Fiscal deficit to be under 6.5% of GDP

  • Economy
  • Friday, 25 Sep 2020

On Wednesday, the government announced the RM10bil initiatives which were in addition to the PRIHATIN, PRIHATIN SME Plus, and PENJANA measures announced in March-June worth RM295bil.

KUALA LUMPUR: UOB global economics and market research expects the additional initiatives worth RM10bil under the “KITA PRIHATIN” will be partly funded by unutilised allocations from other initiatives.

In its research note on Friday, it said the initiatives could also be possibly financed under Budget 2021 as some of the measures carry through into January 2021.

“This will help cap the 2020 fiscal deficit target under 6.5% of GDP. The debt-to-GDP ceiling has been raised to 60% (from 55% previously), leaving room for additional RM75bi of government borrowings to fund the initiatives, ” it said.

On Wednesday, the government announced the RM10bil initiatives which were in addition to the PRIHATIN, PRIHATIN SME Plus, and PENJANA measures announced in March-June worth RM295bil.

Since then, there were also enhancements to electricity subsidies, extension of loan moratorium and repayment assistance on targeted basis to support the recovery and stimulate the economy.

“With the latest announcement, this brings the total fiscal package to between RM305bil and RM310bil or 21% of GDP, ” it said

The new package comprises three main components:

1. Bantuan Prihatin Nasional (BPN) 2.0 with RM7bil of cash aid to support the Bottom 40 (B40) and Middle 40 (M40) income categories. The cash aid will be distributed in two tranches, the first in October 2020 and second in January 2021.

For the first BPN initiative (BPN 1.0) under the PRIHATIN package, the government distributed RM11.2bil to 10.6 million recipients with achievement rate of over 97%.

2. Wage Subsidy Program (WSP) 2.0 with RM2.4bil to extend the wage support measures for another three months until end-December that will benefit 1.3 million employees.

The scheme will open to companies that continue to register at least 30% decline in revenues compared to the previous year for the period of the Recovery Movement Control Order (RMCO).

The wage subsidy will be given for three months at a rate of RM600 an employee each month subject to a maximum of 200 employees.

For new applicants that have never received assistance under the WSP 1.0, they will be eligible for subsidies for up to six months. Since the programme took effect from April 1 until Sept 11, it has aided 2.63 million employees through an approved allocation of RM10.4bil to 321,000 employers.

3. Special Prihatin Grant 2.0 worth RM600mil. The Special Prihatin Grant for micro-enterprises will be reopened from Oct 1 to 31 Oct, consisting of RM3,000 per microenterprise that is expected to be disbursed from Nov 25.

UOB Research said this package aims to provide further support to the economic recovery amid encouraging signs that conditions have turned around.

“The extension of the Wage Subsidy Programme is timely given that applications were due to expire by end-September.

“As such the extension will provide added relief for individuals and SMEs that are still affected by the pandemic and RMCO.

“Separately, there is added relief from the extension of the loan moratorium and repayment assistance on a targeted basis to those that are still affected, for which 98% of applicants have been approved, ” it said.

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