The World Bank said Malaysia will be deeply affected by the Covid-19 shocks but there are a slew of factors that make it more resilient than many other countries. The World Bank Malaysia lead economist Richard Record said Malaysia has, among others, a diversified economic structure and sound track record of macroeconomic management. It also has deep domestic capital markets, astute financial institutions, and past experience responding to crises, Record said. “While the challenges ahead are unprecedented, because of these reasons the country is well placed to weather the storm,” he added.
Record said the economic impact of Covid-19 would largely depend on how Malaysia managed the dual challenges of suppressing the pandemic, while also protecting vulnerable households, SMEs and the broader structure of the economy. Compared with other economies, Malaysia’s RM260 billion stimulus package was large as its share of gross domestic product (GDP) was about 17 per cent), he said. However, he said the stimulus relied predominantly on non-fiscal measures, especially loan repayment deferrals and withdrawals from citizen’s own pension fund contributions. “The fiscal component stimulus is relatively modest, reflecting the level of available fiscal space that the country has as well as the impact of lower oil prices on government revenues. The direct fiscal injection of the stimulus is RM35 billion (about 2.3 per cent of GDP) and is prioritised towards direct citizen transfers.”
If Malaysia needed to further enlarge the stimulus package, Record expects three possibilities to create more fiscal space.
Firstly, there is the option to make deeper adjustments to current items of operating expenditure to free up additional resources for priority crisis response areas.
However, the savings may not be enough to fund large stimulus measures.
Second, additional non-tax revenue could be raised to fund additional stimulus spending such as additional dividends from government-linked companies or the sales of physical assets.
Thirdly, a Parliamentary intervention could temporarily lift the restrictions on the levels and usages governing public debt management.
“In all of these, the government would have to carefully balance allocating additional resources for priority expenditure needs with guarding the country’s medium-term institutional credibility in fiscal management,” he said.