Govt may not be able to fund current stimulus plans, says Fitch Solutions

 

Fitch Solutions said the recent and ongoing lockdowns would result in a spike in unemployment, thus affecting recovery prospects in domestic demand.

PETALING JAYA: The government might not be able to finance current stimulus packages or any others in the future due to various constraints that it is facing, says Fitch Solutions.

The research arm of international ratings agency Fitch Group noted that Putrajaya had announced a number of stimulus packages in 2020 and 2021, running into billions.

According to finance ministry data, in 2020 the Perikatan Nasional government rolled out four packages valued at RM305 billion with a fiscal injection of RM55 billion. In 2021, it rolled out four packages valued at RM225 billion with a fiscal injection of RM26.8 billion.

“However, the Malaysian government is reaching a point where it may not be able to finance the current plans, or other future stimulus plans,” it said in a report on the country’s consumer outlook.

It said any stimulus measures announced by Putrajaya in the coming weeks were not likely to top the packages announced last year, although the 2020 stimulus plans were relatively smaller compared with that of countries like Singapore and Hong Kong.

“The high public debt load is likely to have a negative impact on investor sentiment towards Malaysia and could raise its borrowing costs further.

“We highlight this as a significant risk to the Malaysian consumer, who is likely to face another six months of restrictions and subsequent job losses and/or pay cuts,” it added.

It forecast consumer spending recovery to prolong and spill over into 2022 due to the protraction of Covid-19-related economic pressures, noting continued restrictions on non-essential retail sectors, movement limitations and the limited fiscal space for renewed support.

According to Fitch Solutions, the recent and ongoing lockdowns would result in a spike in unemployment, thus affecting recovery prospects in domestic demand, while government consumption was not likely to provide meaningful support.

It reviewed its real household spending projection to 3% year-on-year in 2021 compared with 11% previously, although this was still a recovery from the 3.7% contraction estimated over 2020.

“We also note that continued restrictions on interstate and inter-district travel within the Klang Valley, which accounts for about 60% of retail sales in the country, will delay this recovery.

“However, these restrictions continue to speed up the development of the country’s e-commerce sector.

“The online retail sales index, which portrays e-commerce activity, continued to surge to record 23.1% growth year-on-year.”

While inflationary pressures were rising globally, Fitch Solutions forecasts inflation to remain modest in Malaysia at an average of 1.3% and 1.9% year-on-year over 2021 and 2022 respectively. - FMT