KUALA LUMPUR: CGS-CIMB Research estimates the RM10bil Prihatin Supplementary Initiative Package (Kita Prihatin) will increase the Finance Ministry’s last projected budget deficit by 0.7% of gross domestic product (GDP).
The estimated budget deficit may be less if part of the expenditure falls under Budget 2021 or if the funds are reallocated from other budgeted expenses, it said.
“While Kita Prihatin will stretch fiscal metrics further, headroom was created after the Parliament approved the raising of the government debt ceiling to 60% of GDP in August this year, ” the research house said.
Prime Minister Tan Sri Muhyiddin Yassin has unveiled Kita Prihatin, comprising the RM7bil Bantuan Prihatin Nasional 2.0, RM2.4bil targeted wage subsidy programme and RM600mil Prihatin special grant.
The Kita Prihatin package is the extension of the previous economic stimulus packages, namely the Prihatin Rakyat Economic Stimulus Package (Prihatin), Prihatin SME Plus and National Economic Recovery Plan (Penjana) worth a total of RM295bil, or about 20% of the nation’s gross domestic product, with an additional fiscal injection by the government totalling RM45bil.
CGS-CIMB Research said it is maintaining its GDP forecast of -4.0% in 2020 and its budget deficit forecast at 6.5% of GDP.
“While we believe Bank Negara has signalled an end to its monetary easing cycle after the 125 basis points Overnight Policy Rate (OPR) cuts to 1.75%, should political uncertainty result in delayed fiscal and non-fiscal spending, Bank Negara may revisit its macroeconomic projections and monetary policy stance in a more dovish direction, ” it said.
Meanwhile, Kenanga Investment Bank Bhd has revised its fiscal deficit forecast to 7.5% of the GDP from 6.8% previously following the additional stimulus, which is expected to be financed via domestic borrowing, predominantly through the issuance of Malaysian Government Securities, Government Investment Issues and Malaysian Islamic Treasury Bills. Given the higher fiscal deficit, it said, the government debt is estimated to increase to 62.6% of GDP by end-2020, exceeding the statutory limit of 60.0%.
“The spike in debt ratio is justifiable in an environment of economic turbulence, so long as the government commits to taper it down once the economy stabilises, ” it said.
Kenanga said the additional stimulus is timely as it would partly cushion the impact from the anticipated slower consumer spending following the end of the loan repayment moratorium on Sept 30. — Bernama
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