As a result of the latest Movement Control Order (MCO 3.0), the government has decided to introduce a RM40 billion economic relief package, which includes RM5 billion in direct fiscal injection, known as Pemerkasa Plus, to lessen the possible severe impact on the people and the economy due to the imposition of MCO 3.0.
Is it enough? Can the government spend more in the future if the full lockdown continues? Will the government go bankrupt? To begin with, up to now, seven stimulus packages have been rolled out, totalling RM380 billion, or more than 24 per cent of the gross domestic product (GDP).
The total direct fiscal injection is around RM75.5 billion. Furthermore, the government has allocated RM322.5 billion for the 2021 Budget, the largest amount in Malaysia's history. The opportunity-cost of the first MCO in March last year is estimated at RM2.4 billion daily.
In the first quarter of the year, the total government debt stood at RM917.5 billion, or 58.5 per cent in terms of the debt to GDP ratio. With the latest announcement, the debt level will inch up further and the deficit level will go above six per cent.
The real issue now is how to lessen the impact of the MCO 3.0 on the people and the economy, and how to strengthen our healthcare system to prevent it from collapsing and expedite the National Covid-19 Immunisation Programme (NIP).
After all, there is still RM100 billion worth of various programmes under the previous stimulus packages still in the pipeline, which also benefits the middle-income (M40) group. Thus, the low-income (B40) groups, or specifically the vulnerable groups, must be given priority this time.
Similarly, to prevent mass unemployment due to MCO 3.0, sectors that are heavily affected, such as the services and tourism sectors, as well as small- and medium-scale enterprises, have been given more assistance under the latest package.
Pemerkasa Plus has a crucial role to play in lessening MCO 3.0's impact on the poor so that they will not get poorer, and prevent the pool of the B40 group from becoming larger. Equally important, the healthcare system must be adequate to sustain Covid-19 patients and the successful implementation of the NIP, that is, to achieve herd immunity by the end of the year.
Hence, the RM40 billion relief package is fairly sufficient for now, more so with the prime minister and his cabinet forgoing three months' salaries, as well as civil servants promising to forgo a portion of their allowances and channelling them to the National Disaster Relief Trust Fund to cover Covid-19-related expenses.
But what if the full lockdown continues for another two weeks or months? Does the government still have the ammunition to reload again? This is not easy to answer, but I think the government still has the fiscal space to manoeuvre through borrowing, among other avenues.
To begin with, the debt to GDP ratio ceiling is not cast in stone. It has been raised to 60 per cent from 55 per cent in August last year. Thus, even if the government decides to increase the ceiling to 75 per cent, it is still manageable.
Other developed countries have reached a level of more than 100 per cent of debt to GDP ratio to support their people and the economy during these unprecedented times.
And Malaysia had reached this level before. In 1986 and 1987, the debt to GDP ratio reached 103.4 and 101.7 per cent respectively. The economy did not go bankrupt at that time and we reduced the debt level to around 48 per cent in the first quarter of 2018.
It is estimated that one per cent of the debt level is equivalent to RM15 billion. Thus, if the government borrows for another 7 per cent, that would add another RM105 billion to be spent on the people, the healthcare system, the NIP, as well as to prevent the economy from collapsing.
The economy is already on a stronger footing for recovery, growing at six per cent in March. But, further imposition of a lockdown will risk the economy deteriorating further when the global economy and other developed and developing countries are now showing signs of recovery.
For now, we must prioritise flattening the pandemic curve with the full lockdown by following stricter standard operating procedures, vaccinating as many people as possible before the end of the year, and protecting the people and the economy to prevent unnecessary loss of lives and livelihoods.
The writer is Head of Political and Economic Risk Research Unit, Universiti Utara Malaysia
