Stimulus package a solid base for further growth, say economists

Penjana, which includes a RM10b direct fiscal injection from the govt, is focused largely on mitigating unemployment risks


MALAYSIA’S RM35 billion economic stimulus package unveiled last Friday may have put a solid base for growth, as economists believe the worst is over following measures taken to reopen the economy in full after nearly three months of restrictions.

The plan, which is in addition to the RM260 billion stimulus introduced earlier this year, is focused largely on mitigating unemployment risks after Malaysia’s jobless rate hit a 10-year high in March. The package is called the short-term National Economic Recovery Plan (Penjana).

It includes a RM10 billion direct fiscal injection from the government of which half will be used to extend the wage subsidy programme from three months initially to six months. Another RM4 billion has been earmarked for various up-skilling initiatives.

Other measures included stamp duty exemption for first home purchases, sales tax exemption for locally assembled cars, a 50% tax break for imported cars, export duty exemption for palm oil from July to December and further tax deferments for airlines and tourism businesses.

IHS Markit Ltd Asia-Pacific chief economist Rajiv Biswas said while the protracted impact of the Movement Control Order (MCO) and slump in world demand for exports is expected to push Malaysia into a recession in 2020, the worst of the negative shocks to the Malaysian economy are probably over.

He expects a gradual improvement in the domestic demand and new export orders during the second half of 2020 (2H20).

“The recovery of some sectors such as tourism, however, will be more protracted as the pace of recovery will depend on how quickly international travel bans are lifted.

“A moderate economic rebound is expected in 2021, as the world economy recovers from the pandemic and export orders return to more normal levels,” he told The Malaysian Reserve.

Malaysia has taken a huge blow from sharp declines in tourism, external trade and global crude prices, further dragged by abysmal domestic activities due to restrictions on movement.

The economy exceeded expectations to expand 0.7% in the 1Q from a year prior, though further contraction is expected in April-June, owing to downward pressure on exports and domestic demand.

Malaysia would likely slip into recession over the next four to six months as the full impact of the pandemic becomes more apparent.

In a televised address, Prime Minister Tan Sri Muhyiddin Yassin said the unemployment rate is set to rise to 5.5%, or over 860,000 unemployed workers by year-end. In March, it stood at 3.9%, or 610,000 unemployed workers.

“I know many among you are worried about the risk of losing your jobs and income as many economic sectors and activities were impacted during the MCO period,” Muhyiddin said.

“The economy will take some time to recover and some groups in our community still require aid as the economy recovers,” he added.

Institute for Democracy and Economic Affairs (IDEAS) research manager Lau Zheng Zhou said while the package is understood as a short-term recovery plan that will expire in December, some initiatives still seem very much an extension of the protection-focused theme from previous stimulus packages.

“IDEAS would like to also urge the government to ensure adequate long-term thinking in Penjana’s implementation in order to guide the economy’s exit from the crisis mode,” Lau said.

On wage subsidies, Lau said the low take-up rate raises concerns over the efficiency of approval and disbursement processes.

According to the Finance Ministry, only RM3.22 billion of the total RM13.8 billion previously allocated in the Prihatin stimulus package had been approved as of May 31.

“IDEAS shares the concerns on unemployment and looks forward to an improvement in the bureaucratic processes, so that targeted recipients have better access to the wage subsidies,” he said.

Additionally, Lau said there is a need to better identify the job-matching needs of the affected informal sector and migrant workers, too. He said given the recent Covid-19 clusters affecting migrant workers, allocation is also necessary to improve their living conditions in the hope of keeping contraction cases low.