Cash handouts better than pump-priming through debt, says economist

 

An Umno leader recently suggested that the government raise more funds by taking on more debt.

PETALING JAYA: Direct cash handouts to the people from the government would be better than taking on more government debt to pump cash into the economy, an economist said today.

Geoffrey Williams of Malaysia University of Science and Technology told FMT that channeling RM15 billion through stimulus projects was inefficient.

He said direct cash handouts funded by short-term, limited money creation would be far better than taking on more debt for stimulus packages.

Another economist, Carmelo Ferlito who is the CEO of the Center for Market Education called for greater expenditure on the healthcare system.

“Instead of relief packages, the money can instead be spent on the healthcare system, further strengthening it. For example, by providing insurance assistance and investing in research for a really effective treatment (for Covid-19),” he said.

Williams and Ferlito had been asked for comment on a proposal by Umno information chief Shahril Hamdan that the government should consider raising the national debt ceiling or issue bonds to raise money for operational expenditure.

He said increasing the government’s debt can bring relief to the people, if done correctly.

However Ferlito said taking on more debt would leave a higher financial burden on future generations through higher taxes and inflation. Higher government spending might help certain sectors to grow artificially, but these sectors would suffer once this support is lost, he said.

He said the solution to the government’s economic problems was to lift the lockdown under the movement control order as soon as possible. Another was to eliminate the root cause of poverty, he said.

Williams said that if MCO restrictions were extended into the Chinese New Year period, the economy would suffer a RM22 billion loss, or RM32.2 billion if extended to Feb 26.

He also said the government’s recently-announced RM15 billion Permai stimulus package was insufficient on its own. However, using Employees Provident Fund withdrawals to push up the stimulus would only deplete private savings.

Ferlito said the effects of government spending were not immediate, and would become evident only when the economic situation turns. - FMT