THE RM20 billion economic stimulus package will be a growth insurance for Malaysia in a time of a downturn amid the Covid-19 outbreak, said economists.

Sunway University Business School economics professor Yeah Kim Leng said the economic stimulus package, which amounts to 1.3 % of the 2019 gross domestic product (GDP), exceeded the forecast of the private sector on the impact of Covid-19 on the Malaysian economy.

Analysts had expected the government to fork out between RM5 billion and RM10 billion for the stimulus package to mitigate the negative effects of the outbreak.

The stimulus package, he said, is well targeted as it incorporates assistance for affected sectors, boost domestic tourism and domestic consumption.

“Although the final impact of the Covid-19 epidemic remains uncertain at this juncture, given that it continues to spread across the world, Malaysia is among the first few nations to mount a stimulus package amid increasing calls around the world for governments to coordinate and provide fiscal stimulus,” he told The Malaysian Insight.

Senior research fellow at the Malaysian Institute of Economic Research Shankaran Nambiar said the package is comprehensive and looks at sectors and individuals directly or indirectly affected by the outbreak.

Fiscal deficit

Announcing the package on Thursday, former prime minister Dr Mahathir Mohamad said the fiscal deficit target for 2020 is expected to remain at 3.4% of GDP due to the stimulus package.

Putrajaya had initially targeted to narrow down the fiscal deficit to 3.2% of the GDP.

Commenting on this, Shankaran said the path to fiscal balance will be off-track for the time being.

“Surely it will add to our existing fiscal pressures, but that is to be expected. Not to do so would deepen the negative impact of the outbreak and further soften confidence.”

Yeah, on the other hand, said the projected widening of the fiscal deficit from 3.2% to 3.4% of GDP is within the expected range, and importantly within Malaysia’s fiscal capacity.

Dr Mahathir also revised the GDP target for 2020, saying that the economy is expected to grow in the range of 3.2% to 4.2%.

He had previously projected a GDP growth of 4.5% for 2020, while former finance minister Lim Guan Eng forecast 4.8% before the Covid-19 outbreak.

“It is a realistic range with the economy likely to perform at the upper end should the Covid-19 be contained in the first half of the year. The lower end would be likely if Covid-19 epidemic prolongs beyond the first half and impedes economic activities in more countries,” said Yeah.

Shankaran agreed it is within realistic range, adding that growth is likely to be closer to the 3.2-3.6% range than to 3.8-4.2%. – March 2, 2020.

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