By Ranjit Singh
THE RM20 bil Economic Stimulus Package(ESP) announced by former prime minister Tun Mahathir Mohamad on Feb 27 may not be enough to mitigate the economic impact from the Covid-19 outbreak, say economists.
This is because the government then had not factored in the effects to the economy of its Movement Control Order (MCO) which came into effect today. The MCO was introduced to contain the worsening condition brought about by the pandemic. Currently, there have been two deaths and over 600 people infected by Covid-19.
Globally the pandemic has afflicted nearly 200,000 people and claimed more than 7,000 lives.
The ESP includes RM2 bil financing with an interest rate of 3.75% and additional breaks for tourism-related companies and individuals. These include income tax deferments, a 15% discount on electricity bills and service tax exemptions from April to September 2020.
Bank Islam Bhd chief economist Dr Afzanizam Abdul Rashid told FocusM that more stimulus measures would be needed in light of the economic downturn caused by Covid-19.
He said more funds would be needed to combat the downturn caused by the virus, especially to healthcare, as more people fall ill. The quantum of the stimulus would depend on the severity of the outbreak.
“We have seen in the past when the government announced its second fiscal stimulus package within six months of each other when dealing with the US Sub Prime Crisis in 2008 and 2009. The first fiscal stimulus amounting to RM7 bil was announced in November 2008 and the second was tabled in March 2009 totalling RM60 bil. As such, it would greatly depend on the severity of the impact of Covid-19 to the economy.
“And at the moment, we think that the immediate priority is on health. Therefore, we foresee there would be more allocation for the Ministry of Health in order to contain the spread of the virus. Because that is what matters now.
“We need labour to run the economy. If the labour is sick or becomes ineffective to work because of the contagious virus, then we need to have more measures in this respect. So perhaps views from medical professionals, scientists and the like are critical and we need to adhere to their recommendations,” said Afzanizam.
Similarly, Sunway University professor Dr Yeah Kim Leng, who is also a member of Bank Negara Malaysia’s Monetary Policy Committee (MPC), told FocusM that the country is in need of another round of stimulus as the situation arising from the virus outbreak is expected to worsen.
“It appears likely and necessary given that the (current) nationwide two-week partial lockdown will have a significant negative impact on businesses and the economy. More targeted assistance will be needed to ensure that the small businesses survive the crisis and that the affected employees receive larger income support,” said Yeah.
If the government decides to introduce a fresh round of stimulus it will also have to grapple with a larger deficit. As at the end of 2019, the deficit stood at 3.4% and if more stimulus measures are needed the deficit could widen. This may arouse the wrath of credit rating agencies when Malaysia’s overall credit health is assessed. – March 18, 2020
