The Malaysian Insight

HELP for business owners to carry on paying salaries and for low-income families to continue spending are some of the critical measures needed in a second economic package expected to be announced on Monday.

Economists told The Malaysian Insight that the second package should be targeted at “surviving a recession” rather than just “boosting the economy” as Covid-19 ravages the globe and brings nearly all commerce to a halt.

It must be comprehensive and large enough to help everyone and almost every company weather an impending recession that is likely to be worse than the 2008 financial crisis, they said.

The government must roll out a package that costs more than the RM60 billion it spent in the crisis 12 years ago, they added.

This is to ensure that the domestic recession is short, and businesses and workers can quickly get back on their feet as soon as the world economy recovers, said Yeah Kim Leng of Sunway University.

“All major economies are locking down as they grapple with this pandemic, and this will have a major impact on us because we are a trading nation.”

Other economists, such as Nungsari Ahmad Radhi, said Covid-19 is “unprecedented in its scale and potential impact on the economy and quality of life”.

“By all accounts, it looks highly probable that the pandemic and its direct consequences will be with us for a while, possibly another 12 to 18 months,” he said in an open letter also signed by Hamdan Abdul Majeed and Muhammad Khalid.

Nungsari is chairman of the Khazanah Research Institute board of trustees, Hamdan is managing director of ThinkCity, a subsidiary of Khazanah Nasional Bhd, while Muhammad is adviser to former prime minister Dr Mahathir Mohamad.

The stimulus must, as much as possible, prevent businesses from going under due to the double blow of low demand and supply, said think-tank Research for Social Advancement (Refsa).

A recession occurs when “people are unable to consume”, leading to low demand, and when “people are unable to work”, leading to low supply, said Refsa’s Tan E Hun and Ivy Kwek.

Existential threat

Like many countries, Malaysia has imposed a shutdown on most private and public sector services and activities that are considered non-essential.

This is to break the spread of Covid-19, which has sickened more than 450,800 and killed at least 20,600 worldwide, by limiting contact between people.

But, it has also meant that companies are unable to make money and pay their workers.

In Malaysia, small and medium enterprises are collectively the nation’s biggest employer with close to 10 million workers, said Nungsari, but they are among the worst hit.

“At the moment, we should be supporting the whole economy rather than just parts of it.

“Every business is someone’s employer, supplier and purchaser. In these times, we need to minimise business failures, especially of otherwise viable SMEs.”

Yeah proposed getting banks to defer loan repayments for up to six months for SMEs and to extend emergency credit to businesses, to help them stay afloat.

“We must avoid massive bankruptcies and layoffs as they can prolong and deepen the recession.”

Financial support for SMEs, however, should be conditional on them keeping workers on the payroll, said Refsa.

“Maintaining employment should be a condition for companies to receive support. For the unemployed, existing programmes, such as the Employment Insurance Scheme, should be increased in size so payouts can reach a level that is proximate with what the newly unemployed worker earned previously.

“The scheme should be expanded to also cover freelance workers in the gig economy, and even payouts to workers in the informal economy, since this represents a significant part of our overall economic activity.”

To help low-income families through difficult times, Bantuan Sara Hidup payments should be increased by RM1,000 for each of the 4.1 million households that receive the aid, said Refsa.

Most of all, said Yeah, Putrajaya should forget about balancing the national budget for now.

“Most economists are saying this is not the time to worry about deficits. It is an emergency, and an existential threat to life and livelihood.” – March 26, 2020.