KUALA LUMPUR: The government is expected to spend up to RM15 billion via a fiscal stimulus package to stimulate Malaysia’s economy and mitigate any adverse repercussions from the coronavirus (Covid-19) outbreak and other external uncertainties.
The extra government spending was imminent as the private sector was taking a back seat following the fallout from the outbreak in particular, economists said. Hence, more money in public hands would help spur the local economy.
Last Friday, the government said Prime Minister Tun Dr Mahathir Mohamad would announce a stimulus package on February 27 to help the economy, which expanded at its slowest pace in a decade in 2019.
It was neither a new budget nor part of 2020 Budget, Finance Minister Lim Guan Eng was reportedly said.
Malaysia’s economy expanded 4.3 per cent last year, the slowest pace since the global financial crisis of 2009. The fourth quarter growth was even slower at 3.6 per cent.
Bank Negara Malaysia attributed it to lower output of palm oil, crude oil and natural gas, and a fall in exports amid the US-China trade war.
Putra Business School business development manager associate professor Dr Ahmed Razman Abdul Latiff said the government had previously spent more than RM8 billion to stimulate the economy during the SARS outbreak in 2003.
“Even now, the tourism industry players estimated that they suffered loss of businesses to the tune of RM6 billion. Therefore, I expect the government to allocate a package in the range of between RM10 billion and RM15 billion. The package probably can be released in phases and not in one go,” Razman told the New Straits Times recently.
New initiatives under the fiscal stimulus package can be in the form of assistance to the business owners especially small and medium enterprises (SMEs).
“This is to ensure SMEs will be able to cover the operating expenses such as workers salary and also debt commitment especially those in critical industries like tourism, transport, food and beverages and aviation,” he said.
Malaysian banks recently offered financial relief to particularly their SME customers affected by the outbreak.
The banks were also offering to restructure and reschedule financing as well as providing a moratorium on loan repayments.
Razman said the government should continue with its effort to increase liquidity in the market by implementing initiatives such as cost of living aid, e-Tunai and petrol subsidy programme.
Alliance Bank Malaysia chief economist Manokaran Mottain said a similar stimulus package called “The Package of New Strategies” was tabled by the federal government in 2003 to promote private sector investment, strengthen the nation’s competitiveness and develop new sources of growth while enhancing the effectiveness of the delivery system.
“The global economic outlook had turned uncertain since the first month of 2020 owing to the outbreak of Covid-19 in Wuhan, which is a vital industrial hub of China.
“Since China is the world’s second largest economy, any deceleration in the country’s gross domestic product (GDP) growth could definitely weigh on global GDP growth in the medium term,” he added.
Manokaran said the global economic loss from SARS had amounted close to US$40 billion, mainly attributed to the loss of investment and the impact on confidence, therefore dampening spending during the affected period.
“Nevertheless, the implications of the recent outbreak is assumed to be at least no less than the loss incurred by SARS in 2003, given that China has now become a much larger economy and is way more connected to many economic regions via an integrated global value network,” he added.
He said temporary reduction of Sales and Services Tax (SST), increasing tax claim for sponsorship of arts, cultural and heritage activities, and providing a voluntary option to cut employees’ pension contribution by at least 2.0 per cent would boost household consumption.
“Therefore, a higher disposable income coupled with a higher multiplier effect could act as a potent stimulus for boosting overall GDP growth.
“In light of the already expansionary 2020 Budget and the impending announcement of a fiscal stimulus package, we believe the local economy will continue to be well anchored, driven by private consumption,” he added.
The Associated Chinese Chambers of Commerce and Industry of Malaysia (Accim) said the government must speed up the implementation of fiscal spending and identify some quick gain and turbocharged projects for fast track implementation.
Accim added that a larger deficit than 2020 Budget deficit’s target of 3.2 per cent GDP was conceivable to counteract the short-term shock.
It had submitted a comprehensive package of economic and financial measures and initiatives to mitigate the impact of Covid-19.
This included a voluntary two per cent reduction in the EPF’s employee contribution rate, a double-deduction on employees’ salary expenses to assist employers through the difficult period, reverting the Real Property Gains Tax rate back to zero per cent and setting up a Business Disruption Relief Fund to assist the affected SMEs to obtain financing at a concessionary rate.