Generous allocations pave way out of economic slump — Economist

KUALA LUMPUR: Generous spending under the Prihatin Rakyat Economic Stimulus Package (Prihatin) and National Economic Recovery Plan (Penjana) were deemed as necessary for Malaysia to build its way out of the Covid-19 economic slump.

Dr JS Keshminder, a senior lecturer in the Department of Economics & Financial Studies, Faculty of Business & Management, Universiti Teknologi Mara, said governments around the world have committed huge economic stimulus packages to rescue their flagging economies.

For example, he said Singapore has one of the biggest spending packages amounting to US$55 billion.

“To date, the accumulated budget for the Unity, Resilience and Solidary programme is standing close to US$100 billion, which is nearly 20 per cent of Singapore’s gross domestic product (GDP).

“In New Zealand, NZ$50 billion was allocated for a tenure of two years to save jobs and to reduce unemployment through heavy borrowing. This fraction accounts for 17 per cent of the country’s GDP. It is expected that the government’s debt will reach 53 per cent of GDP by 2023,” he told Bernama yesterday.

Malaysia has allocated RM260 billion under Prihatin and RM35 billion under Penjana to help businesses tide over their cashflow problems and ease the burden of the people.

To combat recession, Keshminder said Thailand has approved a stimulus package worth US$60 billion.

“Of all the countries, Japan is said to have the largest stimulus package amounting to US$2.18 trillion or 40 per cent of GDP to rescue its economy,” he said.

Keshminder said the figures clearly show that the race for every government now is to save jobs and assist businesses to continue their operations and avoid serious repercussions facing the economy due to Covid-19.

Furthermore, he said the future economy prospect is extremely unpredictable due to the random nature of Covid-19.

Whether more allocations are appropriate, he said it would not be surprised to see the budget ballooning in the future.

Meanwhile, Keshminder said government domestic borrowing is always associated with the ‘crowding out effect’.

“Where it reduces the potential capital stock in the economy. For example, if Makcik Kiah lends the government RM1,000 that will reduce her capability to buy stocks or bonds from Pak Abu’s company. There is always a concern on the rising interest rate. This is said to distort the marketplace,” he said.