiments, especially in the financial markets,” he said.
Industry players and economists have largely used the SARS global outbreak episode in 2003 and the 2009 recession as barometers to gauge the economic loss and support needed to battle the current crisis.
Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the government may consider reducing the EPF contribution to spur consumer spending.
“Measures may include a reduction in the EPF members’ contribution rate. This was done before in 2001, 2003, 2009 and 2016, and it is optional as members who opt to maintain their 11% rate would need to fill up certain forms,” he told TMR.
Mohd Afzanizam said the option will only be transitory and the contribution rate will be restored to 11% once the economy recovers.
He said the reduction in the contribution rate would improve disposable income.
Socio-Economic Research Centre ED Lee Heng Guie said the government could consider “putting more money into consumers’ pockets” via the optional EPF contribution rate cut.
“The government can accelerate the implementation of infrastructure projects to create more activities in the construction sector that will benefit other sectors, such as manufacturing and services,” Mohd Afzanizam said.
AmBank group chief economist and head of research Dr Anthony Dass said although it is fairly early to evaluate the impact of the coronavirus on the country’s economy, the outbreak could shave between 0.6% and 1% of the GDP as a base scenario in the first half of 2020, or between 1.2% and 1.6% as the worst-case scenario.
Dass said a further reduction in the borrowing cost by another 25 basis points (bps) to 50bps to ensure the domestic sources of growth would be able to mitigate any worsening external conditions.
“Lower lending rates, together with other measures in the economic package to increase disposable incomes, are expected to enhance consumer confidence and spending to support domestic economic activities,” he told TMR.
The Malaysian Association of Tour and Travel Agents (Matta) president Datuk Tan Kok Liang said the association hopes the government would introduce an economic stimulus package that exceeds RM8.1 billion growth plan rolled out in 2003 during the SARS outbreak or RM60 billion stimulus announced in 2009 during an economic downturn.
Matta had proposed several initiatives, including an increase in promotion and marketing efforts for domestic and inbound tourism, easing the criteria and requirements for matching grants under “Galakan Melancong Malaysia”, a review on the tourism tax rate and an easing of visa restrictions for India (and later on China).
The Federation of Malaysian Manufacturers president Tan Sri Soh Thian Lai said the organisation had proposed initiatives to boost Malaysia’s exports, including intensifying promotion of Made-in-Malaysia products; strengthening the capacity and capability of the domestic manufacturing industry; removing RM300,000 ceiling on Market Development Grant; and concluding the Regional Comprehensive Partnership Agreement for a wider market access.