The government announced an assistance package (PERMAI) on January 18 worth RM15 billion to support the economy following recent tightening of measures to contain the COVID-19 pandemic. The package improves on the existing initiatives and accelerates the implementation of related initiatives.
The package is anchored on three key objectives – 1) combating the COVID-19 outbreak, 2) safeguarding the welfare of the people, and 3) supporting business continuity. A total of 22 initiatives will be implemented under PERMAI (details in Appendix).
1. Combating the COVID-19 outbreak – New initiatives include an additional RM1.0 billion allocation for the Ministry of Health (MOH), National Security Council and other relevant agencies. The funds are allocated for the purchase of healthcare supplies; as well as an allocation of RM100 million to enhance cooperation with private hospitals that have agreed to receive and treat both COVID-19 and non-COVID-19 patients to help reduce the strain on the public healthcare system.
2. Safeguarding the welfare of the people – Most of the initiatives under this objective expand on existing measures while the government reiterated measures that were announced earlier between December 2020 and early January 2021. The government will accelerate its payment of Bantuan Prihatin Nasional 2.0 (worth RM2.38 billion to 11.1 million recipients) cash handouts from 21 January onwards and Phase 1 of Bantuan Prihatin Rakyat (to more than 8.0 million recipients).
The government is also extending the special tax relief of up to RM2.5k for the purchase of mobile phones, computers, and tablets until 31 December 2021, and extending the sales tax exemption on passenger vehicles for six months until 30 June 2021. Furthermore, Employees Provident Fund (EPF) will provide an advance of up to RM1k from the amount applied under the i-Sinar Category 2 facility from 26 January 2021.
3. Supporting business continuity – Three new major measures were unveiled under this objective, namely (i) additional RM1.0 billion for the Wage Subsidy Program (WSP 3.0) for all sectors’ employers operating in the Movement Control Order (MCO) states and with higher employee limit of up to 500 persons (vs. 200 employees previously); RM650 million worth of PERMAI Prihatin Special Grant to cover 500k small- and medium-sized enterprises (SMEs) in the seven MCO states with a payment of RM1,000 each and RM500 each for 300k SMEs in other states; and RM300 million allocation to accelerate the implementation of the SME and micro SME e-Commerce campaign and Shop Malaysia Online campaign.
A special 10% discount on electricity bills will be given to six business sectors nationwide (hotel operators, theme parks, convention centres, shopping mall, local airline offices, and travel & tour agencies) until 31 March 2021, while 2 sen/kWh electricity rebates will be given to all users which is equivalent to a reduction in electricity bills of up to 9% for 6 months until end-June 2021. The government also reiterated that banks will continue to offer loan moratorium and repayment assistance as announced in Budget 2021 last year.
Impact of Latest Restrictions Considered Manageable
The government expects the impact from latest Movement Control Order (MCO) to be less severe compared to 2Q 2020 (when the first phase of MCO was enforced with 2Q 2020 real GDP falling 17.1% y/y). The current MCO allows for more economic activity with five essential sectors allowed to operate and it is not a full country lockdown with very limited movement. The government expects a supportive export sector, alongside the rollout of economic stimulus packages, Budget 2021, and PERMAI.
The government has detailed the relevant SOPs to enable smooth flow of operations, business continuity, and economic recovery. The government has taken into consideration the importance of ensuring stability of the country’s export activities given Malaysia’s position as one of the key players in the global supply chain ecosystem. As such, the impact of the current MCO on the economy is expected to be more manageable.
Based on our assessment, the tightened measures are expected to shave ~1.0% pts off 2021’s full-year GDP growth with estimated economic losses of about RM12 billion.This assumes the affected six states (which contribute 66.3% to country’s GDP) will be under at least four weeks of strict MCO, and essential business sectors can operate up to 70% capacity. Every two weeks of MCO could shave 0.4% pts off GDP growth with estimated losses of RM5 billion.
Thus, we lowered our 2021 GDP growth forecast from 6.0% previously to 5.0% (official forecast: 6.5%- 7.5%; UOB’s forecast for 2020: estimated at -5.5%) (details in link).
Noteworthy is more areas in other states including Kelantan, Sarawak, and Negeri Sembilan have been placed under stricter MCO. We are cautious as risks are tilted to the downside particularly as the current MCO could be extended depending on pandemic situation. This weighs on private consumption and seasonal Lunar New Year spending, while the unemployment rate remains elevated.
That said, all current fiscal and monetary policy support will continue to sustain the growth recovery as the year progresses alongside the vaccination plan that is scheduled to begin by end-1Q 2021. We pencilled in a 25bps OPR cut to a new low of 1.50% in 1Q 2021. However, the pressure to ease may be lesser with the latest assistance measures and government’s assessment that the economic impact from current MCO is more manageable.
Much will depend on the pace of global recovery, the vaccination plan, and course of the pandemic.
Government’s Fiscal Position and Deficit Target
To finance the PERMAI package, the government will reallocate existing funds based on current priorities and through more prudent spending. Based on our estimates and tracking, we estimate that this package could involve ~ RM4.0 billion of reallocated funds from the 2021’s total budget expenditure of RM322.5 billion. The ~ RM4.0 billion makes up ~ 27% of PERMAI’s RM15 billion package as majority of initiatives are either an extension of on-going measures while the government reiterated measures that were announced earlier.
We expect minimal impact on the government’s fiscal targets. We expect the country’s fiscal deficit to be at 5.7% of GDP in 2021 (official forecast: -5.4%; 2020: estimated at -6.0%).
Read more: PM unveils RM15bil PERMAI package to help people, ensure economic resilience
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