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KUALA LUMPUR: Malaysia's five fiscal stimulus packages worth RM320 billion in less than a year are unprecedented, aptly describing the severity of the Covid-19 pandemic, market observers said.

While this may stretch the government's fiscal conditions, the massive stimulus measures and accommodative interest rates would lift the country's economic growth this year, they added.

Public Investment Bank Bhd (PublicInvest) said the economic momentum would be weighed by measures to control the spread of Covid-19.

However, downside risks were cushioned by initiatives under the five stimulus packages namely Prihatin, Prihatin SME+, Penjana, Kita Prihatin and the latest, Permai, the firm added.

"Combination of efforts to stimulate the economy is expected to produce encouraging results, one that is to rebound in 2021," said PublicInvest, which expects Malaysia's economy to grow 6.2 per cent this year.

The RM15 billion Permai, which was unveiled on Monday, came about two months after the government unveiled its biggest ever expenditure bill under 2021 Budget.

The five packages will push the government's pandemic-related fiscal assistance tally to RM320 billion or equivalent to more than 20 per cent of the country's gross domestic product (GDP).

PublicInvest said besides the stimulus packages, Malaysia's recovery would also be supported by a recovery in global trade.

Nevertheless, the firm is concerned about the US-China's second trade negotiation which might begin in the first quarter this year. This could hurt a nascent recovery in manufacturing sector and therefore trade in 2021.

PublicInvest said an extended period of low interest rates following successive cuts by Bank Negara Malaysia in 2020 to 1.75 per cent currently had also helped lower the cost of business.

"The government's decision to allow five critical sectors to open during this current Movement Control Order is lauded as 80 per cent of the economy is allowed to run normally albeit with minor hiccups due to some restrictions from Covid-19 measures," it added.

United Overseas Bank (Malaysia) Bhd senior economist Julia Goh expects Permai to pose minimal impact on the government's fiscal targets.

"We expect the country's fiscal deficit to be at 5.7 per cent of GDP in 2021 (official forecast: -5.4 per cent; 2020: estimated at -6.0 per cent)," she said in a report.

Goh said to finance the Permai package, the government would reallocate existing funds based on current priorities and through more prudent spending.

She estimates that the 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 per cent 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.

Meanwhile, Sunway University Business School economics Professor Dr Yeah Kim Leng said the latest fiscal package would help to offset shocks to consumer and investor confidence caused by the pandemic resurgence.

"Although the MCO2.0 is less restrictive compared to the one imposed last year, distressed households and small and medium enterprises will find extended relief from the Permai package," he told the New Straits Times.

He added that the expanded wage subsidy schemes and grants for SMEs, extension of loan guarantee facility to foreign firms and other reliefs and support measures were expected to reduce the economic burden from the movement restrictions and accompanying fall in consumer and business spending.

"The cutback in consumer and business spending will have a significant impact on economic growth in the first quarter of 2021," he said.

Source: https://www.nst.com.my/business/2021/01/658965/rm320bil-fiscal-stimulus-packages-less-year-unprecedented-market-observers