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Government may have to tweak Budget 2020

24 Mar 2020 / 22:06 H.

PETALING JAYA: The government may have to recalibrate Budget 2020, as well as reset its fiscal deficit target to above 3.4% of gross domestic product (GDP) for this year, after taking into account additional fiscal spending and lower global oil price assumptions.

This follows the second round of measures to the existing Economic Stimulus Package (PRE2020), announced on Monday by Prime Minister Tan Sri Muhyiddin Yassin.

He unveiled further key initiatives, where the main measure is allowing Employees Provident Fund members below the age of 55 to withdraw a maximum of RM500 a month for a period of 12 months from their second account effective April 2020.

There will be an allocation of RM500 million to the Health Ministry (MOH) to support in mitigating Covid-19, with an additional RM100 million will be provided to MOH to employ 2,000 new contract healthcare workers.

A comprehensive PRE2020 will be announced on March 30.

In a note by Affin Hwang Capital Research, it said the government will likely roll out a larger and more comprehensive fiscal stimulus package, with household consumption continuing to be the prime beneficiary from the stimulus measures, as well as businesses (especially SMEs) in those sectors and industries affected by Covid-19.

“We believe the stimulus package will also include direct spending by the government on development and infrastructure expenditure,” it said.

Affin Hwang said it is currently maintaining real GDP growth forecast of around 3.3% for 2020, but there are downside risks to that number should the Covid-19 outbreak last until the end of June 2020.

“The impact is likely to drag and weigh down the country’s real GDP growth by 2.5-3 percentage points (ppt) in 2020. This indicates that Malaysia’s GDP growth may only be expanding by around 0.3-0.8% for 2020 as a whole, from our current base case assumption of 3.3%, if the Covid-19 crisis drags on.

“As such, it is necessary for the government to take further and possibly larger fiscal stimulus measures to safeguard and support the economy from slowing down sharply,” it said.

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