Published March 11, 2009

RM60b package to put M'sia on road to recovery

Economy could shrink despite KL's largest-ever effort to ward off recession

By PAULINE NG
IN KUALA LUMPUR
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MALAYSIAN Finance Minister Najib Razak has unveiled a stimulus package of RM60 billion (S$25 billion) - the country's largest ever, amounting to nearly 9 per cent of GDP - over 2009 and 2010 to avert 'the prospects of a deep recession'.

Some RM15 billion would be in the form of a fiscal injection, the balance in guaranteed funds (RM25 billion), equity investments (RM10 billion), private finance initiatives and off-budget measures (RM7 billion) and tax relief (RM3 billion).

Even so, the economy could contract by one per cent this year, Mr Najib said yesterday during the tabling of the budget - his first as finance minister - pegging growth at between negative and positive one per cent from an earlier projection of a 3.5 per cent expansion.

The deteriorating global crisis had made it necessary to have bolder measures beyond an initial RM7 billion injection and the RM206 billion budgeted for the year, he said. With the latest mini-budget, the budget deficit would swell to 7.6 per cent of GDP from 4.8 per cent currently and is to be financed from domestic sources, particularly the bond market.

Meanwhile, the services sector will be liberalised as the foreign investment committee changes its approach. But if Malaysians had hoped for a concrete strategic plan to address the structural defects in the economy, it was not to be. There were promises, however, that government resources would be managed better through the government opting for open or restricted tenders, with the exception of 'specific cases'.

Mr Najib outlined four main thrusts and the funds to be allocated to them: reducing unemployment which is expected to reach 4.5 per cent this year and job creation (RM2 billion); easing the burden of the vulnerable segments (RM10 billion); assisting the private sector (RM29 billion) and building for the future (RM19 billion).

Subsidies of nearly RM28 billion would be allocated this year, slightly less than last year's RM34 billion which went mainly towards fuel, food, and to maintain toll rates at present levels.

Mr Najib, who is set to become prime minister at the end of the month, threw in numerous measures. Local carmakers received a boost, since the auto-scrapping scheme which offers a RM5,000 discount to car owners who trade in vehicles at least 10 years old only applies to the purchase of Proton and Perodua cars.

Companies that employ retrenched workers were given tax exemptions, and SMEs assisted via a RM5 billion working capital guarantee fund by the government guaranteeing 80 per cent, and 20 per cent by financial institutions.

State investment agency Khazanah Nasional was tasked with the RM10 billion equity investment fund which is directed at 'priority domestic investments' over the next two years - mainly in the nationwide broadband project, and development of Iskandar Malaysia, as well as other schemes which are expected to create 70,000 jobs by 2011. Some RM5 billion worth of projects have been targeted on an 'off-budget' basis including RM2 billion for the new budget airline terminal and RM2 billion-plus in telco infrastructure in the rural areas.

Under private finance initiatives, the government allocated RM2 billion, primarily in infrastructure for the oil & gas complex of Tanjung Agas in Pekan - Mr Najib's constituency - and a biotech cluster in Iskandar Malaysia as well as improving traffic infrastructure around the KL Sentral transportation hub.

Bank Islam Malaysia economist Azrul Azwa said that the package was sufficiently large, but not prompt enough. He is also concerned that it might lack focus, and added that implementation and monitoring were other issues that could dilute its effectiveness.

Collapsing exports and commodity prices have hurt the economy and eroded consumption and investments. Mr Najib acknowledged in his speech that politicking had been unsettling for Malaysians. 'We must be bold in formulating innovative approaches to deal with the crisis,' he said, calling for political differences to be set aside.