KUALA LUMPUR, March 10 - Deputy Prime Minister Datuk Seri Najib Razak announced today a RM60 billion stimulus package but the government still projected a contraction of the economy and all but confirmed the country was in recession.
The whopping sum will be spent over two years as the country faces up to the reality of falling exports and drastically lower revenue.
The package, announced in Parliament today, includes RM3 billion in tax incentives, and will see RM10 billion of equity investments and RM15 billion in fiscal injections, as well as RM25 billion in guaranteed funds.
A total of RM29 billion has been allocated for private sector assistance, while RM5 billion has been set aside for a working capital guarantee scheme to provide capital to companies with an equity of under RM20 million.
A financial guarantee institution will also be established.
"This RM60 billion accounts for almost 9 per cent of the GDP. The implementation of such a large stimulus package is unprecedented in the nation's economic history," he told Parliament.
Of the RM15 billion fiscal injection, Najib said RM10 billion is allocated for 2009 and RM5 billion for 2010.
The RM10 billion for 2009 consists of RM5 billion for operating expenditure and RM5 billion for development expenditure. The higher expenditure will increase the Federal Government budget deficit from 4.8 per cent to 7.6 per cent this year.
"The Government is confident that the deficit can be financed from domestic sources, given the ample liquidity in the domestic financial system. In addition, the Federal Government debt ratio is still at a prudent level," said Najib.
He said the financing of the deficit will not crowd out the private sector in sourcing funds, particularly from the bond market, which has expanded rapidly and is currently the second largest in the East Asia region.
Najib, who is set to become prime minister on March 31, said the government's growth forecast for 2009 was projected to be between a contraction of 1 percent and a 1 per cent expansion, down from a forecast of 3.5 per cent.
Malaysia is a heavily export dependent country and job losses have been increasing as more and more multinationals have started closing plants because of lower global demand for products.
Najib will be hoping that the new stimulus package will offer him some political room to operate as he prepares to take over as prime minister and Umno president at a time when Barisan Nasional (BN) faces three crucial by-elections.
In his speech, Najib said the unemployment rate for 2009 will be 4.5 per cent compared with 3.7 per cent in 2008.
Since October 2008, a total of 25,000 workers have been retrenched, while 30,900 have been temporarily laid-off and 23,900 had to take pay cuts.
In addition, about 100,000 workers have not been given overtime work, resulting in significant reduction in income.
The government will introduce a number of retraining schemes, set up jobs centres and will recruit up to 63,000 permanent and contract civil servants.
Najib said the government will establish a Working Capital Guarantee Scheme totalling RM5 billion to provide working capital to companies with shareholder equity below RM20 million.
The Government will provide guarantee in the ratio of 80:20 that is 80 per cent will be guaranteed by the Government and 20 per cent by financial institutions.
"I often receive complaints from companies regarding their difficulties in obtaining loans from financial institutions, even for viable projects. With this fund in place, the government is confident that financial institutions will provide more loans to companies.
"It is important that, in the current economic downturn, financial institutions do not restrict credit flows to companies or impose tighter conditions."
A Financial Guarantee Institution will also be set up to provide credit enhancement to companies that intend to raise funds from the bond market.
The government-owned company will have an initial paid-up capital of RM1 billion, which will subsequently be raised to RM2 billion. It is expected that bonds totalling RM15 billion will be raised under this facility.
"The government is confident that the strategies and measures outlined in this stimulus package are comprehensive to prevent our economy from slipping into deep recession.
"We cannot depend on orthodox economic recovery policies. We must be bold in formulating innovative approaches to deal with the crisis."