Economists say the latest stimulus package worth RM40 billion (US$9.7 billion) for Malaysians is too small. They feel such a package will not offer much of a boost to the economy. Malaysia is currently undergoing Phase 1 of a “total lockdown” from Jun 1st to Jun 14th.
The new package was “underwhelming” according to Sunway University Business School economist Prof Yeah Kim Leng. This is based on the fact that Malaysia will practically follow the strict conditions in its first movement control order (MCO). The first MCO came into force in mid-March 2020.
Prof Yeah said “A bigger fiscal dose would certainly get the economy up and running faster, while reducing possible ‘scarring effects’ that are more likely after a prolonged period.”
The Malaysian government has debt at present that is already too high. This is according to Prof Mohd Nazari Ismail from the Department of Business Strategy and Policy at Universiti Malaya (UM). Prof Mohd Nazari feels this is the reason why the government has limited fiscal room to move.
Prof Mohd Nazari Ismail said “It will be really challenging in the future for the government to meet its debt obligations.”
The UM academic said because the pandemic’s effects are so severe, nothing will ever be enough when talking about sufficiency.
The Prime Minister called the new assistance package the Strategic Programme to Empower the People and Economy (Pemerkasa) Plus. Details of the new assistance package were released on Tuesday Jun 1st. This is the same day the country started the Phase 1 of a total lockdown.
To increase public healthcare capacity to treat COVID-19 patients, RM5 billion will be poured in. The funds will also provide aid to business continuity and assist private citizens.
Cash handouts will be offered to lower-income households as well as taxi and bus drivers by Pemerkasa Plus. Since the beginning of the pandemic, nearly RM380 billion worth of stimulus packages have been rolled out by the government.
Limited fiscal space
During the stimulus package announcement on Jun 1st, PM Tan Sri Muhyiddin Yassin said the government currently has “very limited fiscal space” for expenditure.
Associate Professor Irwan Shah Zainal Abidin from Universiti Utara Malaysia (UUM), said the government could consider raising its debt ceiling. This is only in the event of a prolonged lockdown. There will be a need for more stimulus packages.
Last year, the raging pandemic triggered restrictions on economic activities. Malaysia’s GDP contracted by 5.6 percent. The first quarter of 2021 registered a decline of 0.5 percent.
Only 0.5 per cent of Malaysia’s gross domestic product is made up by the government’s RM5 billion direct fiscal injection in the new package. This is according to Sunway University’s Prof Yeah.
He said “It is smaller than expected, reflecting both the limited fiscal space and prudent fiscal stance adopted by the government to lessen the impact of additional spending on Malaysia’s elevated budget deficit and debt levels.”
China and the West as examples
Prof Yeah referred to the vaccine-induced rebound in the West and China’s recovery as examples of economic recovery. From there, he said the focus on the vaccination rate and boosting healthcare capacity was a correct priority. This was the key to saving both lives and the economy while controlling the pandemic.
There is room for improvement for Pemerkasa Plus says Prof Yeah. A larger, more focused cash aid based on needs is one area to consider.
More aid should be given to microenterprises and the bottom 10 percent or 5 percent of households. These sectors are worst hit. This could be in the form of wage subsidies and soft loans as well.
Prof Yeah said “These would be more effective to avert deep financial distress caused by the lockdown, and although harder to distribute without strong implementation capacity, the use of big data and analytics to means testing and early identifiers of financial distress, would allow for a more effective rollout of government support.”
3rd June 2021 23:00
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