Key measures are aimed to mitigate the Covid-19 impact, spur people-centric growth and promote quality investments
by DASHVEENJIT KAUR/ pic by MUHD AMIN NAHARUL
THE RM20 billion economic stimulus package aimed to soften the impact of Covid-19 has been commended by industry players and economists mainly for its ability to boost the domestic economy.
Crafted by the previous Pakatan Harapan government, the package, which focuses on “bolstering confidence, stimulating growth and protecting jobs” in light of the Wuhan-originated virus outbreak, was an anticipated announcement.
Former Prime Minister (PM) Tun Dr Mahathir Mohamad unveiled a slew of measures worth RM20 billion, or 1.3% of GDP, of which RM3 billion is an additional spending from the government; RM3.5 billion are soft loans from Bank Negara Malaysia; and RM12.7 billion from the reduction in the Employees Provident Fund’s employee contribution rate.
The 2020 growth projection is also lowered to between 3.2% and 4.2% (from the previous 4.8%), while the fiscal deficit target is revised to 3.4% of GDP, wider than the initial target of 3.2%.
To recall, during the SARS outbreak in 2003, the government then announced a RM7.3 billion (or 1.7% of GDP) fiscal package.
Key measures are aimed to mitigate the Covid-19 impact, spur people-centric growth and promote quality investments.
The measures help ease cashflow and decrease cost for the affected sectors including tourism, transport, hotels, restaurants and retail.
These include delays of tax payments, discounts on electricity bills, service tax exemptions, financial relieves, and rebates on rentals and landing charges at airports.
Workers in the affected areas including doctors, medical officers, taxi and bus drivers, and immigration officers will be given cash assistance.
UOB Research senior economist Julia Goh said Covid-19’s economic impact is more severe than SARS given the higher number of confirmed infections, more drastic measures taken by China to contain the outbreak and stronger economic linkages today.
“The measures are encouraging from the aspect of assistance to hardest-hit sectors and affected individuals by stimulating private spending and promoting investments.
“The revised growth targets are in line with our base case forecast of 4% and more severe scenarios should Covid-19 extend into the second half of the year (2H20),” she said in a report released last Friday.
The duration and severity of Covid-19, however, remains unclear at this juncture as the situation is still evolving.
Goh said the package prioritises measures that can be executed fast in order to cushion growth particularly in 1H20, and spur a rebound in 2H20, if Covid-19 peaks by mid-year.
“For now, we maintain our current projections for this year’s GDP growth at 4% and Overnight Policy Rate (OPR) at 2.75%.
“This takes into account the fiscal support measures, preemptive OPR cut in January and growth stabilisation efforts by other countries, particularly China. If related risks prolong, this will pose a deeper drag on the economy and warrant further OPR cuts as economic risks tilt closer to a more severe scenario,” she said.
Goh added that it was also commendable that a stimulus package was announced despite the current political headwinds.
“It reflects that the government’s operating machinery remains active to ensure that economic conditions are stable,” she said.
Likewise, Affin Hwang Investment Bank Bhd Research chief economist Alan Tan said the fiscal stimulus package, if properly implemented, will help strengthen the country’s aggregate domestic demand, especially private consumption growth.
“The economic stimulus package has included measures to assist sectors and industries affected by Covid-19, especially hotels, airlines, travel companies and the tourism-dependent retail industry.
“It is also necessary to ensure that Malaysia’s economic growth remains stable as the government’s revenue from direct taxation fluctuates with the performance of the economy,” he said in a report last Friday.
Going forward, Tan believed the positive effects stemming from the combined accommodative monetary policy and fiscal stimulus expansion will contribute to domestic demand and consumer spending.
He, however, forecast the country’s economy to go through a sharp slowdown in 1H20 as the economic impact of Covid-19 sets in.
“While there remains downside risks to the slower economic outlook continuing into 2H20, we believe prospects of the global economy stabilising and recovering will likely lead to some improvement in the country’s economic growth in 2H20.
“Domestically, the economic recovery in 2H20 hinges on the effectiveness of the RM20 billion economic st imulus package implementation, as well as the extra public spending (additional RM2 billion in development expenditure for spending on small infrastructure repair and upgrading projects), which will create a multiplier effect on construction and investment activities,” he added.
