By Ranjit Singh
WE are in uncharted territory. Never before have we faced a crisis akin to the Covid-19 outbreak. More than 200,000 people have been infected with the virus and it has claimed more than 9,000 lives globally. Malaysia has around 900 cases with two deaths reported so far.
The policy response to the pandemic by the authorities so far was the imposition of a Movement Control Order (MCO) for the period of two weeks from March 18 to 31. The government had also introduced an economic stimulus package (ESP) worth RM20 bil on Feb 27 to mitigate the economic impact of the deadly virus.
Many governments around the world were caught by surprise by the speed and pervasiveness of the virus. Policy response has been slow and it is feared that stimulus packages to counter the adverse economic impact brought about by the spread of the virus may not be sufficient as no one knows the severity of its effects.
Under the ESP, RM2 bil financing would be made available for small and medium enterprises (SMEs) affected by Covid-19 at an interest rate of 3.5%. Around 90% of the economy is made up of SMEs and the sum allocated is grossly inadequate. The government should consider increasing this incentive, and that failure to do so will result in many businesses folding and widespread unemployment.
Businesses affected by Covid-19 should also be given a tax holiday for the period the virus persists. Under Malaysia’s taxation system, companies notify the authorities the amount of tax payable for the year which is then paid in monthly instalments. In view of the strain on the cash flow of companies during this period, the instalment scheme could be suspended for a definite time period.
There are proponents that argue that if these measures are implemented, it would cause the country’s deficit to widen. At the end of 2019, the deficit stood at 3.4% and a spike to the deficit may cause credit rating agencies to downgrade Malaysia.
The government should enter into discussions with international rating agencies to inform them that these measures are transient in nature and the status quo would be restored once the threat from Covid-19 abates.
Malaysia should also seriously consider handing out “helicopter money” to its citizens to ensure that consumption, which is the most important cog in the GDP, is not halted. Typically this should be to the poor who are likely to spend all the money, thereby providing the needed stimulus.
The US government had announced a US$1 tril package yesterday that includes cash handouts to individuals amounting to US$1,200 and US$2,400 for families as a measure to ensure that Americans continue spending. Malaysia should follow suit.
The government should act fast to put these measures in place immediately. There is a great possibility that the economy will go into a recession if the spread of the virus persists. There would be job losses and the government must step in a big way to ensure that the rakyat’s well-being is safeguarded. – March 20, 2020
