KUALA LUMPUR: Malaysia’s RM250 billion stimulus is staggering at 17 per cent of its gross domestic product (GDP) and politically appealing to the masses, analysts said.
But they cautioned that the direct fiscal injection of RM25 billion, although at just 10 per cent of the headline figure, might widen the country’s budget deficit to up to six per cent of GDP.
Describing it as a “massive support package” and “necessary” in light of the Covid-19 pandemic, Kenanga Research said the RM250 billion stimulus had drawn on the resources beyond just the government.
It also involved the banks, utilities, telcos, insurers and retirement savings.
“It reaches out to a large section of society in the form of handouts for both B40 as well as M40, assisting them to meet daily sustenance. (For businesses) the biggest beneficiaries are those in the consumer and retail sectors,” the firm added.
Kenanga Research, however, said the direct government funding of RM25 billion would likely widen the budget deficit from its current estimate of 4.3 per cent to six per cent of GDP.
United Overseas Bank (Malaysia) Bhd senior economist Julia Goh said the RM25 billion direct fiscal injection would be funded through higher dividends.
As such, the government had targeted a fiscal deficit of 4.0 per cent of GDP.
This was wider than the previously revised target of 3.4 per cent of GDP on February 27 this year, but lower relative to the peak of Malaysia’s fiscal deficit at 6.7 per cent in 2009, Goh added.
She said the additional measures deemed to be most impactful included RM50 billion Danajamin credit guarantee scheme, RM10 billion of additional cash handouts for households and single individuals, and RM5.9 billion wage subsidy to encourage employee retention.
OCBC Bank economist Wellian Wiranto said Malaysia’s latest stimulus was easily the highest in the region thus far and eclipsed the RM67 billion (eight per cent of GDP) package that was rolled out in 2009 post-global financial crisis.
Wellian said while the 0.6 percentage point increase in deficit-to-GDP ratio would not escape the attention of bond investors and ratings agencies alike, the new higher level should nonetheless be still within comfort zone.
This is given the extraordinary circumstances that the world is living through.
“For what it’s worth, the ratings agency S&P has affirmed its rating classification for Malaysian sovereign over the weekend. Even as it forecasts a higher deficit of 4.1 per cent of GDP, it expects the government to maintain its fiscal consolidation trajectory over the medium term’,” he said.
MIDF Research expects Malaysia’s fiscal deficit to widen to 5.9 per cent this year.
This was mainly due to larger revenue contraction than expected as anticipation of slowdown in GDP growth would derail government revenue target of RM244.5 billion this year.
“We view the government debt to expand beyond the 55 per cent rule this year, which we are projecting at 56.1 per cent,” the firm said.
MIDF Research also expects the domestic economy to continue growing but at a significantly moderating pace of 2.7 per cent.
Consumer spending would likely rebound in the second half of the year as the pandemic was expected to be contained by then, it said.