LETTERS: We are at a stage where massive intervention is required to prevent the economic fabric of the nation from disintegrating due to Covid-19. For Malaysia, this would mean a fiscal package of RM150 billion. Measures announced at the end of February amounting to RM20 billion will need to be reviewed.
On cue, the US is currently debating a stimulus package of some US$2 trillion (RM8.8 trillion), or roughly 10 percent of GDP. Even Germany seems to have bought into this reasoning. The fiscal stimulus package they announced amounts to €356bn, also some 10 percent of GDP.
Can we afford a similar effort? To illustrate, Malaysia’s debt to GDP ratio is similar to Germany’s. Yields on Malaysian government debt reached their lowest level in February, although they rose since then, obviously in response to the global economic uncertainty. Nonetheless, there should be room for a bigger stimulus package.
For businesses, this could take the form of additional funds for already-existing public entities providing company financing, for example the lending facility announced in the previous stimulus package.
Bank Negara will also have to increase the funding available to financial institutions to ensure they keep providing financing and ease loan terms (e.g. temporary moratorium on loan payments.)
If the support to companies works as intended, most employees should keep receiving their income, and indeed, maintaining employment should be a condition for companies to receive support. However, for the unemployed, existing programmes such as the Employment Insurance Scheme, should be increased in size so payouts can reach a level that is proximate with what the newly-unemployed worker earned previously.
The scheme should be expanded to also cover freelance workers in the gig economy, and even consider payouts to workers in the informal economy, since this represents a significant part of our overall economic activity.
Similarly, payments to the B40 group at this time should also be expanded, for example to an additional RM1,000 per month for the 4.1million households who are recipients of the Bantuan Sara Hidup (BSH) scheme over the next two months, since they are disproportionately at risk of greater hardship.
For proportion, such a measure would cost about RM8.2 billion. The government should also consider providing subsidies to low-income students to purchase a laptop and an internet connection so that they can follow online courses. The key is to ensure that income levels of both businesses and workers do not drop significantly due to the pandemic, and that future production capacity is protected.
One important caveat is required here. Because the nature of the economic shock requires extraordinary action, measures targeted at companies so that they survive and maintain employment are justified. However, support for companies should come with clear conditions, first of all a guarantee to maintain employment of all workers.
Next, companies that receive support should agree to suspend dividend payments for the next five years, and stop using stock buybacks. Strict limits should also be imposed on executive pay.
Once this crisis is behind us, a long and hard look at the fragilities in our economic system and how to address them is necessary, with policy measures to match. But for now, bold and immediate action is required to save our economy.
TAN E HUN - executive director, Research for Social Advancement (REFSA) and IVY KWEK, research director, REFSA
The views expressed in this article are the author’s own and do not necessarily reflect those of the New Straits Times