Malaysia Announces $8.2 Billion in Additional Stimulus

(Bloomberg) -- Malaysia unveiled 35 billion ringgit ($8.2 billion) in additional stimulus to help the economy recover from the coronavirus pandemic.

The new plan, which follows a late-March stimulus package worth nearly $60 billion, includes 10 billion ringgit in direct fiscal injection to the economy, Prime Minister Muhyiddin Yassin said in a speech Friday.

The announcement comes as countries across Southeast Asia and around the world struggle back to their feet after lockdowns and restrictions brought commerce to a halt. Governments across the region have rolled out economic support to shield consumers and businesses from the worst of the blow, while central banks including Malaysia's have lowered interest rates and taken steps to keep liquidity flowing.

“Compared to the cumulative 260 billion ringgit stimulus that the authorities announced before, today's 35 billion ringgit additional package would feel relatively less noteworthy,” said Wellian Wiranto, an economist at Oversea-Chinese Banking Corp. in Singapore.

Still, at a combined 20% of gross domestic product, the packages “should help to put a floor on where growth might dip to this year,” he said. “Put against the context of tentative signs of economic recovery globally and within Malaysia itself, there is arguably less need for another ‘bazooka' deal, especially considering the overall limited fiscal constraints.”

The benchmark FTSE Bursa Malaysia KLCI index closed down 0.35% in Kuala Lumpur.

Facing Recession

Malaysia's economy expanded 0.7% on-year in the first quarter, its worst showing since the global financial crisis, as restrictions imposed to curb the virus choked commerce. The economy began reopening May 4 but is set to slip into recession over the next four to six months as the full impact of the pandemic is felt, Malaysia's top statistician said last week.

Among the plan's highlights:

5 billion ringgit for wage subsidies
2 billion ringgit for upskilling programs for unemployed and youth
1 billion ringgit for small and medium-sized tourism enterprises
stamp duty exemption for first-home purchases
sales tax exemption for locally assembled cars and 50% tax break for imported cars
export duty exemption for palm oil from July-December
tax breaks for corporate spending on temperature scanners, protective equipment and upgrading premises
tax deferments extended for airlines and tourism businesses
establishment of a national jobs task force
policy to be drafted for the gig economy

Mohd Afzanizam Abdul Rashid, chief economist at Bank Islam Malaysia, described the package as well-rounded.

“It address the concern on the labor market, the transition to a new normal especially in respect to digitization, as well as the mainstream economy such as properties and automotive,” he said. “Should the reopening of the economy continue to do well, we can expect better growth in the second half of 2020.”

OCBC's Wiranto noted that the 10 billion ringgit in direct spending, equivalent to about 0.7% of GDP, could impact the government's fiscal deficit.

“It's unclear as of now whether there's any counteracting measure to limit the fiscal deficit uptick from the current expectation of 5% of GDP,” he said.