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Malaysia Announces Stimulus Package to Blunt Coronavirus Hit

Mahathir said the government now expects the economy to grow 3.2%-4.2% this year, down from an earlier forecast of 4.8%.

Malaysia Announces Stimulus Package to Blunt Coronavirus Hit
Mahathir Mohamad, Malaysia’s interim prime minister, pauses during an economic stimulus package launch event outside the Prime Minister’s office in Putrajaya, Malaysia. (Photographer: Samsul Said/Bloomberg)  

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Malaysia, in the grip of a political leadership battle, announced a package of measures to counter the coronavirus outbreak, which is set to weaken economic growth this year.

Interim Prime Minister Mahathir Mohamad said Thursday the government will dedicate 20 billion ringgit ($4.8 billion) to support businesses affected by the virus, particularly in the tourism industry. The country may issue bonds for funding if necessary, he said.

The fallout from the virus is wreaking havoc on mobility and supply chains across Asia, including Malaysia. Mahathir said the government now expects the economy to grow 3.2%-4.2% this year, down from an earlier forecast of 4.8%, and was widening its fiscal deficit target to 3.4% of gross domestic product from 3.2% -- which already had been raised from an initial target of 3%.

“I believe the economic stimulus package will enable the Malaysian economy to achieve the highest point of the range” of the GDP forecast, he said. “In formulating the stimulus package, the government exercised prudence with respect to its fiscal position.”

The ringgit strengthened 0.4% to 4.21 per dollar as of 5:53 p.m. in Kuala Lumpur.

‘Modest Widening’

“Lowering the growth target is sensible given the downside risk to growth regionally and globally,” said Winson Phoon, head of fixed-income research at Maybank Kim Eng Securities Ltd. in Singapore. “The modest widening of the fiscal deficit from 3.2% to 3.4% is tolerable from a rating point of view.”

Mahathir described a “three-pronged approach” to offset the impact of the virus.

“First, to ease the cash flow of affected businesses, second, to assist affected individuals, and third, to stimulate demand for travel and tourism,” he said.

The stimulus package includes:

  • funds and steps to ease cash flow for affected industries
  • a 6-month extension for tourism businesses to pay taxes
  • handouts for tour guides, taxi and bus drivers, medical workers and immigration workers
  • a reduction in the minimum pension-fund contribution
  • funds for infrastructure upgrades and repair

The move follows fiscal steps taken in recent weeks by Indonesia, Singapore and Hong Kong to counter the economic impact of the virus. Indonesia said this week it will give incentives and tax breaks to businesses in a package worth 10.3 trillion rupiah ($737 million).

Malaysia’s outlook is further clouded by political upheaval after Mahathir abruptly resigned as prime minister Monday, only to be reappointed in an interim capacity later the same day, but without his cabinet.

The central bank has already cut its benchmark interest rate once this year, by 25 basis points, and has signaled room for further policy easing. The bank is scheduled to make its next rate decision on March 3.

--With assistance from Liau Y-Sing.

To contact the reporter on this story: Anisah Shukry in Kuala Lumpur at ashukry2@bloomberg.net

To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, Michael S. Arnold, Yudith Ho

©2020 Bloomberg L.P.

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