This article first appeared in The Edge Malaysia Weekly on March 30, 2020 - April 5, 2020

IF Malaysia’s RM250 billion fiscal stimulus package is any indication, the government — though not one elected by the people, as admitted by Prime Minister Tan Sri Muhyiddin Yassin on national television on March 27 — cares (prihatin) and knows it needs to ensure that the people’s well-being and livelihood are protected. It also needs to ensure that businesses can weather the storm while continuing to pay employees despite doing hardly any to zero business, owing to enforced social distancing.

Granted, only 10% of the RM250 billion headline figure for the additional stimulus package to counter the impact of Covid-19 will be directly funded by the government. And, yes, it would have been great if Malaysia had more than one Petroliam Nasional Bhd (Petronas) or (like Singapore) had stored away sizeable government reserves that it could tap to give cash transfers.

Yet, despite the government’s fiscal constraints, most of the RM250 billion stimulus would not involve Malaysians’ dipping into their retirement savings. In fact, the government has arranged for employers to approach the Employees Provident Fund for options to meet their portion of the EPF contribution — one of several measures to alleviate cash-flow issues.

The six-month moratorium on loan repayment, worth at least RM100 billion, may not have directly come from government coffers, but it may well provide small and medium enterprises with the largest help to avoid a cash crunch.

For instance, an SME with a RM10 million, three-year term loan at 9% interest does not have to worry about having to immediately repay close to RM2 million (RM318,000 per month).

Or, a company borrowing RM100 million over five years at 9% interest would not have to worry about forking out RM2 million every month, or RM12 million over six months.

A viable business should have no issue with continuing to service the loan after the moratorium period ends, assuming that its operation resumes swiftly once the pandemic is contained.

The Danajamin Nasional Bhd-managed RM50 billion scheme, which guarantees up to 80% of loans taken by businesses for working capital needs, is another way that the government can step in to lower the risk of lenders. It is likely that these facilities would be expanded, should the need arise.

It is vital for the government to ensure that viable businesses stay afloat because only then can the vast majority of people remain employed. Furthermore, if companies can more than survive this rout, then they can bounce back and private investments can continue when the pandemic is contained. These are important engines for the economy, as they enable private consumption to remain strong during good times.

After all, even viable and good companies are seeing a lot less business and facing cash-flow issues, not because they are inefficient, but because of the broader environment and constraints to contain the pandemic. Unless the company itself is in a bad condition, the situation is temporary and can be remedied if enough liquidity is extended for them to remain strong and be prepared to capture the uptick in business.

If China’s recovery from the coronavirus pandemic is any indication, it is just a matter of time before the world gets back on its feet.

Lacking in clarity

When the first RM20 billion stimulus was announced on Feb 27 by interim prime minister Tun Dr Mahathir Mohamad, the fiscal deficit was projected to rise from 3.2% to 3.4%. GDP growth was revised downwards from 4.8% to between 3.2% and 4.2%. It was a time when no economist was officially forecasting the possibility of a recession for Malaysia.

After all, the country had only 23 cases of Covid-19 and no deaths then. The movement control order (MCO) — which began on March 18 — was announced only on March 16, the day before the first two deaths from Covid-19 were announced. As at March 27, the number of cases had reached 2,161, with 26 deaths.

At least two economists are projecting negative growth for Malaysia in 2020.

No new official projection for GDP growth in 2020 was announced with the RM250 billion stimulus package.

The government also did not say exactly how it planned to finance the extra RM25 billion that it was spending in aid of the economy.

A detailed reconstruction of Budget 2020 was also not publicly released.

In fact, 25 pages of confidential slides, which projected a sizeable rise in non-tax income to fund the stimulus and were purportedly presented to the Cabinet, were denounced as fake by the official sebenarnya.my website. This would not have been an issue if figures had been announced with the stimulus. Some observers are more forgiving, noting that the stimulus was brought forward to March 27 from March 30, bringing the good news three days earlier.

Four per cent fiscal deficit possible?

What Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz did tell The Edge was that the fiscal deficit would rise to 4% and that oil price assumption had been revised to between US$35 and US$40 per barrel versus US$62 before. He did not provide the specifics on how the RM25 billion additional spending would be funded, apart from the money being “a mixture of borrowings as well as from government coffers”.

He did not say whether “government coffers” meant more dividends from Petronas, Khazanah Nasional Bhd and Bank Negara Malaysia, given that investment income is Malaysia’s largest source of non-tax revenue.

A 4% fiscal deficit works out to between RM60 billion and RM62 billion, assuming zero to 3.2% GDP growth — which is not too far from the 3.8% deficit that some economists say Malaysia should be able to afford without risking a downgrade by sovereign rating agencies. The fiscal deficit of 3.2% in the old Budget 2020 was pencilled in at RM51.7 billion.

While economists largely expect Petronas to be contributing more dividends, some observers reckon that other sources will need to be considered to avoid Petronas’ rating from being downgraded — which was what happened when it paid the RM30 billion special dividend, on top of the RM24 billion normal dividend, in 2019.

At the latest, some details should be out by this Friday (April 3) when Bank Negara releases its 2019 annual report.

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