Malaysia Unveils $9.7 Billion Aid Package as New Lockdown Begins

(Bloomberg) -- Malaysia unveiled a 40 billion ringgit ($9.7 billion) package to help people and companies through the two-week nationwide lockdown that begins Tuesday.

The plan includes a 5-billion ringgit fiscal injection, Prime Minister Muhyiddin Yassin said in a televised address Monday. The package is aimed at boosting health-care capacity, increasing cash aid and ensuring businesses continuity, he said.

Malaysia’s return to a hard lockdown comes as a worsening Covid outbreak leaves hospitals low on ICU beds. Economists have shaved as much as two percentage points off their full-year growth estimates with most businesses closed, except for essential economic and service sectors.

“If drastic action is not taken immediately, our health system will collapse and we will face a catastrophe,” Muhyiddin said, adding the government is trying to strike a balance between protecting lives and ensuring that economic activity can continue.

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The country’s benchmark stock index erased gains of as much as 0.3% to trade little changed at 9:26 a.m., while the ringgit weakened 0.2% against the dollar.

Third Package

Monday’s announcement -- double the 20-billion ringgit relief unveiled in March -- marks the third package unveiled by the government this year. The plan will complement the record 322.5-billion ringgit budget for 2021 announced last year, Muhyiddin said.

“I want to be frank that the government has very limited fiscal space to spend,” as it has unveiled 340-billion ringgit worth of aid and stimulus plans since the start of the pandemic, he said.

READ: Malaysia’s Lockdown Leads Economists to Lower Growth Estimates

The government will spend 450 million ringgit to boost Covid ICU beds and ramp up vaccination, Muhyiddin said. A little more than 3% of Malaysia’s population is fully vaccinated, though the government still says it aims to achieve herd immunity by year-end.

The government expects to reach 150,000 jabs a day in June, Muhyiddin said, up from more than 100,000 currently.

“What matters now is the smooth implementation of the measures, including swift rollout of the vaccination program and suppressing the infection rate to the lowest possible,” said Mohd Afzanizam Abdul Rashid, chief economist for Bank Islam Malaysia Bhd. “In light of the economic uncertainties, we should expect more measures to be announced as we progress through the year.”

Malaysia’s economy shrank 0.5% in the first quarter from a year earlier, the central bank said earlier in May, adding that it expects growth to remain within the 6%-7.5% forecast range for the full year. A similar lockdown last year cost the country an estimated 63 billion ringgit.

Highlights of the premier’s address include:

• 2.1-billion ringgit in cash aid to singles and households earning less than 5,000 ringgit a month
• The exemption on sales tax for locally assembled and fully imported cars is extended by six months to Dec. 31
• Stamp duty exemption on home purchases is extended to Dec. 31
• Government will give those affected by the lockdown, including the poorest 40%, an option to freeze loan repayments for three months or halve installments for six months. The move, which involves 30 billion ringgit, will benefit more than 5 million borrowers
• Government to spend 1.5 billion ringgit to extend a wage subsidy program by a month to all affected economic sectors, limited to 500 workers per application. As many as 2.5 million workers and 200,000 employers are expected to benefit
• Ministers and deputy ministers will channel three months of their salaries to a disaster fund for Covid spending

Economists at MIDF projected Malaysia’s fiscal deficit to be around 6.1% of GDP, versus the official government forecast of 6%, after taking the latest stimulus package into account.

“Despite the limited fiscal space, an increase in fiscal spending is needed to strengthen the national healthcare system and mitigate the impact of lockdown,” they wrote in a research note. “The plan for fiscal consolidation can be resumed later, when the pandemic is under control and the economic recovery is more stable and sustainable.”

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