Speedy implementation of stimulus package crucial

THE proposed RM7bil stimulus package, to be rolled out by the first quarter, should emphasise on speedy implementation of the projects, which include housing and facilities for schools and armed forces, economists say.

Of the total amount, RM4.7bil would be for small construction and development projects which include a RM1.2bil allocation for building low-cost houses and the rest for infrastructure, schools, police stations and army quarters.

The remaining RM2.3bil meant for human capital development will involve investment in strategic businesses, which have high value-add and impact.

In November last year, Deputy Prime Minister Datuk Seri Najib Tun Razak announced the RM7bil spending package to cushion the Malaysian economy from a deepening global credit crisis.

Under the plan, there was no new allocation of funds involved but the money would be rechannelled from savings from a reduction in subsidy following a decline in oil prices.

The Government had estimated the subsidies for 2009 would drop by RM10bil to RM11bil, of which RM7bil would come from fuel subsidies, based on crude oil forecast of US$70 per barrel.

Of the proposed RM7bil stimulus package announced recently, RM4.7bil will be for small construction and development projects which include low-cost houses

As a follow-up to the stimulus package, Second Finance Minister Tan Sri Nor Mohamed Yakcop announced on Wednesday the Government has another stimulus package in store.

What is crucial, economists say, is that the projects should be implemented quickly and the funds for the construction projects be disbursed fast, so that the expected multiplier effect on the broader economy can kick in without any delay.

Economists say it is essential that each ringgit invested in a project translates into demand for building materials, payments to the workers, hence promoting consumer spending.

It is imperative, they say, to ensure that there are no leakages from the funds to ensure effective implementation of the projects.

There is, however, a concern that the RM1.2bil allocated for low-cost housing may not have a significant effect, given the weakening private housing sector.

Another concern is that efforts to woo investors in the current uncertain climate may draw a muted response as the weakening global economy and slower growth in Malaysia could make potential investors more cautious.

TA Research expects the Government’s RM7bil stimulus package to work strategically with the Budget 2009 to cushion the economy from a deepening global financial crisis.

The introduction of measures such as voluntary reduction in employee’s EPF contribution to 8% from 11%; a reduction in personal income tax rate from 28% to 27% for top tax bracket and from 13% to 12% for those with tax bracket at RM35,000-50,000 are expected to free up more disposable income into consumers’ pockets to support consumer spending.

In addition, to encourage private investment, the research house points out that the Government has waived the requirement to seek Foreign Investment Committee (FIC) approval for real estate investment of above RM500,000 and removed import duties on cement, long iron and steel products.

As for the second stimulus package, analysts are not expecting a huge-scale plan as they say the Government is constrained by the Federal Government Budget deficit.

“The deficit in the Budget would be more of a concern which is expected to be 4.8% this year,” an economist says, adding that the second package is aimed at boosting the construction sector, promoting consumer spending and encouraging private sector investments in the manufacturing and services sectors.

As it stands, the Government expects revenue to fall to RM168.7bil (from RM176.2bil previously) on the back of a drop in oil revenue and tax collection this year.

According to TA Research, this indicates that the upcoming stimulus package, if any, “may be capped at RM10bil to keep the budget deficit at its comfort zone.

“This could have a modest impact on the economy. However, instead of stretching its budget, unless necessary, we expect the Government to align its resources toward rolling out those proposed high-impact 9MP projects,” it said.

The Star-Joseph Chin