ONLY a handful of the 22 initiatives announced under the RM15 billion Permai stimulus package are new, said economists.

Socio-Economic Research Centre executive director Lee Heng Guie said what was new were a RM1,000 Prihatin special grant for traders and hawkers in Sabah and a one-time handout of of RM500 to 14,000 tourist guides and 118,000 drivers of taxis, school buses, tour buses, rental cars and e-hailing vehicles.

Lee said the other initiatives were announced under the previous economic stimulus packages and Budget 2021 and were merely enhanced under Permai.

“Some are a continuation of the previous packages. There are one or two new ones. I think the RM15 billion is more of a reallocation of the existing money in the government,” he said.

Kenanga Research said in a note today that only RM3.6 billion out of the RM15 billion package was for fresh initiatives while the remaining RM11.4 billion was for measures announced previously.

“This brings the overall Covid-19 fiscal stimulus (Prihatin, Prihatin SME+, Penjana, Kita Prihatin, Permai) to RM308.6 billion (21.7% of GDP).

“However, direct government injection is estimated to remain at RM55 billion (3.9% of GDP) as the PERMAI package will be funded via reallocation of existing funds and a more prudent spending,” it said.

The research house said while the measures are expected to soften the economic impact of the movement control order (MCO), the size of the recent fiscal stimulus is relatively small compared to the estimated impact of the movement curbs on the economy.

Greater fiscal injection is needed should the government extend the MCO beyond four weeks, it said.

“Amid the tight fiscal conditions, we view the emphasis on accelerating distribution of existing measures, providing targeted assistance and expanding measures that exert less strain on the fiscal coffers, (e.g. foregone revenue, guarantees, statutory bodies funds etc.) preferable,” it said.

Prime Minister Muhyiddin Yassin yesterday announced a fifth economic stimulus package amounting to RM15 billion, as most of the country enters the second week of strict movement curbs.

Muhyddin said there are 22 initiatives under the Permai economic stimulus package to combat the Covid-19 epidemic, look after the people’s welfare, and ensure the survival of businesses.

Last year, the government spent RM305 billion on the Prihatin, Prihatin SME+, Penjana and Kita Prihatin packages

On whether the RM15 billion package was enough, Lee said there was no need for the government to fork out more money as the previous initiatives had already taken care of the needs of the people and businesses.

In addition, current curbs on business operations are not as restrictive as last year’s, he said.

Sunway University Business School economics professor Dr Yeah Kim Leng said although businesses are not subjected to tight restrictions this time around, the cutback on consumer and business spending will have a significant impact on economic growth in the first quarter.

“The latest fiscal package that include more resources being channeled to the health sector, including an early rollout of the national vaccination programme, will help to offset the shock to consumer and investor confidence caused by the coronavirus resurgence,” he said.

Yeah said households and small and medium enterprises would get some relief from the Permai package.

The expanded wage subsidy scheme and grants for SMEs, extension of loan guarantee facility to foreign firms as well as other reliefs and support measures are expected to reduce the economic burden imposed by the movement curbs and accompanying fall in consumer and business spending.

Economic impact

Meanwhile, Kenanga has revised its GDP projection for the fourth quarter of 2020 to -2.5% from -1.7% after taking into account the impact of the conditional MCO.

Based on the assumption of a six-week MCO, it expects the economy to contract by 2.2% in the first quarter of 2021.

“For the whole of 2021, we have revised our growth forecast to 3.9% and adjusted our 2020 projection to -5.3% from -5.1%,” it said.

The Finance Ministry has projected a 6.5-7.5% growth for 2021.

The research house said retail and tourism-related sub-sectors would remain under pressure as demand would be hampered by the mobility restrictions and soured consumer confidence.

This, in turn, would result in cost-cutting measures, including wage cuts and retrenchment, prompting the unemployment rate to remain high.

However, the impact would be cushioned by the enhanced version of the wage subsidy programme.

“As the government has highlighted that growth will continue to be supported by the strong export-oriented sectors and global trade recovery, we retain a cautiously optimistic outlook for export performance, especially in 1H21.

“This is premised on the recent resurgence of Covid-19 cases among major economies that may prompt longer-than-expected movement restrictions and lockdowns, which will weigh down foreign demand.”

Kenanga is also expecting Bank Negara Malaysia to cut the overnight policy rate by a further 25 basis points to a new low of 1.5% in its monetary policy meeting tomorrow.

It said BNM still has room to cut interest rates further to 1.25% if necessary although the additional fiscal stimulus has made that less likely

It projected the fiscal deficit to widen to 5.8% of GDP from an initial forecast of 5.6%, compared to the 2020 forecast of 6.3% of GDP.

Government debt is projected to increase to 64.6% of GDP (revised 2020 forecast: 62%), which is above the statutory limit of 60%.

“The government has stated that the fiscal package will be financed through the reallocation of existing funds and prudent spending. Despite this, fiscal deficit and debt to GDP ratio are still expected to widen, due to the greater tax exemptions and the recent downward revision in 2021 nominal GDP,” it said.

Note that the government debt has increased by RM81.3 billion within the three-quarters of last year (2019: +RM51.9 billion) and is expected to increase further amid the modest economic recovery,” it added.

Muhyiddin said yesterday that the second movement-control order will not have as adverse an effect on the economy as the March movement curbs last year.

The strong export sector and the recovery in global trade will continue to support economic growth, Muhyiddin said, adding that Budget 2021 and the economic stimulus packages will boost consumption while high impact projects will have a significant multiplier effect on economic recovery.

He said funds will be re-allocated according to current priorities and through more prudent spending to finance the RM15 billion Permai economic stimulus package. – AFP, January 19, 2021.