Malaysia on Friday announced a second round of stimulus measures to counter the economic impact of the Covid-19 pandemic on its hardest-hit residents and businesses, bringing its total support package to 250 billion ringgit (US$57.3 billion).
Of this amount, about 100 billion ringgit will be used to help businesses – mostly small and medium enterprises (SMEs) – while a further 128 billion ringgit will be allocated to public welfare.
The stimulus amount works out to be about 17 per cent of the country’s GDP and includes measures worth 20 billion ringgit announced last month by the previous government. It dwarfs the measures Malaysia took during the global financial crisis, when the government passed 67 billion ringgit of stimulus.
Announcing the measures on Friday, premier Muhyiddin Yassin assured Malaysians that “nobody would be left behind”, and that the money would be used to look after lower-income households as well as help boost the Health Ministry’s capabilities in battling the coronavirus.
For example, students and less well-off households would get cash transfers, with discounts on utility bills and free internet access.
Malaysia currently has more than 2,000 recorded cases of people with the Covid-19 illness – the highest in Southeast Asia – while 26 patients have died. Most of the country has been under a partial lockdown for more than a week and residents are prohibited from leaving their homes except to buy groceries, for emergencies or to access health care, until the middle of next month.
This movement restriction order has dealt a heavy blow to the economy, especially the tourism and service sectors.
“We are a nation at war with invisible forces. The situation we are now facing is unprecedented in history,” the prime minister said in a televised address to announce the support package. He did not announce any change to this year’s economic growth forecast of 3.6 to 4 per cent or a fiscal deficit equal to 3.4 per cent of GDP.
Christopher Choong, Deputy Director of Research at the Khazanah Research Institute, said he welcomed the measures but pointed out that only about 10 per cent of the package, or between 25 billion and 27 billion ringgit, would be a direct fiscal injection.
“The other components include government guarantees, tax incentives, and savings from different statutory funds,” he said.
Calvin Cheng, an analyst at the Economics, Trade and Regional Integration (ETRI) program at the Institute of Strategic and International Studies Malaysia said while cash transfer measures were more generous than expected and would benefit lower-income people greatly, they “only solve one side of the current problem”.
“The other side is preserving employer-worker relationships that are at risk of being damaged by the pandemic,” he noted, suggesting more focus on worker retention and those in the labour force.
Cheng said the country would have to face a bigger budget deficit and more borrowings.
“Difficult decisions on revenue measures will need to be made, including broadening tax revenue and extracting more non-tax revenues, especially in view of lower oil prices.
“Some of the expenditures may have to be moved off-budget considering constraints in fiscal rules regarding the government’s operating balance and debt,” he said.
These economic measures come just shy of a month into Muhyiddin’s appointment as premier following a political coup that saw him and his followers wrest power from the previous Pakatan Harapan administration and force them into the opposition, just 22 months after a watershed general election in 2018.
The move, widely criticised by many, gave rise to an unprepared government that took over the reins just as the spread of the coronavirus intensified in Malaysia.
Acknowledging this in his speech on Friday, Muhyiddin assured Malaysians that although this government “may not be the government that you voted for, I want all of you to know that this government cares for you”.
The Malaysian stock market closed higher on Friday. Earlier this week, Muhyiddin said Malaysians could withdraw as much as 500 ringgit a month from their retirement savings, while Bank Negara Malaysia instructed banks to offer loan deferrals.
The central bank has cut its policy rate twice this year, by a total of 50 basis points.
Additional reporting by Bloomberg
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