The government has placed a strong focus on reviving household spending amid consumption activity that has been severely affected since the unfolding of the Covid-19 pandemic. — Bernama photo
KUCHING: Analysts applaud the government’s move to roll out its biggest stimulus package in history last week worth a total of RM250 billion in its bold attempt to avert economic catastrophe due to the Covid-19 pandemic which remains unabated not only in Malaysia but also the world.
It is imperative to state that the second stimulus package is inclusive of the RM20 billion stimulus package announced this recent February, as well as the other measures announced recently which include Bank Negara Malaysia’s six-month loan repayment moratorium for individual and SMEs, RM500 monthly withdrawal from individuals’ EPF account 2 from April 2020 to March 2021, Danajamin guarantees and government-linked companies’ (GLCs) capital expenditure.
Total social assistance, as in direct fiscal injection by the government, is limited to about RM25 billion, though Public Investment Bank Bhd (PublicInvest Research) say this may push the country’s fiscal deficit higher to 4.8 per cent against 3.4 per cent projected earlier during the first fiscal stimulus announcement.
“Though looking a little stretched, unprecedented times call for unprecedented measures,” it said in its breakdown yesterday.
“The expected fiscal deficit in 2020 is still manageable and a far cry compared to the 6.7 and 16.6 per cent fiscal deficits at the height of the Global Financial Crisis in 2009 and Commodity Crisis Shock in 1982.”
The second stimulus package’s main focus is to assist the vulnerable groups namely the SMEs, M40 and B40 groups which form the backbone of the economy.
PublicInvest Research affirmed that the government has placed a strong focus on reviving household spending amid consumption activity that has been severely affected since the unfolding of the Covid-19 pandemic.
Private consumption is the nation’s main engine of growth, making up about 59 per cent of the economy.
“A combination of supportive fiscal and monetary policies may put the economy on an even keel but may not be able to push it higher due to the still-raging headwinds,” it added.
Kenanga Investment Bank Bhd (Kenanga Research) in a separate analysis said the second stimulus package was necessary in light of the rapid economic deterioration.
“This additional stimulus package is much needed given the pervasive Covid-19 disruptions turning out to be much worse than expected,” it highlighted.
“The estimated direct funding of RM25 billion will stretch the Federal budget by as much as 1.7 per cent of GDP but we think it is a necessary expense to avert a deeper crisis,” it added.
“This should then widen the country’s budget deficit from 4.3 per cent previously to an estimated six per cent for 2020.”
Malaysia experienced a budget deficit of 6.7 per cent during the last recession in 2008, PublicInvest Research recapped.
Besides turning to the Malaysian Government Securities (MGS) market, other financing options available are asset sale, or seeking higher dividends from Petronas and GLCs which could be challenging given poor oil prices and weak equity markets.
“It is likely then that Petronas’ capex will have to be cut even more aggressively.
“In any case, we believe the domestic bond market has the capacity to absorb RM25 billion of supply on a staggered basis without too much impact on yields,” it added.
“Consumer and retail plays are the relative beneficiaries.
“All in all, the measures are laudable as they aim to stabilise a tenuous economy.
“It is difficult to find beneficiaries when so many are negatively affected.
“And, one must be reminded that while to some, the handouts are additional incomes and to the others are relief replacements of incomes lost, in an environment as unsecure as this, receivers may well choose to save what is given but at least with the cash handouts, the consumption of life’s basic needs can continue undisrupted.
“For this reason, we believe that several fundamentally sound consumer names have indiscriminately fallen victim in this sharp market sell-off. For sure, business in this first half will be softer than usual, but these are defensive names dealing in basic essential goods that will likely outperform in an uncertain market.”