New form of fiscal assistance needed

Economists warned that the extension of the MCO could result in small businesses being closed and low-wage earners losing their jobs and sources of income (Pic by Razak Ghazali/TMR)

One-off cash transfers such as BPR and BPN are insufficient as a replacement income in case of job loss

by NUR HANANI AZMAN / pic by RAZAK GHAZALI

A TWO-PRONGED financial assistance with a combination of Wage Subsidy Programme (WSP) and Employment Insurance Scheme (EIS) might be the best solution to help employers and employees who might suffer income losses if the Movement Control Order (MCO) is extended.

Khazanah Research Institute research associate Adam Manaf Mohamed Firouz said such a scheme is more commendable than the one-off assistance that is currently in practice.

He said the WSP element in the scheme could assist businesses to stay afloat, while the EIS component would resolve the employees predicaments should they lose their jobs.

“These measures minimise long-term economic risks to businesses and most importantly, ensure people can continue maintaining their standard of living.

“It would be a better option than other measures like the one-off cash transfers such as Bantuan Prihatin Rakyat (BPR) and Bantuan Prihatin Nasional 2020 (BPN) as the amounts given under these measures are far more insufficient as a replacement income in case of job loss,” Adam Manaf told The Malaysian Reserve (TMR).

He said the same scheme could also be extended to self-employed and informal workers.

Adam Manaf said businesses are already enduring significant losses due to the pandemic, and a prolonged MCO could be the final nail in the coffin for many, especially for small and medium enterprises, and businesses in the retail sector.

He said many workers are also at risk of losing their jobs with the possibility of total number of unemployed persons reaching over 800,000, similar to last year’s situation when the number of unemployed persons peaked in May.

While the number of unemployed persons could be 300,000 more than in February, it is likely that the lower figure is attributable to those that have turned to informal work such as food delivery services.

“However, such informal work may not be enough to keep these workers out of poverty, and thus, the total number of workers and households in dire straits would likely be many more,” Adam Manaf said.

According to the Department of Statistics Malaysia, an income loss of just RM700 per household is enough for more than 800,000 households to fall into the poverty threshold, meaning the total number of households in poverty would be more than 1.2 million.

Meanwhile, Centre for Market Education CEO Dr Carmelo Ferlito said how the fiscal assistance is financed should also be questioned as “money does not rain from the sky”.

Ferlito said issues on the resources at a moment when the entire economy is under stress with fiscal revenues expected to be in decline should be taken into consideration.

“How a loan moratorium can put banks in trouble? How cash assistance would be financed? I think now we have very limited options.

“The best approach is to abandon generalised MCOs, so we will not need fiscal intervention. We can instead focus on prevention, targeted assistance and research,” he told TMR.

Ferlito said the unemployment rate will depend much on how long the MCO will last.

He said another month of MCO can probably bring unemployment closer to 6%, along with issues of underemployment.

“Household debt on GDP is already among the highest in the region, so this situation will create financial instability among the middle 40% income group.

“Household debt on GDP is around 85% and half of it is made of loans for buying houses. We risk a tremendous domino effect that can bring a huge financial crisis,” he added.

Read our earlier report