By Emmanuel Samarathisa
AS Prime Minister Tan Sri Muhyiddin Yassin is expected to table a second stimulus package tomorrow, market observers are pushing the government to up the ante in dealing with the economic impact of the Covid-19 outbreak.
One of the measures that had been floated around is to amend the Local Loans Act 1959 to allow for borrowings to fund operational expenditure (OE).
For now, the government is required to maintain an operating surplus where OE is solely funded by revenue collection, while borrowings are only for development expenditure (DE).
An amendment would see the fiscal deficit balloon and certainly raise the self-imposed debt limit to beyond 55% of GDP, but needs a simple majority to be passed in parliament.
Some are calling for such drastic measures as “these are extraordinary times.”
Lee Hwok-Aun, senior fellow at the ISEAS-Yusof Ishak Institute, told FocusM that such an approach seemed “too tedious and time-consuming” as the “necessary interventions are unprecedented and exceptional and neither opex nor development as conventionally understood.”
Lee said “preservation” would be a better characterisation of the current situation and that “the imperative and urgency should compel action that supersedes legislative amendment. But parliament must meet and vote.”
Bank Islam chief economist Mohd Afzanizam Abdul Rashid said all options should be on the table. “We shouldn’t be fixated with the conventional practices as the present situation requires greater resolve and therefore, the antidotes or the remedy needs to be explored from all angles,” he told FocusM.
But Afzanizam added that the current stimulus was already sizeable. He pointed to various measures, among others, to the reduced contribution rate to the Employees Provident Fund (EPF) to 7% as well as the i-Lestari withdrawal which allows EPF members to withdraw RM500 a month for 12 months as well as Bank Negara Malaysia’s (BNM) moratorium on all loans for households and small and medium enterprises.
All the measures so far, according to Afzanizam’s estimates, chalk up to 10% of GDP “if we used 2019 nominal GDP as the denominator.”
But he said that “the big unknown” would be the extent and duration of the outbreak,
“Assuming it could be resolved by June, the V-shape recovery could actually happen in 2H2020. So it really depends on the Covid-19 situation and that is the reason why all governments in the world are focusing their efforts on health because that is the number 1 priority,” he said. -- March 26, 2020