This article first appeared in The Edge Malaysia Weekly on March 30, 2020 - April 5, 2020
THE country’s much-awaited comprehensive fiscal stimulus package was unveiled last Friday, and its whopping amount of RM250 billion took many by surprise.
Called Pakej Rangsangan Ekonomi Prihatin Rakyat, or Prihatin for short, the package comprises RM128 billion to protect the welfare of the people, RM100 billion to protect the welfare of small and medium enterprises (SMEs) and RM2 billion to strengthen the country’s economy, on top of the RM20 billion stimulus that was earlier announced on Feb 27.
Though RM250 billion may seem like a gargantuan amount for the government to take on, the actual amount of fiscal spending is RM25 billion.
When contacted, Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz stresses that Malaysia is in a “strong fiscal position” and that the country can afford to bolster the domestic economy up with the RM250 billion Prihatin package.
“Given the liquidity that we have in Malaysia, it is not an issue for us to support the stimulus package injection,” Zafrul tells The Edge.
He explains that the government will finance the RM250 billion stimulus package via funds from its coffers and a mixture of borrowings.
The Ministry of Finance has forecast the country’s deficit to widen to 4%, he points out. “Our initial forecast for 2020 in the October budget was 3.2% ... now, we are predicting it to be 4%,” says Zafrul.
“The stimulus package is also based on the new oil price. The price used in Budget 2020 announced in October last year is US$62.”
To Zafrul, public spending is the key growth driver. “We will continue with what we have to spend. It is key that we continue to invest and spend on the capex (capital expenditure) that we have committed to stimulate the economy.
“We will ensure the government-linked companies accelerate their capex spending. For this year, the total capex earmarked for their projects is RM30 billion. We will make sure that they continue to execute the planned capex.”
The finance minister, who has been in office for 17 days, notes that the Prihatin package is focused on job preservation.
“Without the stimulus package, research houses estimate unemployment at between one million and two million. There is an expectation that unemployment will pick up because of the slowdown in the economy and the Covid-19 outbreak.
“With the stimulus package, we hope that will not happen and companies will keep the jobs.”
Reaction to the package
Sunway University Business School economics professor Dr Yeah Kim Leng says the amount provided by the stimulus is adequate if the Movement Control Order is not expanded beyond the current schedule.
“It will help ease the burden of individuals. If the MCO is extended, then the government may have to consider another [stimulus package]. But this is not the base case scenario,” he says.
PwC Malaysia deals partner, economics and policy, Patrick Tay, believes the package will create “breathing space” for Malaysian households. “The important message here is for the people not to act rashly. That is important in the fight against Covid-19. The stimulus package achieves the objective of providing liquidity to the economy, and cushions the blow for the most vulnerable segments of society. It will also give people the confidence to resume economic activity [once things go back to normal],” he tells The Edge.
As for the corporations and SMEs, Tay says the move to allow employers to postpone, restructure or reschedule their mandatory EPF contribution to the employees’ accounts is a crucial one.
“We know the impact of this is that the employees will not get their retirement savings, but the [bright spot] is that these companies will not lay off people quickly. This is not the right time to lay people off because there is a lot of uncertainty right now as we are not sure how long the shock from the Covid-19 pandemic will persist, and letting people go may potentially delay a recovery in economic activity,” he explains.
Khazanah Research Institute chairman Dr Nungsari Ahmad Radhi says he was “positively surprised” by the stimulus announcement.
“I think a narrower, not one-off, target for cash transfers to the people would have been better but I like what has been done to keep the businesses afloat, such as the [six-month] moratorium on loan repayments and the RM50 billion scheme to be managed by Danajamin Nasional Bhd. Overall, thumbs up,” he tells The Edge.
Datuk Mohd Anwar Yahya, a partner and executive director at boutique corporate finance advisory firm Sage 3, gives full marks to the government’s stimulus measures for the rakyat.
“I think a lot has been planned and is going to be provided to the rakyat, in terms of quite a bit of assistance. So, it’s very important that in any society, if you are not careful, that if the people are unhappy, it could lead to instability, especially in times like these, when we are in a ‘war’,” he tells The Edge.
However, he believes some refinements could be made to the Micro Credit Scheme for the SMEs, which is to be handled by Bank Simpanan Nasional (BSN).
“I think the banks [which directly lend to the micro SMEs] would be the best to handle this as they know their income, their expenditure and, like it or not, they can become the conduit for the government to provide them with zero per cent interest rate loans and heavily subsidised loans. The banks will know who is capable of paying, repaying and all that, and the quality of the business.
“It’s good to have BSN there but [at the end of the day], it’s the banks that the SMEs have an account with. For example, banks will know how much these companies spend on opex every month, and if they do need an opex subsidy from the government, the banks will be in a better position to [facilitate] as they know whether these businesses are genuine or not,” he says.
The Federation of Malaysian Manufacturers (FMM), while commending the government’s move to help ease the financial constraints and cash flow of businesses, opines that the stimulus package does not sufficiently address the impact of Covid-19 and especially the MCO, which has disrupted production and trade.
“Industries are facing a catastrophic situation on an unexpected scale that would risk business viability and continuity. Recovery from this situation is easily going to take industries between six months and a year, at the very least. Industry was looking forward to more immediate measures to keep businesses afloat and protect the livelihood of employees. In this regard, while the measures introduced are welcome, the FMM would have preferred more direct and immediate benefits to the industry,” it says in a statement.
There have been both bouquets and brickbats for the package since it was announced last Friday but Prime Minister Tan Sri Muhyiddin Yassin acknowledges that the situation is one that is unprecedented and, thus, requires unprecedented measures.
He explains that the nation is at war with invisible forces. “We are not perfect but we are doing the best we can to pull through this crisis together, and God willing, we will come out stronger when it ends. No one will be left behind.”
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