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ASSIGNMENT / TUGASAN

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BBEK4203

PRINCIPLES OF MACROECONOMICS

PRINSP MAKROEKONOM

MAY SEMESTER 2021

Name of student : MARIANNE ELSICA ANAK SITAM

Student number : 970927135662-001

Email address : melsica@yahoo.com

Mobile number : +60 11 2634 3221

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PURPOSE

The purpose of this assignment is to enhance learners’ knowledge and understanding of the
macroeconomics policies in a country.

REQUIREMENT

Students are required to choose any ONE economic stimulus package that was introduced in
Malaysia between year 2019-2020. Identify the macroeconomic indicators and discuss the effects
of the stimulus packages to the economy of Malaysia. Provide your view on the economic
stimulus package.

INTRODUCTION

The global economic outlook is currently clouded by a slew of uncertainties that have persisted since
2018, owing to a slew of disruptions, most notably the ongoing trade war between the United States
(US) and the People's Republic of China (China), which has harmed trade performance since 2018.
The COVID-19 outbreak, which began in early 2020 and has afflicted number of countries,
particularly in this region, has exacerbated the difficult situation.

As a result of this circumstance, Malaysia's economy grew at a rate of 4.3 percent in 2019, the slowest
since the global financial crisis of 2009. Slower trade performance and disruptions in commodity
supplies added to the problem.

In 2003, Malaysia had faced a similar situation with the outbreak another Coronavirus – Severe Acute
Respiratory Syndrome (SARS). SARS had adversely impacted the tourism industry in Malaysia
which had seen a sharp decline of tourist arrivals resulting in a fall in tourist receipts. Consequently,
the Government had announced an economic stimulus package in 2003 amounting to RM7.3 billion to
mitigate the impact of SARS outbreak. However, the impact of COVID-19 outbreak is expected to be
more severe as the role of China in the global economy in 2003 was not as significant compared to the
current situation. China is now currently the largest economy in the world based on purchasing power
parity and controls 20% of the global GDP in 2019 as well as comprised 12.8% of global goods
export in 2018. Thus, any disruptions to China’s economic activities caused by COVID-19 would
significantly affect the global supply chain in the manufacturing sector.

Malaysia has a closer economic connection with China today than it did 18 years ago, with exports to
China accounting for 14.2% of total exports. Furthermore, after Singapore, Chinese tourists are the
second-largest source of visitors. This new economic strategy package focuses on three primary

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initiatives that aim to accelerate economic activity by leveraging strategic local resources to create a
secure Malaysia, as follows:

 STRATEGY I: MITIGATING IMPACT OF COVID-19 (18 MEASURES);

 STRATEGY II: SPURRING RAKYAT CENTRIC ECONOMIC GROWTH (5
MEASURES); AND
 STRATEGY III: PROMOTING QUALITY INVESTMENTS (9 MEASURES)

STRATEGY I: MITIGATING IMPACT OF COVID-19

The arrival of inbound international tourists has decreased dramatically as a result of the COVID-19
outbreak. Local tourism and retail players have seen their financial performance and cash flow suffer
as a result of this. As a result, recommended initiatives to mitigate the impact of the COVID19
outbreak will focus on boosting the cash flow of affected businesses, stimulating tourism demand, and
aiding affected individuals.

MEASURE 1: RESTRUCTURING AND RESCHEDULING OF LOANS

All financial institutions will provide financial relief to viable borrowers by modifying or
rescheduling loans, including perhaps payment moratoriums, to reduce the financial strain of
borrowers in tourism and other affected companies. Individuals whose employment income has been
affected, such as those with mortgages, will also be rescheduled. The Bank Negara Malaysia (BNM)
has been tasked with ensuring that all financial institutions help legitimately damaged firms.

On loan agreements emerging from such restructuring and rescheduling of business loans between
borrowers and financial institutions, a stamp duty exemption of 100 percent will be granted, subject to
the terms that the original loan agreement has been duly stamped. Exemption is given from 1 March
2020 to 31 December 2020.

