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Malaysia announces stimulus package to blunt coronavirus hit

  • Feb 28, 2020

MALAYSIA, in the grip of a political leadership battle, announced a package of measures to counter the coronavirus outbreak, which is set to weaken economic growth this year.

Interim Prime Minister Mahathir Mohamad said on Thursday the government will dedicate RM20 billion (S$6.6 billion) to support businesses affected by the virus, particularly in the tourism industry. The country may issue bonds for funding if necessary, he added.

The fallout from the virus is wreaking havoc on mobility and supply chains across Asia, including Malaysia. Dr Mahathir said the government now expects the economy to grow 3.2-4.2 per cent this year, down from an earlier forecast of 4.8 per cent, and was widening its fiscal deficit target to 3.4 per cent of gross domestic product (GDP) from 3.2 per cent – which already had been raised from an initial target of 3 per cent.

“I believe the economic stimulus package will enable the Malaysian economy to achieve the highest point of the range” of the GDP forecast, he noted. “In formulating the stimulus package, the government exercised prudence with respect to its fiscal position.”

The ringgit strengthened 0.4 per cent to 4.21 per US dollar as of 5:53pm in Kuala Lumpur.

“Lowering the growth target is sensible given the downside risk to growth regionally and globally,” said Winson Phoon, head of fixed-income research at Maybank Kim Eng Securities in Singapore. “The modest widening of the fiscal deficit from 3.2 per cent to 3.4 per cent is tolerable from a rating point of view.”

Dr Mahathir described a “three-pronged approach” to offset the impact of the virus.

“First, to ease the cash flow of affected businesses; second, to assist affected individuals; and third, to stimulate demand for travel and tourism,” he explained.

The stimulus package includes:

  • funds and steps to ease cash flow for affected industries;
  • a six-month extension for tourism businesses to pay taxes handouts for tour guides, taxi and bus drivers, medical workers and immigration workers;
  • a reduction in the minimum pension-fund contribution funds for infrastructure upgrades and repair

The move follows fiscal steps taken in recent weeks by Indonesia, Singapore and Hong Kong to counter the economic impact of the virus.

Indonesia said this week it will give incentives and tax breaks to businesses in a package worth 10.3 trillion rupiah (S$1.02 billion).

Malaysia’s outlook is further clouded by political upheaval after Dr Mahathir abruptly resigned as prime minister on Monday, only to be reappointed in an interim capacity later the same day, but without his Cabinet.

The central bank has already cut its benchmark interest rate once this year, by 25 basis points, and has signalled room for further policy easing. The bank is scheduled to make its next rate decision on March 3. BLOOMBERG