Extraordinary measures needed during extraordinary times

Economists say govt should discard all fiscal considerations such as fiscal deficit target or sovereign ratings concerns as the pandemic will cost thousands of job losses


UNCONVENTIONAL measures are needed to protect the economy and people’s livelihood, including to mobilise the central bank’s international reserve or to raise funds via off-budget financing to save the country from the devastation of the coronavirus pandemic.

The Covid-19 crisis is plunging the world into recession, impoverishing countries and dragging millions of people around the world into poverty.

Economists said the government should discard all fiscal considerations including economic growth, fiscal deficit target or sovereign ratings concerns as the pandemic will cost thousands of job losses.

Economist Dr Muhammed Abdul Khalid said this is not the time for the government to be timid as the livelihood of millions are at stake.

“Unconventional policy measures are needed for this situation. The government has the ability to spend for the rakyat, either via existing pool of assets or funds such as Kumpulan Wang Amanah Negara or via borrowing,” he told The Malaysian Reserve.

“This is no time to be timid. Forget fiscal targets. It is irrelevant at this point of time. Now is the time to do whatever it takes to make sure that the people’s livelihood is taken care of.

“It is better to spend now, when we can, as now is literally a life and death situation,” he added.

Governments around the world are injecting trillions of dollars to save their economies from being the victim of the coronavirus pandemic.

The US Federal Reserve on March 12 announced the injection of US$1.5 trillion (RM6.65 trillion) of cash into markets. Two days ago, the US financial regulator promised it would buy as much government-backed debt that is required to prevent a major fallout to its economy.

Governments in Europe, the region which is witnessing more deaths than any other continent, had promised economic rescue packages totalling €1.7 trillion (RM8.18 trillion).

Bank Negara Malaysia’s (BNM) reserve stood at US$103 billion as at March 13, 2020, sufficient to finance 7.3 months of retained imports and is 1.1 times total short-term external debt.

During the global financial crisis (GFC) of 2007/2008, the government injected US$16 billion into the economy, paring down the economic plunge to just -1.5%.

BNM’s reserve is about five times more today compared to less than US$20 billion during the GFC, limiting the country’s ability to defend its currency then.

When asked to comment on criticism that the Pakatan Harapan (PH) government was not a proponent of cash aid transfer, Muhammed said the situation is different now.

“We did not have the crisis that we have now, so the approach then was to refine income supplement to the needy, especially for those with children. But this Covid-19 affects everyone across the board — it’s a serious matter that needs a definite action to save all,” said Muhammed, who was the economic advisor to the former Prime Minister Tun Dr Mahathir Mohamad during the PH administration.

DM Analytics Sdn Bhd senior researcher Zouhair Mohd Rosli said raising money via off-budget financing would not impact the government’s budget deficit.

“The traditional balanced budget is not what we need right now. The government does not have to raise much, maybe around RM50 billion-RM60 billion will be enough at least for April until June,” he said.

Zouhair proposed the money be divided into two — half to affected individuals such as low-wage earners who are forced to work fewer hours and half for own account workers such as small business owners.

He said Denmark, the UK and the Netherlands are among the countries that are implementing this measure.

Economist Dr Nungsari Ahmad Radhi said if the government is reluctant to dip into international reserves, the country can expand its borrowing.

“We have been borrowing for the past thirty years, and now we need to do it more than ever.

“If there is concern whether there is enough liquidity in the market, I think there is (enough). Put aside all fiscal targets and prudent spending measures, we need to act fast.

“We have to accept that it will be a different world after the pandemic. We do not want people to reset and restart at zero to rebuild their lives,” he added.

Economic analyst Dr Aimi Zulhazmi Abdul Rashid said new bond issuances, refinancing, sales of assets and crowdfunding could be considered by the government.

He said the government could not inject billions to save the economy as the country’s deficit continues to widen every year.

“The initial RM20 billion financial stimulus is already costing the government a growing deficit of 3.4%.

“Nonetheless, further injection is urgently needed as the economy is moving at a snail pace during this Movement Control Order (MCO),” he said.

The government’s RM600 million injection in the recent initiative was an immediate reaction to the Health Ministry’s urgent need for fresh equipment and manpower to help the strained workforce.

Aimi Zulhazmi said this must be within the government’s affordability as it is a short-term or one-off measure.

“With the continuous spread of the virus globally, medical experts are not doubting the extension of the MCO.

“Even China is still controlling the movement of its people despite lesser new cases. Even then, its economic activities are not operating at its maximum levels,” he added.

OCBC Treasury Research said the longer the partial lockdown, the greater the impact of private consumption to the economy.

“Private consumption has increasingly become a key player in the Malaysian economy over the past few years.

“The impact from the existing MCO would manifest in terms of purchases that are postponed, reduced or removed altogether,” it said in a report.

Research houses are already trimming Malaysia’s economic growth to 2.5% this year and most expect BNM to make two more rate cuts this year.