MEASURE 2: SPECIAL RELIEF FACILITY (SRF) FOR COVID-19

To help affected SMEs with cash flow, BNM will establish an RM2 billion Special Relief Facility,
which would be made available to borrowers through commercial banks as working capital loans at a
rate of 3.75 percent per annum. To help banks lend more easily, the government will issue an 80
percent guarantee on loans under this facility for a fee of 0.5 percent per year through Syarikat
Jaminan Pembiayaan Perniagaan (SJPP). The loan tenure available under the SRF will be up to 5.5
years, with a 6-month payment moratorium, and a maximum loan value of RM1 million per SME.

MEASURE 3: BANK SIMPANAN NASIONAL (BSN) MICRO CREDIT FACILITY

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To mitigate the impact of COVID-19 on small enterprises, BSN will offer an RM200 million micro-
credit scheme with a 4% interest rate for SMEs in the tourism and other related sectors. The
repayment of installments begins six months after the loan is disbursed.

MEASURE 4: DEFERMENT AND REVISION OF INCOME TAX ESTIMATION

From April 1, 2020 to September 30, 2020, businesses in the tourism industry, such as travel agents,
hotels, and airlines, will have their monthly tax payments postponed for six (6) months. If the third
instalment falls in the year 2020, other firms affected by current economic circumstances will be
eligible to amend their monthly tax installments sooner, on the taxable amount due in the third month
of installments.

MEASURE 5: SERVICE TAX EXEMPTION FOR HOTELS

Hotels, classified as operators of accommodation premises as specified under Group A, First Schedule
of the Service Tax Regulations 2018, are excluded from levying service tax on taxable services
rendered for a period of six (6) months, beginning March 1, 2020, and ending August 31, 2020.

MEASURE 6: TAX DEDUCTION ON EQUIPMENT PROVIDED TO EMPLOYEES (PPE

only)

Expenses incurred by businesses to provide disposable Personal Protective Equipment (PPE) such as
face masks are tax deductible under section 33(1) of the Internal Revenue Code of 1967. Expenses for
non-disposable PPE products, on the other hand, can be claimed as a capital allowance.

MEASURE 7: FURTHER DEDUCTION TO HOTEL OPERATORS FOR TRAINING

EXPENSES

Companies are urged to send personnel to training courses certified by the Ministry of Tourism, Arts
and Culture (MOTAC) in the tourism industry, hotel operators, or tour running businesses, and to
claim the current double tax benefit.

MEASURE 8: EXEMPTION FROM HUMAN RESOURCES DEVELOPMENT FUND

(HRDF) LEVY

An exemption from HRDF charges will be granted for a period of six (6) months, from April 1, 2020,
to September 30, 2020, to assist enterprises affected by COVID-19 in reducing expenses. Air travel,
domestic ground transportation, conference centres, retail malls, travel tour operators, hotels,
franchises, and hypermarkets are among the eight (8) categories of enterprises eligible by this
exemption.

MEASURE 9: ELECTRICITY DISCOUNT OF 15% AND MAHB REBATE

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To further mitigate the negative impact of COVID-19 on businesses, a special discount of 15% on
monthly electricity bills will be given to six categories of businesses, namely hotel operators, travel
agencies, local airline offices, shopping malls, convention centres, and theme parks, for a period of six
(6) months from 1 April 2020 to 30 September 2020. Malaysia Airport Holdings Berhad (MAHB)
would also offer discounts on airport rental, as well as landing and parking fees.

MEASURE 10: REVIEW ON CONDITION FOR PURCHASE OF DUTY-FREE GOODS FOR

PERSONS ENTERING MALAYSIA

Due to the smaller number of tourists, the COVID-19 has had a particularly negative impact on retail
enterprises in international airports. As a result, starting April 1, 2020, the eligibility period for
tourists or individuals entering Malaysia to purchase duty-free products would be cut from 72 to 48
hours, and the duty-free goods threshold will be raised from RM500 to RM1,000. The threshold
amount is for things other than liquor, cigarettes, clothing, shoes, food, and personal electrical
equipment, which are already qualified for exemption under the set limit. Only duty-free outlets at
international airports are subject to this restriction.

