MALAYSIA should heed the latest warning by the International Monetary Fund (IMF) warning that Asian nations may face a stagflationary outlook, where in China the COVID-19 induced shutdown has slowed growth.
Coupled with the war in Ukraine, Asia’s growth prospects had reduced and caused higher inflation. Earlier, the World Bank had lowered its Malaysia gross domestic product (GDP) growth forecast for 2022 to 5.5%, from 5.8% previously.
This is the lower end of the Government’s 2022 forecast GDP of between 5.5% to 6.5%. Rising prices has also led to higher cost of living as prices of food items, including chicken and vegetables, spiked by more than 10% in March.
Stagflation would lead to lower employment prospects, with the hike is salaries getting affected as well.
Inflation will be subjected to further pressure with higher imported inflation with the value of the ringgit declining to RM4.35 to the US dollar and a historic low of RM3.16 to the Singapore dollar. The time has come to check higher prices and generate better growth by establishing a Price Stabilisation Fund and an extension of the interest rate waiver and bank loan moratorium by another six months that ended on March 31.
A RM5 bil seed fund should start off the Price Stabilisation Fund not to arrest price increase but to control its the quantum. The higher cost of living extends to the rising cost of input materials for businesses and had caused intolerable pressure on individual’s financial position to the extent that there were 5.3 million applications under the EPF Special Withdrawal facility, with RM40.1 billion of their own savings being used to meet current challenges.
Extend loan moratorium
For this reason, the Government should heed requests from individuals and the business community, particularly SMEs, for an extension of the interest rate waiver and bank loan moratorium.
The loan moratorium has provided relief to the value of at least RM80 bil and benefited eight million individuals and companies. As for the costs involved, the banking industry can afford to do so after recording healthy pre-tax profits of RM41.5 bil in 2019, RM28.5 bil in 2020 and RM33.7 bil in 2021.
Clearly, bearing the costs of the loan moratorium and interest cost waiver has not affected the profitability of banks. However, much needed assistance and relief from the loan moratorium and interest rate waiver will help individuals and businesses, especially SMEs, to recover from COVID-19, overcome higher prices and slowing growth. – April 26, 2022
Lim Guan Eng is former finance minister and the MP for Bagan.
The views expressed are solely of the author and do not necessarily reflect those of Focus Malaysia.
