Pemerkasa initiatives necessary despite strain on fiscal position

A crucial move to speed up the full reopening of the economy and borders as this will also give businesses more optimism

By JASON WONG / Pic By MUHD AMIN NAHARUL

EXACTLY one year after the announcement of the first Movement Control Order, Prime Minister (PM) Tan Sri Muhyiddin Yassin announced a slew of new initiatives aimed at “jumpstarting” the economy from the doldrums of the Covid-19 pandemic.

Called Pemerkasa (Strategic Programme to Empower the People and Economy), the RM20 billion package is the fifth stage of the 6Rs (resolve, resilience, restart, recovery, revitalise and reform) strategy of the comprehensive economic recovery plan.

The latest and sixth package brings the total amount of stimulus to RM340 billion.

Some of the key initiatives announced this time around include the increased allocation for the National Covid-19 Immunisation Programme to RM5 billion from RM3 billion, which accelerates the group immunisation target to December 2021 from the initial target of the first quarter of 2022.

We see this as a crucial move to speed up the full reopening of the economy and borders. This will also give businesses more optimism and will be more willing to invest in capital expenditure.

With that, we foresee slight improvement to the national GDP and corporate earnings forecasts, especially for companies that were hit hard from the movement restriction orders.

Another interesting initiative under the new stimulus package is the 12-month waiver on listing fees for companies looking to list on the Main Market, ACE Market and LEAP (Leading Entrepreneur Accelerator Platform) Market.

We could see more private companies, especially smaller ones, going public during this period. This could be positive for investment banks due to higher IPO fees and brokerages through increased trading volume.

In addition, the PM also announced that RON95 petrol and diesel will have a fixed ceiling price of RM2.05 and RM2.15 per litre respectively.

On one hand, the subsidised prices will help people and businesses manage costs and prevent inflation from spiralling up which would burden the lower-income group.

Amid rising global oil prices, fixing the prices of petrol and diesel may put additional strain in the government’s coffers.

To partly fund the package, the government will seek to raise as much as US$1 billion (RM4.1 billion) in debt by launching the Sukuk Lestari.

This is on the back of the successful Sukuk Prihatin which received overwhelming respons by raising more than RM666 million, exceeding its initial target of RM500 million.

Although the issuance will increase national debt, we think this could be an opportune time to borrow at the current low rates and before global interest rates rise in the future.

We opine the latest RM20 billion package will have a somewhat positive but limited impact on the overall size of the economy at around US$336 billion in 2020.

To put things into perspective, US President Joe Biden’s recently approved a relief bill worth US$1.9 trillion and proposed infrastructure bill worth US$2 trillion, which are quite substantial compared to the US economy of US$20.8 trillion

On the flip side, this will put additional stress on the government’s fiscal position, which could ring some alarm bells among rating agencies.

Nevertheless, the Pemerkasa package is still necessary to support businesses and people who are most affected by the pandemic and lockdowns.

  • Jason Wong is a chartered financial analyst at iFAST Research Team.