MEASURE 11: SPECIAL INCOME TAX RELIEF ON DOMESTIC TRAVEL

To promote domestic tourism, a special income tax relief of up to RM1,000 will be provided to
individuals for expenses on domestic tourism made from 1 March 2020 to 31 August 2020, but
limited to:

i) Accommodation expenses at premises registered with Ministry of Tourism, Arts and

Culture Malaysia (MOTAC); and

ii) Entrance fees to tourist attractions.

MEASURE 12: STIMULATING DEMAND FOR TOURISM THROUGH DISCOUNT

VOUCHERS AND TOURISM PROMOTION

To stimulate demand for tourism, the Government will allocate RM500 million for the following
measures:

i) Travel discount vouchers The Government will collaborate with operators of air travel,
hotel and resort accommodation booking sites to offer discount vouchers up to RM100
per person. These discount vouchers are intended to mainly stimulate domestic tourists.
The companies participating are encouraged to leverage on Government’s incentives and

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offer additional rewards for their customers. This voucher will be introduce by phases
staring March 2020.

ii) Galakan Melancong Malaysia (GAMELAN) is a matching grant programme that was
launched in 2019 with the goal of increasing tourist arrivals through public-private
tourism promotion collaboration. Tourism Malaysia will allow greater freedom in terms
of using the matching grant for Visit Malaysia Year 2020 promotion activities in order to
maximise the approved budget of RM60 million.

iii) Tourism promotion

With the expected decline of tourists especially from China, Tourism Malaysia will step
up promotions to key markets including ASEAN, Middle East, Europe and South Asia.
Towards this, an additional allocation of RM30 million will be provided to Tourism
Malaysia, over and above the existing Visit Malaysia Year 2020 tourism promotion
allocation of RM90 million.

STRATEGY II: SPURRING RAKYAT CENTRIC ECONOMIC GROWTH

The second strategy will be focusing on 2 main objectives: boosting household spending and people
centrist projects throughout Malaysia.

MEASURE 19: EMPLOYEES PROVIDENT FUND (EPF) EMPLOYEE CONTRIBUTION

The minimum employee payment to the Employees Provident Fund (EPF) will be cut by 4% from 11
percent to 7 percent for the nine months between April 1 and December 31, 2020. Members of the
EPF, on the other hand, have the choice to continue contributing a higher rate of deduction This
measure has the ability to boost the amount of money in people's hands by almost RM10 billion,
households will be better off.

MEASURE 20: BANTUAN SARA HIDUP (BSH) ENHANCEMENTS

In the spirit of shared prosperity, the Government will enhance BSH as follows:

i) bring forward BSH payment of RM200 scheduled by May 2020 to be paid in March 2020;

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ii) ii) additional one-off cash payment of RM100 will be made to all BSH recipients in May
2020; and
iii) iii) a further RM50 will be subsequently channeled through e-tunai.

MEASURE 22: SMALL SCALE PROJECTS NATIONWIDE

Government continues to priorities the well being of the rakyat in urban, sub-urban and rural areas
and ensure access to well-maintained public amenities and basic infrastructures such as roads, bridges,
streetlights, drainage and rural water supply. Government will allocate close to RM2 billion worth of
projects which will be carried out at various levels including Federal, State and Local Governments.
The small-scale projects will benefit Bumiputera and small-scale contractors in which it will spur
economic activities with fast implementation of projects. The small-scale projects to be implemented
are as follows:

i) Government will allocate RM350 million through state governments to undertake public
infrastructure maintenance (PIA) and basic infrastructure (PIAS) projects as well as Rural
Basic Infrastructures (RBI) projects;
ii) An additional allocation amounting to RM250 million will be provided to the Ministry of
Works for federal road maintenance jobs, implemented by new contractors via open
tender called by concessionaires and government agencies where the cost of project will
be based on standard rate agreed in the concessionaire’s agreement. On top of that,
another RM50 million also will be allocated for slope maintenance;
iii) Special allocation to Ministry of Education amounting to RM100 million to ensure the
cleanliness of schools and promote health and personal hygiene of students. The
allocation will include initiatives undertaken in partnership with Parent Teacher
Association (PTA) involvements through gotong royong concept. Another RM100
million to be allocate for school’s hostel facilities include furniture and equipment;

