Constrained by fiscal space, experts say Malaysia's latest COVID-19 aid package too small to make an impact
KUALA LUMPUR: The latest stimulus package worth RM40 billion (US$9.7 billion) for Malaysians undergoing the “total lockdown” is too small to offer a significant boost to the economy, experts said.
Considering that Malaysia was going back into the strict conditions similar to its first movement control order (MCO) enforced in mid-March last year, Sunway University Business School economist Prof Yeah Kim Leng said the new package was "underwhelming".
“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,” he said.
Prof Mohd Nazari Ismail from the Department of Business Strategy and Policy at Universiti Malaya (UM) said the government has limited fiscal room to manoeuvre as its debt at present was already too high.
“It will be really challenging in the future for the government to meet its debt obligations,” he said.
“If you’re talking about sufficient, nothing will ever be enough because the pandemic’s effects are very severe,” the academic added.
The new assistance package, titled the Strategic Programme to Empower the People and Economy (Pemerkasa) Plus, came as the country entered the first phase of a total lockdown from Tuesday (Jun 1).
READ: Malaysia to shut all malls, allow only 17 essential service sectors to operate during total lockdown
With a direct fiscal injection of RM5 billion, it aims to increase public healthcare capacity to treat COVID-19 patients, while also aiding business continuity and private citizens.
Pemerkasa Plus, which offers cash handouts to lower-income households as well as taxi and bus drivers, brought the total of stimulus packages rolled out since the pandemic to RM380 billion.
Prime Minister Muhyiddin Yassin, in his speech announcing the latest package, admitted that the government has "very limited fiscal space" for expenditure at the moment.
The government could consider raising its debt ceiling, said Associate Professor Dr Irwan Shah Zainal Abidin from Universiti Utara Malaysia (UUM), if more stimulus packages are needed in the event of a prolonged lockdown.
AID SHOULD BE MORE TARGETED
Malaysia's GDP contracted by 5.6 per cent last year as the raging pandemic has triggered restrictions on economic activities. A decline of 0.5 per cent was registered in the first quarter of 2021.
The government’s RM5 billion direct fiscal injection in the new package only constituted 0.5 per cent of Malaysia’s gross domestic product, said Sunway University's Prof Yeah.
“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,” he said.
Citing China's recovery and the vaccine-induced rebound in the West as examples, Prof Yeah said the focus on boosting healthcare capacity and the vaccination rate was a correct priority as controlling the pandemic is key to saving both lives and the economy.
However, he said, some aspects of Pemerkasa Plus could have been improved on, such as larger, more focused cash aid based on needs.
Soft loans and wage subsidies should also be offered to severely affected sectors such as microenterprises and the bottom 10 per cent or bottom 5 per cent of households.
“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,” Prof Yeah said.
In this current package, Prof Yeah said, income and other support for children’s education and welfare were likely to be inadequate for vulnerable households that have fallen below the hardcore poverty line, which is now drawn at RM2,200.
The loan moratorium mechanism should have been automatic and extended, said UM's Prof Mohd Nazari.
Compared to last year’s six-month automatic moratorium with an opt-out mechanism for all loan holders, the new package’s loan moratorium was optional and offered to the bottom 40 per cent of income earners as well as micro, small- and medium-size enterprises unable to operate during the lockdown.
“It’s quite likely more SMEs will close especially those that have high debt obligations to banks," Prof Mohd Nazari said.
INCREASE DEBT LEVELS FOR MORE AID
Associate Professor Dr Irwan Shah Zainal Abidin from Universiti Utara Malaysia said a potential problem was the risk of the current “total lockdown” being extended.
“To me, it should be avoided, but if the government decides to do so in the future, more stimulus would be needed to lessen the severe impact, especially on individuals' economy,” he said.
He explained that this could be executed by increasing the government’s self-imposed debt ceiling level, which now hovers around 60 per cent.
This was temporarily raised from 55 per cent from August 2020 until the end of 2022 to strengthen the government’s fiscal position in countering COVID-19’s impact.
“If the government increases it to 75 per cent - and assuming the government borrows for another 10 per cent - I think the debt level would still be manageable,” Assoc Prof Irwan said, adding that this means the government could borrow roughly RM150 billion.
In such extraordinary times, the academic said a 70 per cent debt-to-GDP level is “still acceptable”.
“In the 1980s, our debt level had breached over 100 per cent, and we managed to reduce it to 48 per cent in the first quarter of 2018,” the academic said.
But this, Assoc Prof Irwan said, would depend on the country’s medium- and long-term economic planning to reduce its public debt.
Prof Mohd Nazari, however, voiced his preference for individual private citizens to assist each other so as to reduce the government’s assistance burdens.
“Increased debt levels will eventually benefit the rich who loan money to the government at the expense of the poor, the taxpayers and ordinary people, who will have to bear the brunt of the government’s future measures to pay off its debt,” he said.