KUALA LUMPUR – Malaysia must embark on pump priming, or fiscal expansion that includes the launch of new mega projects, to accelerate economic growth, despite weathering a recession and risking a sovereign downgrade, economists say.
Critics may want such expansionary measures to be put on the backburner as the country reels from the Covid-19 pandemic, but Sunway University Business School economics professor Yeah Kim Leng said these steps are important in invigorating the economy.
“Pump priming can be done through debt financing. The government can spend more money, lower interest rates and other taxes, give monetary incentives to the people, and even engage in massive spendings for various projects.
“We need a combination of all of these, including the mega projects. Projects like the KL-Singapore High Speed Rail (HSR) and East Coast Rail Link (ECRL) must continue,” he told The Vibes.
But the government should also provide equal importance to “soft infrastructure”, Yeah said, adding that some of these measures include boosting education and healthcare for the urban poor.
Prime Minister Muhyiddin Yassin’s government had introduced about RM300 billion in Covid-19 relief packages to assist households and businesses but direct fiscal injection only amounted to RM45 billion, or 3% of gross domestic product (GDP).
With limited funds to spend, Yeah said the government had to prioritise projects with the highest multiplier effect.
“It is very important not to have unsustainable fiscal spending. And if we can do that, then we can sustain, even with pump priming.”
He said the government should not be too concerned with ratings agencies and sovereign downgrades as other countries had been similarly affected by the pandemic.
This argument was seconded by Malaysian Institute of Economic Research head of research Shankaran Nambiar as “the government will have to embark on an expansionary fiscal path to dampen the downswing”.
So long as the government had a plan and direction in place for the economy, Malaysia can afford to brush aside concerns of a downgrade, Shankaran told The Vibes.
“With exports likely to be weak and domestic demand lukewarm, the stimulus can only come from government spending.”
But the government has to embark on well-considered mega projects and not smaller ones that bring little benefit, Shankaran said, such as projects with low-multiplier effects that do not contribute vastly to domestic job generation or make financial sense.
Malaysia’s economy slumped into recession for the second quarter of the fiscal year after GDP shrank by 17.1% in April-June, the country’s first contraction since the 2009 global financial crisis.
Exports showed some rebound at the beginning of the third quarter but domestic consumption remained subdued, consumer prices fell for a fight straight month in July while unemployment remained sticky at 5.1% in the second quarter.
Last month Bank Negara Malaysia revised its 2020 GDP forecast of -5.5% to -3.5% from a previous -2% to 0.5% while the World Bank estimated a contraction of -4.9% from an earlier -3.1%. – The Vibes, October 5, 2020
