Think out-of-the-box to fund post-Covid-19 recovery

Malaysia may still need approximately RM150b to RM175b in total fiscal spending to jump-start the economy effectively

Malaysia’s Movement Control Order (MCO), currently in its fourth phase, is expected to end May 12. Another extension is not ruled out, subject to how the Covid-19 situation develops locally and globally.

Economically, every additional MCO day will have a damaging impact. Recently, Prime Minister Tan Sri Muhyiddin Yassin said Malaysia loses RM2.4 billion for every day that businesses are suspended.

Bank Negara Malaysia (BNM) also estimated Malaysia’s GDP growth to fall between -2% to +0.5% this year while economists forecasted a 3.3% contraction.

A newspaper columnist and former Chief Investment Officer of an insurance fund Pankaj Kumar (picture) estimated that with an economic output valued at RM1.5 trillion, the eight-week MCO with the economy running at half pace, output losses will amount to RM116 billion.

“Coupled with the government’s fiscal stimulus injection of RM35 billion, I foresee the nett impact would be closer to a 5.3% drag on the economy, just for the eight weeks alone,” he said.

For the year, Pankaj estimated GDP to record a contraction of 10% as the economy will likely struggle to run at its full throttle.

Making a bad situation worse, global oil price slumped to new lows because of the Covid-19 pandemic. This makes it even more difficult for Malaysia to jump start its economy while being mindful of fiscal prudence.

Therefore, it is now more crucial than ever to think out-of-the-box to bolster the government’s resources to fund its post-Covid-19 economic recovery.

According to Pankaj, Malaysia needs the fiscal space to manoeuvre in order to have the capacity to inject cash into the economy and replace the output lost due to the MCO.

“Currently, the government should not be too concerned about our debt to GDP ratio and take the bold measure to raise it to either 65% or 70% from its current self-imposed ceiling of 55%. This would enable the government to borrow at least about RM140 billion from the market.

“Nevertheless, Malaysia may still need approximately RM150 billion to RM175 billion in total fiscal spending to jump start the economy in an effective and expedient manner,” he added.

Another way to source for funds, he added, is through the launch of a retail Malaysian Bond, either a three-year or five-year duration that gives 3.8% and 4.3% returns to depositors.

“We have much domestic liquidity that we can tap from, either from funds that are placed in domestic financial institutions or even in unit trust.

“Should the government tap the bond market, it should not be too concerned about rating actions as other countries are facing a similar situation,” advised Pankaj.


Consider excise reforms in tackling the black market

Tackling the RM300 billion black market or the shadow economy can also benefit the government from a revenue and socio-economic standpoint.

“Take the illicit cigarette trade for an example. Malaysia loses over RM5 billion in uncollected tax revenue alone each year to this black market. Current cigarette prices are too expensive which creates a demand for cheaper alternatives.

“Therefore, we need to find a way to review present excise duties and have better enforcement with stricter laws to punish these pedlars of illegal trade,” Pankaj added.

“Clever tax reforms that closes the price gap between legal and black-market products can be a low hanging fruit to enhance the government’s coffers.

“Post-Covid19 recovery requires Malaysia to send the right message that the country is not only open for business but can protect investors with good governance and robust legal framework,” Pankaj said.

Former Inspector General of Police Tan Sri Musa Hassan.

Meanwhile, former Inspector General of Police Tan Sri Musa Hassan (picture; right) said during MCO, syndicates are still carrying out their trade.

“In fact, we can see them leveraging on technology to reach out to their consumers. Besides selling such items online, they also use e-hailing services to deliver their products,” he said.

In response to the claim that illegal trade is a victimless crime, Musa disagreed.

“They are committing a crime because these products are excisable goods. This does not only reduce government coffers, but we can also see escalating violence as turf wars increase,” he added.

Gangsterism is on the rise as syndicates actively lure those from marginalised communities and displaced youths.

“With Malaysia’s economy facing a battle with this Covid-19 pandemic, this would be the best time to tackle the issue of illegal trade. We are already monitoring the movement of people so we can track the progress of those doing illegal activities,” Musa said, adding that all authorities need to work together.

Underlying Integrity

Close co-operation between the police, the Royal Malaysian Customs Department and Immigration Department is key to gather better information and intelligence.

“We ought to enforce stricter, intra-regional collaboration with international agencies as this involves cross-border controls. With advanced technology, it is easier to put in measures to enhance security at airports, at sea and on land to catch those using ‘rat lanes.’

“But underlying it all must be the integrity of all officials involved. There should no space or tolerance for corruption,” he concluded.