KUALA LUMPUR: Well-targeted, timely, and does not derail Malaysia’s fiscal sustainability — these were among the responses most economists contacted by The Edge Financial Daily have to say about the RM20 billion stimulus package announced yesterday.
It is also seen as tailored to boost both private and public investments.
“The size of the fiscal stimulus is bigger than our expectations as we were looking at around RM15 billion. Our take is that the measures were well-targeted with emphasis on the affected sectors namely the tourism-related industries as well as to ensure the viability of the economy in the long run,” said Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid.
Among such measures, he noted, were the deferment of income tax monthly instalment for six months, a special discount of 15% on electricity bills, an exemption on the Human Resources Development Fund levy for six months, and financing aid from various institutions.
“Also, the Employees Provident Fund members’ contribution rate will be reduced from 11% to 7% until the end of this year. This, along with the one-off cash payment to employees in the tourism-related industries and the earlier disbursement of the cost of living aid (Bantuan Sara Hidup ) payment would sustain consumer spending, which makes up more 50% of our economy,” he said.
Universiti Utara Malaysia director of Asian research institute of banking and finance Dr Irwan Shah Zainal Abidin said the sectors targeted “really hit the nail on the head”.
Deficit increase ‘within Malaysia’s fiscal flexibility’
However, Irwan is more concerned that the implementation of the stimulus package will widen the country’s fiscal deficit.
According to the announcement, the booster package will raise Malaysia’s fiscal deficit to 3.4% from its initial target of 3.2% for 2020, while gross domestic product (GDP) growth has been revised to the range of 3.2% to 4.2% amid the headwinds it is facing from 4.8% targeted previously.
“The projected economic growth for 2020 after the roll-out of this stimulus package will be unable to offset the rise in the fiscal deficit target,” said Irwan, as he noted that the 2003 stimulus package, in contrast, had managed to boost economic growth as well as reduce fiscal deficit.
However, Sunway University Business School economics Professor Dr Yeah Kim Leng has a different view.
To Yeah, while the RM20 billion stimulus package represents 1.3% of Malaysia’s 2018 GDP — slightly higher than most private sector forecasts’ of less than 1% — the fiscal impact appears to be “rather minimal”.
Even if assuming the package has to be funded entirely through borrowings, Malaysia’s debt level will only be raised by a minimal 0.2% of GDP from the current 70% level, far from the 80% upper threshold, Yeah said.
“The impact is within the expected range and does not derail Malaysia’s fiscal sustainability. We are considered only moderately impacted as compared with other countries as our debt level is still within a comfortable range of between 60% and 80% of GDP.
“At this juncture, we have not exceeded the threshold that will create a concern of being vulnerable to a so-called debt crisis that ends up becoming a drag on the economy. The fiscal deficit, being raised to 3.4% from the original target of 3.2% of GDP, is also within Malaysia’s fiscal flexibility,” he added.
Yeah’s sentiment was echoed by UOB Malaysia’s senior economist Julia Goh, who said the fiscal deficit revision is “realistic” after taking into consideration current headwinds’ impact on growth, revenue and the additional expenditure required to counter them.
“The revised deficit does not reflect a sharp slippage in fiscal position, as such we think this should not affect the country’s sovereign credit ratings particularly in light of the new risks at hand,” she added.
‘Most expectations met’; implementation is key
Yeah, meanwhile, is of the opinion that the brought forward RM200 payment to all BSH recipients — similar to cash credits used elsewhere — is one of the most helpful measures under the booster package, as it would provide relief and boost disposable income to those most vulnerable in the society.
Furthermore, the increase in tax relief and financing facilities for affected companies are important financial assistance similar to what other countries are providing in the face of the rampant viral outbreak, which will help them enhance their cash flow amid business downturn, Yeah added.
“Most of my expectations were met, in the sense that the affected sectors were provided the necessary assistance, both direct and indirect, and measures to boost domestic demand,” he commented.
UOB’s Goh also lauded the stimulus package as being “much broader and expansionary” than anticipated.
It is also encouraging, she said, that the stimulus package was announced despite current political headwinds buffeting the country, which reflects that the operating machinery of the government remains active to ensure that economic conditions remain stable.
Still, implementation remains a key concern. “With the ongoing political crisis that Malaysia is facing, I’m not sure whether this stimulus package can be implemented optimally,” said Irwan.
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