The recent movement control order announced nationwide amid the rising number of Covid-19 cases threatens to disrupt the economic gains seen during the second half of last year. In response, the Prime Minister has unveiled yet another round of economic stimulus initiatives worth a total of RM40bil which includes a RM5bil direct fiscal injection, collectively known as Pemerkasa Plus.
Notably, these initiatives focus primarily on boosting the incomes of the B40 as well as the Micro, Small and Medium Enterprise (MSME) groups, mostly by means of delivering direct cash handouts, automatic loan moratorium approvals, wage subsidies and small cash grants. These initiatives are highly welcoming given the recent economic turmoil that has rattled both investors and consumers alike and provide a boost to near-term consumption.
We at INSAP view these initiatives positively, though with a sense of cautious optimism, being an extended version of the Pemerkasa Plus package announced earlier this year. Promisingly, the nominal effort shown towards the most economically vulnerable groups in society gives credence to societal concerns continuously expressed to the current administration.
In light of the recent MCO 3.0, there is certainly a sense of anxiety among business owners, especially MSMEs on whether the government can keep to the two-week timeline. It is likely however, that this lockdown may indeed be extended into the foreseeable future, making the announcement of PEMERKASA Plus all the more important to many struggling businesses desperate for a lifeline.
Despite being packed with a number of people-centric initiatives however, one may raise doubts over the sufficiency of the RM2.1bil in immediate cash aid to the B40 to last longer than a fortnight. Moreover, the RM5bil short-term cash injection may ultimately be insufficient to sustain the economy over the medium-term.
According to market analysts, daily economic losses during the MCO 3.0 is estimated to average RM300mil. A back-of-the-envelope calculation thus suggests that the economic impact of a two-week lockdown could cost the economy upwards of RM4.2bil and up to RM9bil if these measures were to last for a month.
Therefore, simple arithmetic suggests that the RM5bil in direct fiscal injection would be grossly insufficient to offset the direct economic impact of an extended MCO, putting pressure on the administration to increase its fiscal provisions, commensurate with the length of the lockdown period.
Given that the government has made clear its limited fiscal headroom going into this lockdown, the actual impact on the economy may very well depend on the ability of the administration to keep to its two-week timeframe and drastically reduce the number of inflowing cases by then.
In such a scenario, the government may need to further increase the statutory Debt-to-GDP ceiling from its current 60%, potentially leading to a reopening of parliament, an unpopular decision given the currently fractious political climate.
Therefore, the government may instead opt to repurpose funds meant for development expenditure in Budget 2021, which totalled RM69bil at its tabling towards the funding of these stimulus programmes. Moreover, underutilised allocations totalling RM100bil from previous stimulus packages may likewise be rechannelled towards the most current stimulus measures.
However, despite the strengths of the PEMERKASA Plus package in prioritising the low-income and MSMEs, the measure fails to acknowledge the difficulties faced by the middle-income group, popularly referred to as the M40.
It is unfortunate that the package has relatively little dedicated towards the middle-class, who feel increasingly squeezed and resentful, being ultimately the ones who bear much of the public tax burden.
Mainly, the PEMERKASA Plus package fails to address the opt-in feature for the M40, with the measure aimed primarily at the B40 and MSMEs instead. Given the relatively high level of household Debt-to-GDP in Malaysia, the government should make way for individuals in the M40 income group to qualify, or better still, announce a blanket opt-in loan moratorium for all members of society to participate in, being more inclusive in comparison.
In this regard, the administration seems to be in a state of arrested development, continuing to rely on one-off cash handouts and income-targeting to ride out the economic storm instead of adopting a whole-of-society approach in addressing social welfare issues, such as introducing a consistent and reliable social safety net.
Moreover, the Pemerkasa Plus package fails to address important social issues such as education and the accessibility to high-speed internet, which has been made ever more important due to the drastic change in the traditional mediums of work and schooling, reflecting our shift towards a low-touch society as a reaction to pandemic-infused lockdown measures.
Therefore, while INSAP agrees with the general direction and good intentions of the Pemerkasa Plus package, there are ultimately areas and segments of society that the government has overlooked, while continuing to rely on short-term stimulus measures against a long-term economic issue.
Invariably, a whole-of-society approach needs to address wide-ranging topics outside the realm of short-term economics and address the medium and long-term day-to-day livelihoods of its citizenry.
In this regard, INSAP suggests a more long-term view in designing stimulus packages, taking into account concerns from educational institutions, the ease of communicating with others, more inclusive income targeting measures and ultimately providing a more robust social safety net for all members of Malaysian society.
The Institute of Strategic Analysis and Policy Research (INSAP)