Occasionally, a catastrophic outbreak occurs, but few have achieved the level of severity that
the Novel Coronavirus — COVID-19 has. What began as a viral flu outbreak has now turned
into a worldwide pandemic. Over 2 million people have been infected worldwide, with over
140,000 deaths. Not only are people affected by this catastrophe, but the economy is as well,
with countries implementing lock downs or movement control orders (MCO), resulting in
severe economic consequences such as bankruptcies, stock market crashes, and job
losses.Overall, it is wreaking havoc on the world's economies, including Malaysia's.
Following thorough investigation, here is my assessment of how Malaysia's economy is being
harmed in terms of various important sectors, the exchange rate, the stock market, and the
government's efforts to mitigate economic losses.

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To begin with, COVID-19 has wreaked havoc on a number of Malaysia's main

industries. Malaysia's manufacturing sector, for example, is facing a crisis in the
manufacturing of commodities such as oil and gas as a result of the global crude oil crisis,
which has caused oil prices to plunge this year, in addition to material interruptions created by
the MCO.Another industry that is predicted to be hurt the worst is tourism. Travellers would
be compelled to postpone their travels and cancel hotel and flight reservations, which will be
a significant loss for Malaysia, which was voted the third most popular Asian travel
destination in 2018. As a result, the country's Gross Domestic Product (GDP) will be smaller
because fewer products and services can be produced. Furthermore, an increase in
unemployment as a result of layoffs at some companies will affect net income and, as a result,
GDP.
COVID-19 will also have a significant impact on the ringgit's value in Malaysia, as a
result of panic selling by investors seeking to avoid trading in the current chaotic market. The
downturn in tourism in Malaysia, as well as the drop in global crude oil prices, will diminish
demand for the ringgit, lowering its value. As of March 27, 2020, the world's largest glove
producer will have increased by roughly 30%.Glove manufacturing stocks, on the other hand,
have thrived as a result of the widespread understanding of avoiding any touch with your bare
hands owing to COVID-19, with stocks like Top Glove, the world's largest glove
manufacturer, gaining by roughly 30% as of March 27, 2020.
Overall, COVID-19 has had a terrible effect on Malaysia's economy, causing an
unthinkable amount of damage to the country and the world. However, the economy will
eventually recover, with Malaysia's economic growth predicted to rebound by 4.5 percent in
2021.“We know what to do to bring our economy back to life,” Ghana's president, Nana
Addo Dankwa Akufo-Addo, stated. The only thing we don't know how to do is resurrect
people.”

Conclusion
In summary, the COVID-19 pandemic has had a significant economic impact on
Malaysia. As a result, the finance minister plays a critical role in helping Malaysia weather
the crisis at this critical period. I am confident that all of the policies I have proposed will
benefit the majority, if not all, of Malaysians at this difficult period, particularly small and
medium-sized businesses and poor families. However, if Malaysians are not united, this will
not succeed. As a result, everyone has a role to play in helping Malaysia win this fight. To
conclude my post, I'd want to quote Amit Ray's lecture on unity, which says, "The world
requires enormous positive energy to combat negative forces." Go to your inner beginning
and develop positive energy for the benefit of others.

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Last but not least, as finance minister, I would like to adopt the United States of
America's Coronavirus Aid, Relief, and Economy Security Act (CARES) Act. It is a financial
aid package designed to safeguard citizens from the economic consequences of COVID-19
(U.S. Department of the Treasury, 2020). Expansion of the CARES Act is included in the
CARES Act.

REFERENCES

https://www.eastasiaforum.org/2020/03/05/malaysias-myriad-reform-challenges-await-
action-2/

https://www.luther-lawfirm.com/en/newsroom/newsletter/detail/malaysia-news-032020-the-
malaysian-economic-stimulus-package-2020-support-for-the-malaysian-economy-in-the-
times-of-covid-19

https://www.luther-lawfirm.com/en/newsroom/newsletter/detail/malaysia-news-032020-the-
malaysian-economic-stimulus-package-2020-support-for-the-malaysian-economy-in-the-
times-of-covid-19

https://news.bloombergtax.com/daily-tax-report-international/insight-malaysias-economic-
stimulus-package-2020-tax-measures