Call for another round of stimulus

PETALING JAYA: As the Covid-19 situation shows no signs of abating, economists say there is merit for another round of stimulus package.

They concurred that the government has the means for an additional package but this would be targeted at a specific group or sector. However, this could exert pressure on the government’s fiscal position, according to the economists.


The government announced a third lockdown or MCO 3.0, which started since May 12 to June 7, in a bid to contain the high number of infections.

Sunway University Business School professor of economics Yeah Kim Leng (pic below) said given that the MCO 3.0 is nation-wide and slated to last nearly a month, another round of relief-cum-stimulus package merits consideration.

This could be the final package by the government given that the economic recovery momentum is expected to gather pace in the second half of the year.

Despite the strong economic growth rebound of 6% to 7.5% projected by the government for the year, he said the uneven economic impact of the pandemic is accentuated by the latest MCO3.0.

“Already reeling from the first two MCOs, the current MCO will further delay the recovery of vulnerable households and businesses whose livelihoods are dependent on local social and economic activities.

“Additional household income support is especially critical for the low income group encompassing retrenched employees, the self-employed, small traders, part-time and gig workers.

“For the business sector, the small and medium-sized enterprises in the retail, hotels and restaurants, leisure, entertainment and tourism-related industries will need extended wage subsidies and reliefs to defray costs and maintain headcount and payrolls, ” Yeah added.

To date, the government has allocated RM340bil in various stimulus packages for last year and this year as well as the record RM322.5bil under Budget 2021 to battle the pandemic and revitalise the economy.

He said the government has the means to mount a limited but targeted relief package to ease the economic hardships faced by the vulnerable groups under the latest MCO.

It could entail widening Budget 2021’s estimated deficit of 5.4% of gross domestic product (GDP) but it is unlikely to exceed last year’s deficit of 6.2% given the rebound in nominal GDP projected for this year, he said.

Yeah said an on-balance sheet fiscal package of up to 1% of GDP could still be mounted although the stimulus could be smaller due to likely increases in government spending in other areas sIn terms of fiscal deficit.

“While unlikely to trigger a double-dip downturn given the availability of vaccines and ongoing recovery in China and the developed economies, the virus resurgence and threats of more virulent and deadly Covid-19 variants have moderated Malaysia’s recovery momentum.

“The MCO 3.0 could potentially accentuate the pandemic’s uneven economic impact and inflict permanent or ‘scarring’ effects on vulnerable segments of the society, especially the urban poor and jobless youths, ”he said.

Bank Islam chief economist Mohd Afzanizam Abdul Rashid (pic below) told StarBiz that the case for additional economic stimulus is highly likely. This is especially, for the sectors that have yet to record a sharp turnaround and those in need of financial assistance.

Additionally, he said people who are out of jobs would require assistance beyond monetary handouts.

“Job matching, training and developing new skills would be the key priorities. In a nutshell, the government should remain open to provide support to the rakyat holistically and therefore, talks of a fiscal consolidation is out of the question in the immediate terms.

“The present crisis requires all of us to think beyond the normal setting. It’s about being able to survive and to make use of all available resources in the most efficient manner. It requires us to make justification in every decision that we make so that we are not worse off when things might turn bad.

“Therefore, there is no room for corruption because resources are really scarce. Everyone has to be nimble and be able to adjust quickly. And every decision that we make has to be pragmatic, ” he noted.

In terms of fiscal deficit for the year in view of higher spending, Yeah said the improving economy and higher commodity prices, especially crude oil and palm oil are expected to strengthen the government’s coffers this year.

The higher projected revenue, he said, would however be offset by likely increases in government spending, especially to speed up the national vaccination rollout and combat the virus resurgence.

Yeah projected the fiscal deficit to range between 5.4% and 6.0% of GDP, noting that the lower end is more likely should the economy expand at a faster clip.

Meanwhile, AmBank Group chief economist Anthony Dass (pic below) expected the government’s fiscal position to come under pressure in view of the RM340bil stimulus packages and Budget 2021 allocation of RM322.5bil: the largest on record for the country.

He said the fiscal deficit to GDP is projected to be around 6% this year, adding that public debt to GDP was at 58% in 2020 and is forecast to increase to 58.5% in 2021.

“Despite the huge debt load, short-term risks remain manageable due to a favourable maturity profile and low foreign currency exposure. Also, stronger economic growth projected in 2021 may ease some tension on the public debt and fiscal deficit. This is due to a strong fiscal multiplier.

“Fiscal space is limited and without a stronger economic growth, the pressure on fiscal deficit rising or the current public debt ceiling to breach the 60% cap by 2022 is on the cards, ” Dass noted.

OCBC Bank economist Wellian Wiranto, (pic below) however, did not foresee a big stimulus package in the near-term.

“There is less impetus to support the economy, with the latest GDP data surprising on the upside and momentum proving to be stronger than anticipated.

“Granted that the latest imposition of MCO brings some downside risks, but as long as the economic activities are allowed to proceed, we see a good chance of the economy growing at 6%, the low-end of the growth expectation of Bank Negara and the government.“In terms of the space to undertake any large-scale stimulus, it is arguably a lot more limited than last year, given that the public debt to GDP ratio is already at 58.5%, not far from the stipulated statutory 60% cap.

“Hence, we foresee the government adopting a wait-and-see attitude when it comes to adding more stimulus, ” he said.

Article type: metered
User Type: anonymous web
User Status:
Campaign ID: 46
Cxense type: free
User access status: 3


Next In Business News

Australian central bank among those hit by widespread internet outages
Euro Holdings cancels proposed bonus issue after steep plunge
CPO futures reverses gains as India puts import tax cut plans on hold
Advancecon buys 51% stake in loss making quarry operator for RM30.4mil
MSM says sugar demand stable despite lockdown
N. American oil service firms' pricing and hiring on the upswing
FBM KLCI falls for third straight day, down 7.46 points
Govt approves wage subsidy applications worth RM1.215bil as at June 4
Zafrul: RM12.12bil approved under SME soft loan fund as at June 4
Crude oil prices fall on stronger U.S. dollar

Stories You'll Enjoy