Spend RM45 billion on households and businesses, says economist

 

People in the low-income and middle-income groups should receive more cash handouts, says an economist.

PETALING JAYA: A possible change in government has already been factored into the financial markets, and thus any volatility as a result of former prime minister Muhyiddin Yassin’s resignation will be brief, according to economists.

“We have expected for some time that the government would change, so much of this has been factored into financial markets. So volatility in financial markets will be brief and normal,” Geoffrey Williams of the Malaysian University of Science and Technology (MUST) told FMT.

He said the most important order of business for the new government would be to change the personnel – including those in the medical field – who had failed at managing Covid-19 in the country, leading to a worsening economic crisis.

He added that the incoming government must also lift the lockdowns immediately, arguing that this will be “crucial for economic survival”.

“We are at a critical point now with a risk of tipping into a deep contraction.”

He added however that there was already a positive shift in the attitudes towards public health measures to curb Covid-19, pointing to the reopening of activities in more states and sectors, announced recently.

He hoped that this would continue so all sectors and states could eventually reopen.

“Even then, when we open up the economy we will require continuous support for households and firms. For households we think direct cash handouts of RM1,500 for B40 and M40 for the rest of the year. This would cost about RM35 billion if it started in September.

“For firms, we feel that following the example of Sarawak, which has offered a recovery grant of RM10,000 for SMEs, would be helpful and would cost less than RM10 billion. With this, and opening up for customers again – this will spur recovery.”

Other incentives such as wage subsidies and rehiring grants should also continue. The government should also focus more on social welfare including rebuilding pension funds, reforming education and restructuring healthcare and social equity.

Market analyst Danny Wong said he has a positive outlook for the market, as political risk and instability is expected to improve, and economic activities set to reopen as a result of widespread and continued vaccinations.

“Foreign holdings (of stocks) are at a very low level (and currency too) and most bad news has already been priced-in. Valuation is also low and Price to Book (PB) and Price to Earnings (PE) ratios are way below means,” he added.

Another senior analyst, Christian Fang of Moody’s Investors Service, said he expects the country’s institutions to limit the impact of political change on its macroeconomic policies and credit profile, as was done in previous sudden changes to the country’s politics.

He added that the Covid-19 pandemic is still a larger risk to the economy, saying that the spike in cases and ongoing movement restrictions will continue to weigh on economic recovery this year.

He warned that any additional economic stimulus or weak revenue, which would create wider fiscal deficits, may lead to a “persistent rise in the government debt burden” that fiscal authorities would not be able to reverse.

“This has the potential to materially weaken Malaysia’s credit profile,” he added. - FMT