“Official numbers from Bank Negara show that (the economy) will contract for the entire year, ” said Khazanah Research Institute Deputy Director of Research Christopher Choong.
“That means that the pandemic will take a toll on the economy for the medium to long term.”
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Choong noted that most of the Prihatin measures announced so far are short-term and we must begin strategising for post-MCO, when there’s resumption of economic life.
“The protection measures like the Employee Retention Programme (ERP), wage subsidies, and even Bantuan Prihatin Nasional (BPN) will last 3-6 months, moving forward we need to look into a major labour reallocation strategy, ” which he said should consist of two things -- a temporary work programme with job security for a year and a job creation programme that targets strategic industries and sectors.
“The longer the MCO, the weaker the (mitigating) effects of the Prihatin stimulus will be, ” said Institute of Democracy and Economic Affairs Senior Fellow Carmelo Ferlito, while noting that the mitigation comes at an “enormous financial effort” on the part of the government.
The Prihatin stimulus package includes a direct cash injection from the government to the tune of RM35billion. The rest of the stimulus consists of indirect measures such as loan deferments and tax breaks.
“Prolonged injection of money into the system can create the pre-conditions for a bigger and more systemic economic crisis, like when easy credit tried to cure the dotcom crisis in 2001, which created the condition for the housing bubble (2008 GFC), ” Dr Carmelo said.
To date, governments across the world have announced economic stimulus that total US$8 trillion, including US$2 trillion announced by the United States alone.
“I am of the view that we need to scale up government spending now and not be overly concerned about fiscal deficit, but at the same time we need to think about a progressive and socially just way to fund this increase in government spending moving forward.”
According to Choong, self-employed workers -- freelancers and contract workers, either formal or informal -- will need greater attention moving forward, as they make up 20% of Malaysia’s workforce.
“Self-employed workers are not covered by Prihatin’s work protection programmes like ERP or wage subsidies, so we need a more targeted and focused programme catering to them, which could be an extension of existing job protection initiatives” Choong said.
Professor of Economics at Sunway University Yeah Kim Leng echoed Choong’s sentiments, adding that policymakers may find challenges in providing aid to the self-employed or informal daily wage workers.
“Given the difficulty in identifying them, the self-employed, small traders, and those in the informal sector which do not have registered businesses are not covered by the stimulus, ” he said.
The unprecedented nature of the pandemic and the subsequent movement controls on large portions of the global population mean it is near impossible to predict how the economy will react.
“If we look at the 2008 GFC crisis, we can see something went wrong within the economic system.
“But the current crisis is induced entirely by external factors, first the virus itself, then the amplifier of the crisis was the (MCO), which put businesses at a halt, ” said Dr Carmelo.
As a short-term response, Prihatin provides relief to vulnerable households/communities and acts as a buffer for Malaysia’s economy.
“Some have used the analogy that we are in a medically induced coma and therefore, we need to put our economy on life support in the meantime. The (stimulus) package should be focused on preserving productive potential and protecting economic linkages from collapsing, ” Choong added.
Considering the foundation of Malaysia’s economic system, Professor Yeah believes the country will be able to gain more control and overcome this unprecedented economic crisis.
“Given its (Malaysia’s economy) diversified structure with a well-developed resource and manufacturing base and a strong financial system with surplus savings, it will weather the looming global recession relatively intact, ” said Professor Yeah.