How will Putrajaya finance RM250 bil rescue package, asks economist
Nicholas Chung and Predeep Nambiar -March 27, 2020 6:33 PM
PETALING JAYA: An economist has raised question marks over how the government plans to fund the RM250 billion economic stimulus package announced by Prime Minister Muhyiddin Yasin today.
Carmelo Ferlito, of the Institute for Democracy and Economic Affairs, said the package makes up about 16% of the nation’s GDP, which was around US$370 billion, adding that this was a major challenge.
While lauding the government’s “significant effort”, he said questions will be asked sooner or later over how its plan will be financed.
“This is the biggest question mark I have with regard to the announcement,” he told FMT, adding that it would be interesting to see the financing sources for the stimulus package.
He also raised doubts over the government’s preparedness should the Covid-19 crisis last longer, highlighting that the cash handouts in the package will only last one to two months.
“What happens if — God forbid — the issue lasts longer? We risk that as we have already fired our best shots,” he said.
He welcomed Putrajaya’s “clear intention” to support the medical sector and health ministry through the package, stressing the importance of frontliners in fighting the war against the virus.
“However, one of my main doubts is: are we tackling the issue from the right perspective?”
Carmelo said the magnitude of the outbreak in Malaysia was less than that faced in Wuhan (China) or Italy, adding that there seemed to be a cheaper and more effective way to manoeuvre through the crisis.
He questioned if the halt in the economy was really necessary, saying that the move risks doing more harm than the virus itself.
He recommended Malaysia take the lead from South Korea, which conducted mass screenings and introduced targeted isolation, saying the country managed to achieve the best results in the shortest amount of time.
“Gradually restart economic activities, but before reopening any businesses, force people to get tested and only allow those who test negative to go back to work,” he said.
Muhyiddin today announced an economic stimulus package of RM250 billion to cushion the impact of the Covid-19 outbreak, more than 10 times the RM20 billion allocated by his predecessor, Dr Mahathir Mohamad, last month.
This comprises RM128 billion for the people’s welfare, RM100 billion for businesses and SMEs, and RM2 billion to strengthen the economy, aside from the RM20 billion announced in the previous package.
“As I have said, no one will be left behind,” Muhyiddin said in a live telecast, adding that the government’s focus is to curb the spread of Covid-19.
‘Big, bold and brave package’
Meanwhile, senior economist Ramon Navaratnam said it was a “big, bold and brave package” to weather the storm created by Covid-19.
He said such a big sum, which was “historic and unheard of”, was what the country needed to face the effects of the lockdown worldwide and the inevitable economic slowdown it would create.
The former treasury deputy secretary-general said the cash handouts to the poor were also a move in the right direction but urged the government to ensure it was fairly distributed based on a “genuine needs” basis.
“The current situation we are in is unprecedented and the stimulus will cushion the impact, especially that felt by the low-income earners.
“This is a time when the government can’t go in with half measures. One has to go all out to give a quick knockout blow to the effects of Covid-19, or else the remnants will emerge again.
“The Cabinet has risen to the occasion by coming up with a bigger budget than the one announced earlier,” he told FMT, referring to the previous RM20 billion stimulus package.
Navaratnam, who has seen through four economic slowdowns in his 30- year career in civil service, said the government must cut down on low-priority projects.
He said the current priority should be for anti-Covid-19 measures to ensure a speedier recovery of the economy and financial stability.
Navaratnam said the government must do a balancing act between ensuring the healthcare system is sound and given enough funding and, at the same time, manage the economy carefully.
“As soon as financial monitors find us weak, we might plunge into further trouble. We must remain financially sustainable for the time being,” he said.
Ratings company Fitch today revised Malaysia’s real gross domestic product numbers from 3.7% to 1.2% due to a worsening global outlook.
It said if the Covid-19 was not contained in one quarter, and if the global economic outlook was extended, there were high chances of the country dipping into recession.
Fitch said a drop in private consumption or consumer spending is one of the possible contributing factors for a bearish economy, besides a poor external outlook and low oil prices.