The government may have to re-assess Budget 2020 and reset its fiscal deficit target to more than 3.4% of gross domestic product (GDP) for this year, considering the additional spending needed to address the Covid-19 outbreak as well as lower oil price worldwide.
This came after Prime Minister Tan Sri Muhyiddin Yassin announced the second round of measures to the present Economic Stimulus Package (PRE2020), reported The Sun Daily.
In the proposed adjustment, RM500 million will be allocated to the Health Ministry (MOH) to support the mitigation of Covid-19. An additional RM100 million will also be provided to MOH for purposes of employing 2,000 new contract healthcare workers.
Muhyiddin likewise revealed further key initiatives which include allowing Employees Provident Fund members aged below 55 to withdraw a maximum of RM500 per month, for a period of 12 months from their second account starting in April 2020.
Affin Hwang Capital Research noted that the government is expected to roll out a bigger and more comprehensive fiscal stimulus package. Household consumption and businesses (especially SMEs) in sectors and industries affected by Covid-19, will remain to be the key beneficiaries of the stimulus measures.
“We believe the stimulus package will also include direct spending by the government on development and infrastructure expenditure,” it said.
Affin Hwang currently maintains real GDP growth forecast of about 3.3% for 2020 but admits that there are downside risks to such should the Covid-19 outbreak persists until the end of June 2020.
“The impact is likely to drag and weigh down the country’s real GDP growth by 2.5-3 percentage points (ppt) in 2020. This indicates that Malaysia’s GDP growth may only be expanding by around 0.3-0.8% for 2020 as a whole, from our current base case assumption of 3.3%, if the Covid-19 crisis drags on,” explained Affin Hwang.
Thus, it believed that the government needs to take “further and possibly larger fiscal stimulus measures to safeguard and support the economy from slowing down sharply”.
A detailed PRE2020 will be announced on 30 March.