Stimulus to add 1.5 percentage point to Malaysia’s economy

KUALA LUMPUR: The RM250 billion stimulus package will roughly add to Malaysia’s real gross domestic product (GDP) growth by an estimated 1.5 per cent percentage point, Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz said.

Affin Hwang Capital said at a briefing on the stimulus, Tengku Zafrul had said besides the East Coast Rail Link and Mass Rapid Transit 2, other approved mega infrastructure projects would also be continued and accelerated.

Tengku Zafrul, the firm added, also guided that the oil price assumption had been lowered to US$35-US$40 per barrel from its previous assumption of US$62 per barrel in 2020 Budget.

As a result, the country’s fiscal deficit target has been reset higher to four per cent of GDP from 3.4 per cent of GDP previously.

”Although the fiscal deficit target has been raised, it was reiterated that government revenue will continue to be supported by various companies, agencies and large institutions in the government ecosystem, possibly through dividend payments.

“Furthermore, the Finance Minister also guided that the government is committed and remains firm to fiscal discipline and will not fund its operating expenditure through borrowings. This will ensure that the debt level will remain below the self-imposed 55 per cent of GDP,” Affin Hwang said in a report today.

Despite the stimulus, the firm expects Malaysia’s real GDP growth to be in negative territory possibly in the first and second quarter of 2020.

This is on the back of a sharp contraction in domestic demand and weak exports as a result of uncertainties from the Covid-19 pandemic.

“Real aggregate domestic demand is expected to contract by four per cent for 2020 as a whole, compared with 4.3 per cent in 2019.

“In view of the negative impact on the country’s domestic demand, and global supply chain disruption on Malaysia’s manufacturing and external sector, we have cut our real GDP growth projection down to -3.5 per cent for 2020, from an earlier forecast of 3.3 per cent,” it said.

Source: NST