Giving the economy a boost via the ERP

As Socio-Economic Research Centre executive director Lee Heng Guie put it, economic stabilisation and recovery following a major shock can be a tricky and frustrating experience for the government, partly because so many economic factors are out of its control. He said the rehabilitation phase is to stabilise domestic economic and business conditions as well as enable the economy to recover sustainably amid the ongoing containment of the Covid-19.

PETALING JAYA: The government has shifted its gear to take on the steep uphill ride in rebooting the economy that has been brought to a halt by the coronavirus (Covid-19) pandemic.

The short-term economic recovery plan (ERP) that is expected to be announced by the Prime Minister tomorrow is aimed at giving the economy a boost, a month after most industries have reopened, and also to cushion the blow from the imminent contraction in the economy as projected by the International Monetary Fund and the World Bank.

Malaysia went into a partial lockdown in the form of a movement control order (MCO) that lasted 44 days, where most sectors were ordered to hit the brakes.

It was not until May 4 that the government allowed for most businesses to reopen under the conditional MCO, allowing the economy to restart albeit with slight disruptions in place.

As Socio-Economic Research Centre executive director Lee Heng Guie put it, economic stabilisation and recovery following a major shock can be a tricky and frustrating experience for the government, partly because so many economic factors are out of its control.

He said the rehabilitation phase is to stabilise domestic economic and business conditions as well as enable the economy to recover sustainably amid the ongoing containment of the Covid-19.

“It is reasonable to expect domestic consumption and business capital spending will mend gradually, accompanied by a restoration of consumer confidence and business sentiment.

“Restoring consumer and investor confidence will be key to domestic economic recovery and this is anchored on keeping clear and consistent communication flows of the government’s economic stabilisation policies, backed by a calibre leadership management, ” he said, adding that macro-economic and political stability were essential for ensuring a conducive and predictable environment for businesses to continue operating.

Lee suggested that the extension of financial relief and assistance to ease cash flow and operating costs can be considered.

He added that ongoing public infrastructure projects such as MRT2, LRT3 and Pan Borneo Highway, smaller rural and socio-economic projects cutting across ministries and the National Fiberisation and Connectivity Plan as well as 5G technology must be accelerated.

“Over the medium term, fiscal spending on infrastructure investment in new projects should remain targeted to support domestic demand while enhancing the country’s future productive capacity.

“To revitalise private investments, the government can consider fast-tracking pre-approved investment projects in the manufacturing, services, and oil and gas sectors, ” said Lee, adding that low-hanging sectors such as real estate, which has long been in the doldrums and overhang since 2015, can be given a boost in buyer sentiment through a review of measures including the Real Property Gains Tax (RPGT), the extension of the Home Ownership Campaign and stamp duty exemption, the Malaysia My Second Home (MM2H) Programme and the foreign ownership property price threshold level.

Bank Islam Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said at the current juncture where the economy has been gradually reopened and adapting to the new normal concurrently, the government needed to figure out what projects or measures would facilitate the transition into the new normal and ensuring the economy will continue to grow.

Affin Hwang Capital Research said in its economic update report that the ERP is intended to capitalise on the opportunities arising from the pandemic for the country’s future economic development.

It believes that the ERP will be introduced with some short-term stimulus to support and help cushion the domestic economy from a sharp contraction.

On Tuesday, Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz said the short-term ERP for June to December 2020 will focus on three key objectives, namely, to empower people, propel businesses and stimulate the economy.

In drafting the plan, the government’s approach will be based on four features - agile and dynamic, prioritising public-private sector cooperation, ensuring comprehensive communication by upholding transparency and openness and using a data-based approach.