On domestic consumption, with various measures being announced in the package, Tan believed that it will be effective to raise disposable incomes of households and supported by accommodative monetary policy.
Additionally, he said the personal income tax relief on expenditures related to domestic tourism will boost the industry.
“Furthermore, we expect growth in private consumption to be also bolstered by a one-off payment of RM600 to taxi and tourist bus drivers, tour guides and registered trishaw drivers.
“An additional monthly RM400 allowance for medical doctors and medical personnel, and RM200 for immigration and front-line staff until the end of the Covid-19 outbreak will also stimulate some spending,” Tan said.
As a result, with the stimulus package, the research firm believed that Malaysia’s real GDP growth will likely recover from a low 3.5% in 1H20 to around 4.5% projected for 2H20.
“For the whole of this year, we believe real GDP growth will likely average around 4%, compared to the current official projection of between 3.2% and 4.2% (4.3% in 2019),” Tan said.
The tourism industry has been severely impacted ever since the virus broke out.
The Malaysian Association of Tour and Travel Agents (Matta) believed the package will help mitigate the impact on the tourism industry which has been severely affected by Covid-19.
President Datuk Tan Kok Liang said the comprehensive package covers many sectors, including requests made by Matta and key stakeholders for the tourism industry.
“The personal income tax relief for domestic tourism is fantastic to rejuvenate the local tourism industry. Matta proposed the eligibility be limited to companies licensed by the Tourism, Arts and Culture Ministry, and these domestic tours can be for resident taxpayers, spouses or children.
“We are also gratified with the compassion shown to tourism front-liners like taxi, tourist bus and trishaw drivers, and tour guides,” he said in a statement.
Tan said the economic stimulus package lived up to its theme of “bolstering confidence, stimulating growth and protecting jobs”.
“Although Matta had requested several other measures like granting free visas to Indian tourists and double tax deduction for local companies which send staff for meetings, incentive tours, conferences and exhibitions, the priority now is for all to start working on recovery measures,” he added.
The Malaysian Association of Hotels (MAH) also shared a satisfying sentiment following the stimulus package announcement, adding that while it may not completely address the current challenges, the commitment by the government is encouraging.
CEO Yap Lip Seng said the stimulus package addresses MAH’s two main concerns directly, namely cashflow and financial burden, and tourism.
“The deferment of income tax, 15% discount on electricity, and suspension of Human Resources Development Fund (HRDF) contribution and tax for hotels were among our top requests.
“Financial facilities were expected and would be much needed by the affected stakeholders to ensure they survive the situation and be ready for the recovery,” he said in a statement.
Yap said the industry will continue to play an active role, both in engaging with the government and extending similar assistance to partners for a sustainable tourism industry.
Meanwhile, the Federation of Malaysian Manufacturers (FMM) said the government took heed of the organisation’s recommendations to boost domestic consumption.
“It is critical to execute the implementation effectively, so that affected businesses recover quickly. Hence, we look forward to further details of the measures introduced as soon as possible,” president Tan Sri Soh Thian Lai said in a statement.
However, Soh said the export sector is not given prominence as FMM had hoped that there would be measures to boost exports, too.
“Manufacturers’ main concern is the impact of Covid-29 on production which has slowed down due to low supply of raw materials sourced from China, including moulded and metal press parts; iron and steel products; ingredients for food and beverage production; parts and components for machinery; and paper and packaging materials.
“Imports of these raw materials are affected as certain cities in China are currently under lockdown and production has been stopped,” he said.
Similarly, exports to China are affected as most of the customers and importers are still closed due to the Chinese government’s directive.
FMM said exports affected include machinery and equipment, automotive components, electrical and electronic products, toiletries, steel products and processed food products.
In relation to procurement and implementation of development projects, FMM also urged the government to place greater emphasis on “Love Malaysia, Buy Made-in-Malaysia Products”.
This is to ensure robust and sustained domestic market demand for Malaysian products and to promote import substitution which will strengthen the domestic manufacturing industry.