18 June 2021, Friday | 11:16pm

'Domestic consumption, business capital spending to mend gradually'


KUALA LUMPUR: The RM35 billion National Economic Recovery Plan (Penjana) announced by the government last week broadly meets expectations, says independent and non-profit think tank Socio-Economic Research Centre.

Executive director Lee Heng Guie said the plan incorporated features of the Prihatin Economic Stimulus Package to empower people, propel business and stimulate the economy.

"All in, the total fiscal stimulus package amounts to RM295 billion, or 21.1 per cent of the gross domestic product (GDP), with the direct fiscal injection at RM45 billion, or 3.2 per cent of GDP.

"The initiatives and measures are fairly broad-based and well-targeted to stabilise domestic economic and business conditions, as well as enable the economy to recover sustainably as it emerges from the pandemic," he said.

Lee expected domestic consumption and business capital spending to mend gradually, accompanied by a restoration of consumer confidence and business sentiment.

He said a significant "V-shaped" rebound in the domestic stock market from the lows could well serve as a barometer that investors were feeling somewhat sanguine about the economic recovery prospects.

The benchmark FTSE Bursa Malaysia KLCI traded near the 1,575 level yesterday.

"However, the jury is still out.

"The litmus test is the expiry of the six-month loans repayment moratorium in September."

While the external environment mattered, Lee believed that restoring domestic consumer and investor confidence would be key to securing the domestic economic recovery, stressing that the efforts must be anchored on keeping clear and consistent the communication flow of the government's economic stabilisation and stimulation policies, backed by macro-economic and political stability.

On stimulating the economy, he said sector-specific support was given to the tourism, manufacturing, agriculture and food, palm oil, auto and property industries.

"We expect that the medium-term recovery plan and the 2021 Budget will focus on investing in 'new smart infrastructure' used for high-tech, digitalisation and sustainable purposes, such as renewable energy and climate change.

"These include big data centres, 5G infrastructure and charging stations for new energy vehicles, solar energy, healthcare and defence technology."

Lee also gave the thumbs up to the provision of a zero tax rate for a period of 10 to 15 years to attract the reshoring of new investment in the manufacturing sector, and the provision of the 100 per cent Investment Tax Allowance and Special Reinvestment Allowance.

The establishment of the Project Acceleration and Coordination Unit at the Malaysian Investment Development Authority, the enhancement of the Domestic Investment Strategic Fund and fast-tracking manufacturing licence approvals for non-sensitive industries within two working days were a welcome investment facilitation, he said.

"These investment initiatives are expected to revitalise subdued private investment growth," he said, adding that private investment had declined by an annual rate of 2.3 per cent in the first quarter of the year due to the Covid-19-induced economic downturn amid weak business sentiment.

On the introduction of the Covid-19 Temporary Measures Act, Lee said the act was critical to provide temporary relief for businesses and individuals who were unable to perform their contractual obligations due to the Movement Control Order.

"It is hoped that the proposed act will be tabled for reading in the forthcoming parliamentary session from July 13 to Aug 27.

"A delay in the act will disrupt businesses' rehabilitation efforts as their time and resources will be distracted by potential legal disputes and heavy liabilities or penalties for non-performance of contractual obligations." -- Bernama

Source: New Straits Times


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