KUALA LUMPUR: Expanding the economic stimulus package (ESP) will not be something out of the ordinary but the government needs to keep a watchful eye on its impact on the budget deficit and debt, an economist said.

“We have seen a sharp decline in equity prices and bond yields across the globe, suggesting that investors are seeking protection against volatility,” said Bank Islam chief economist Dr Mohd Afzanizam Abdul Rashid.

He is referring to the global economic scenario following the Covid-19 outbreak.

“Apart from that, business sentiments have been weak with purchasing managers index (PMI) at the global level declining to below 50 points in February, signalling most businesses are feeling pessimistic.

“This means businesses may not increase staff strength and would keep their capital expenditure plan on the back-burner.

“In that sense, it is not unusual if the government decides to upsize the ESP,” he told the New Straits Times yesterday.

Afzanizam said higher government spending by way of additional ESP allocation would spur economic activities.

“But this would mean higher fiscal deficits and debt level. As such, the government must put in place measures that would ensure sustainability in revenue stream, especially when the economic activities recover.

“Perhaps revisiting the Goods and Services Tax could be one of the main considerations, which could lead to more buy-in from credit rating agencies.

“That way, the government would have more leeway to prescribe additional ESP as it is committed to balancing the budget at some point in the horizon.”

On Wednesday, Prime Minister Tan Sri Muhyiddin Yassin said the government would review the RM20-billion ESP, which was announced by then interim prime minister Tun Dr Mahathir Mohamad on Feb 27.

Muhyiddin said the move would prioritise target segments and restore investor confidence.

He said the ESP allocations could be increased, among others.

Sunway University Business School of Economics Professor Dr Yeah Kim Leng said the new administration’s move to review the ESP was welcome to ensure it could counter the economic impact of the Covid-19 outbreak.

Yeah said the areas that could be looked into included exporters’ woes due to supply chain disruptions and falling demand.

“Increased assistance, such as wage credit or subsidy for employers and employees, could be provided to the worst-hit sectors such as aviation, tourism, hospitality and retail.

“Less-affected sectors such as automotive and property could be supported with tax breaks to strengthen consumer spending, which accounts for nearly 60 per cent of the gross domestic product.”

Malaysian Association of Tour and Travel Agents president Datuk Tan Kok Liang said the government would have to assist airlines in sustaining their major routes.

“Airlines were badly hit by poor passenger loads due to fears of travelling and massive cancellations. Without air connectivity, tourism is doomed.

“As for domestic tourism, there is a need to consider double tax deductions for Malaysian companies to have meetings, conventions, training and related events in Malaysia rather than overseas.”

Tan said since tour guides, bus drivers and taxi drivers would receive one-off payments worth RM600, the aid must be extended to licensed tour operators and travel agents.

https://www.nst.com.my/news/nation/2020/03/574954/increasing-covid-19-stimulus-package-will-raise-deficit