Govt can afford to unveil more stimulus in 2021

KUALA LUMPUR: Malaysia can afford to introduce more fiscal stimulus measures in 2021 to help support the economy towards the first and second half of the year before the rollout of Covid-19 vaccine.

Affin Hwang Capital chief economist Alan Tan said compared to the stimulus packages announced last year, the stimulus unveiled so far this year, while being supportive to the economy, was less aggressive.

The firm also expects Standard & Poor’s (S&P) to maintain its credit rating on Malaysia in its coming review and the ringgit to hover at around 4.10 level against the US dollar this year.

Tan said the magnitude of the Permai stimulus, introduced by the govenrment last month, was about the same in terms of its quantum versus the gross domestic product (GDP).

“Compared to the measures announced in 2021, we believe that the measures announced last year were effective in preventing the economy from falling deeper into a recession or sharp economic contraction.

“Going into 2021, we believe the measures are supportive but less aggressive. In view of that, we believe that the government may have some flexibility to introduce some new fiscal stimulus to help support the economy towards the 1H and 2H of the year before the vaccine rollout,” Tan said at Affin Hwang’s 2021 Malaysia Economic Outlook and Construction Sector briefing yesterday.

He said besides that, the allocation under Bantuan Prihatin Rakyat (BPR) last year was a lot higher than the allocation given out so far this year.

“So there are possibly further stimulus measures to help offset the current economic slowdown due to the MCO2.0. On top of that, in 2021 Budget, we saw the government trying to support the economy through providing higher development expenditure (DE), with an allocation close to RM69 billion.

“This will help towards supporting private investment as well as public investment and this is supportive of economic growth this year,” he said.

Tan expects Malaysia’s 2021 GDP growth to be at around 4.5-5.0 per cent if MCO 2.0 was extended beyond February 18. This was against the firm’s earlier projection of 6.0 per cent growth.

This is based on the projected economic losses per day of RM700 million during MCO 2.0 compared to the RM2.2 billion-RM2.4 billion during the first MCO enforced in March last year.

Based on Malaysian Institute of Economic Research’s (Mier) calculation, any additional MCO of two weeks would lead to a contraction of real GDP between -3.0 per cent to -4.0 per cent relative to the 2020 baseline.

Mier, nevertheless, said the RM15 billion Permai stimulus would likely have neutral impact on the economy.

It said the Prihatin and Penjana stimulus packages unveiled last year had helped in ameliorating the worst in economic terms.

This resulted in an uptick in GDP and business activity in the third quarter of 2020, after the severe contraction of 17 per cent in the second quarter.

Meanwhile, Tan expects S&P to maintain its credit rating on Malaysia at A- given the country’s growth prospects of and current account position.

Each sovereign rating agency looked at every countries credit rating differently, he said.

Tan said Fitch had downgraded Malaysia’s credit rating from A- to BBB+ and Fitch’s focus had been strictly on the fiscal.

“They raised some concerns regarding the fiscal position, Malaysia’s debt level and deteriorating economic prospects. But when we look at Moody’s, they focus more on medium-term growth prospects of a country and similarly they look at other criteria like current account surplus.

“Therefore they made the decision to maintain Malaysia’s outlook as stable as well as maintaining Malaysia’s A3 rating. All eye now would be on S&P where over the next one month or so, we will see a review. We believe that S&P will be looking at different criteria,” he added.

Source: NST