Fitch Solutions: More economic stimulus likely to be doled out

THE RM15 bil Malaysian Economic and Rakyat Protection (PERMAI) assistance package unveiled by Prime Minister Tan Sri Muhyiddin Yassin on Monday (Jan 18) is unlikely to be the last round of fiscal stimulus enacted in 2021.

In fact, the economic stimulus is likely meant as an initial stop-gap to offset the impact of the first two weeks of the lockdown via the re-imposition of the movement control order (MCO 2.0), according to Fitch Solutions Country Risk and Industry Research.

“We are confident that the lockdown measures will have to be extended,” the research house pointed out in its latest outlook on Malaysia.

“The previous lockdown in 2Q 2020 lasted close to a quarter before the outbreak then was contained, and it was a much milder one compared to the current third wave which has seen daily cases exceed 4,000 on Jan 16.”

Elaborating further, Fitch Solutions expects the Government to introduce more stimulus – within 1Q 2021 itself – should the lockdown be extended given “PM Muhyiddin has pledged to hold snap elections (and hence needs to shore up support) once his administration has succeeded in containing the third wave”.

“This development lends further strength to our view that the Government will likely raise the debt limit again over the coming quarters in order to finance more stimulus to support the economy,” noted Fitch Solutions.

On the implication of the PERMAI economic stimulus which is just 1.1% of Malaysia’s gross domestic product (GDP), the research house expects its impact to be likely muted.

“If the lockdown measures last beyond the initial two-week period as we expect, the extended duration will do increasing damage to Malaysia’s 2021 growth outlook which would otherwise have been set to see a swift recovery,” opined Fitch Solutions.

“The package also poses some downside risks to our 2021 fiscal deficit forecast of 5.5% of GDP.”

To re-cap, the PERMAI package which is intended to lessen the impact of MCO 2.0 in five states and three federal territories consists of the following measures:

  1. Extend tax relief for COVID-19 tests;
  2. Expedite cash aid for 11.1 million recipients;
  3. Distribute one-off handout worth RM66 mil in total to taxi and bus drivers;
  4. Extend tax break for phone and desktop/laptop purchases to Dec 31, 2021;
  5. Extend tax exemption on locally-assembled cars to June;
  6. The Government will set aside RM2.2 bil for special charity; and
  7. Expand the wage subsidy programme to cover all employers. – Jan 20, 2021

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