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Malaysia: Stimulus package can cushion Covid-19 impact

KUALA LUMPUR: The proposed economic stimulus is expected to contain specific relief packages for tourism-related industries such as aviation, hotel and leisure, travel as well as retail industries.

Sunway University Business School economics professor Dr Yeah Kim Leng said the package would also include fiscal incentives to stimulate demand in other affected industries and additional government spending to prop domestic demand and shore up public confidence.

“Given that the economic impact (of Covid-19) mirrors that of the 2003 Severe Acute Respiratory Syndrome (SARS) outbreak, the stimulus package will contain many similarities, ” he told Bernama.

Covid-19 is the World Health Organisation’s official name for the 2019 novel coronavirus.

Besides front-loading government spending and investment activities, Yeah said the measures are anticipated to focus on minimising retrenchment with employers’ relief on wage bills. Other measures include targeted relief for small businesses in the affected industries and raising the spending power of the low and middle-income households.

“Financial institutions could be co-opted to provide relief in the form of deferred debt servicing, more flexible repayment terms and special financing packages to enable affected businesses and individuals to tide over the crisis, ” he said.

Yeah said that during the 2003 SARS epidemic, the tourism sector and related industries such as airline, transport, hotel, restaurant, food and beverage and retail outlets were directly impacted by the decline in tourist arrivals.

He said tourist arrivals from China – which account for 11.4% of total tourist arrivals in Malaysia and 14.6% of tourism receipts in 2018 – would be most affected should the quarantine period and overseas travel ban be prolonged.

“The Visit Malaysia Year 2020 was expected to provide a small boost to Malaysia’s growth this year but should the COVID-19 outbreak widen, it will become a drag on the economy, ” Yeah said.

Indirectly, he said, lower demand and slower growth in China would have a knock-on effect on the rest of the world, including Malaysia.

He said the knock-on effects are in the form of lower imports from the rest of the world, reduced commodity prices as demand falls and increased volatility as risk aversion hits financial markets worldwide.

Yeah also suggested the government’s fiscal deficit target of 3.2% should be further relaxed to enable the government to finance the stimulus package.

“Increased funding for the Health Ministry will likely be needed to ensure that the containment strategy is effectively implemented with adequate resources.

“Other governments are spending mostly on infrastructure projects, skills upgrading and digitalisation initiatives that can be front-loaded to support the economy in the first half of the year, ” Yeah added. — Bernama

Source: https://www.thestar.com.my/business/business-news/2020/02/14/stimulus-package-can-cushion-covid-19-impact