16/06/2020 10:29 AM

By Azlee Nor Mahmud

KUALA LUMPUR, June 16 -- The enormous and multiple stimulus packages rolled out not just by Malaysia but all over the world are considered appropriate and necessary to alleviate widespread economic hardship and to reduce longer-term damage to economies, say economists.

Professor of Economics at Sunway University Business School Prof Dr Yeah Kim Leng said the health and economic shock caused by the COVID-19 virus is unprecedented, with entire economies across the world, including Malaysia0 having to be shut down for several months to contain the pandemic.

At the same time, Malaysia had funded stimulus packages -- the RM260 billion Prihatin Rakyat Economic Stimulus Package (PRIHATIN) and RM35 billion National Economic Recovery Plan (PENJANA) -- to pry ourselves out from economic deterioration. 

As to whether Malaysia will nearly double its fiscal deficit this year due to COVID-19, Yeah said a one-off spike in fiscal deficit is deemed unavoidable given the simultaneous supply and demand shocks caused by the lockdown measures.

“The projected doubling of fiscal deficits this year is therefore not a concern as long as the fiscal relief and stimulus measures are implemented effectively with minimal leakages and wastages and the government resumes the fiscal consolidation path as soon as the economy normalises,” he told Bernama today. 

On whether the fiscal deficit would rise to around 6.0 per cent of annual economic output this year because of the stimulus (2019:-3.5 per cent), Yeah said based on the current levels, there is still scope for total government debt as a share of gross domestic product (GDP) and for its debt servicing ratio to increase slightly without igniting debt and fiscal sustainability concerns and triggering sovereign rating downgrading alarms.

“The government may, however, need to consider smoothing out the debt loads by stretching new and existing mega infrastructure project schedules, increasing asset and equity sales, and pursuing public-private partnership (PPP) approaches in rescuing government-linked companies and industries hit hard by the pandemic,” said Yeah.

Meanwhile, on Bank Negara Malaysia’s (BNM) stance amidst the pandemic, Yeah said the central bank responded early and aggressively to lower interest rates and loosen monetary policy in response to the COVID-19-induced economic crisis.

“The coordinated monetary and fiscal support via the multiple stimulus packages will have a greater synchronised impact on alleviating economic hardships and preparing the economy for a quick recovery.

“By reducing corporate and individual bankruptcies and saving businesses and jobs, the economy will have a greater capacity to bounce back as public health and economic conditions normalise,” said Yeah.

On Malaysia’s aim to narrow the fiscal deficit down to less than 4.0 per cent of GDP over the next three years or so (2019:-3.5 per cent), Yeah said the 4.0 per cent medium fiscal deficit trajectory is a realistic target given the uncertainty over the shape of the global economic recovery.

“Some economists and analysts are betting on a V-shaped recovery led by a vaccine discovery in 2021.

“The more sanguine ones are predicting that the recovery will be U-shaped being dependent not only on an effective vaccine or treatment but also on the new realities of more intense US-China trade war and decoupling.

“While targets are easy to set, the challenge facing the government is to gain credibility and demonstrate its commitment and capability to achieve the target through prudent and effective fiscal and financial management,” said Yeah.

Accordingly, freelance economist Dr. Baayah Baba said that a deficit of 6.0 per cent is assuredly not too high.

“If the economy does well we could reduce the deficit back to around 3.0 per cent,” she said, adding that the fiscal policy is faster (in results) and can be used to generate economic activities faster than the monetary policy, although doing both (monetary and fiscal policy) is good.

On Finance Minister Tengku Datuk Seri Zafrul Tengku Aziz’s reiteration that Malaysia’s outstanding public debt currently stands at about 51 per cent of GDP and highlighting of a possible ceiling increase beyond the current 55 per cent when needed, Yeah said while the stimulus plan and size of deficit spending will likely attract contentious debate in parliament, both sides of the political divide, however, are expected to approve the increase in the debt limit since it is for the greater good of the economy’s smooth functioning that ultimately benefits the people, markets, investors and consumers alike.




BERNAMA provides up-to-date authentic and comprehensive news and information which are disseminated via BERNAMA Wires;; BERNAMA TV on Astro 502, unifi TV 631 and MYTV 121 channels and BERNAMA Radio on FM93.9 (Klang Valley), FM107.5 (Johor Bahru), FM107.9 (Kota Kinabalu) and FM100.9 (Kuching) frequencies.

Follow us on social media :
Facebook : @bernamaofficial, @bernamatv, @bernamaradio
Twitter :, @BernamaTV, @bernamaradio
Instagram : @bernamaofficial, @bernamatvofficial, @bernamaradioofficial
TikTok : @bernamaofficial

© 2024 BERNAMA   • Disclaimer   • Privacy Policy   • Security Policy