Can We Afford More

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PRIME Minister Muhyiddin Yassin's short-term Economic Recovery Plan (ERP) — 40 initiatives worth RM35 billion —  revealed to the nation yesterday afternoon is about getting the economy back to "V" then to normal.

But one thing is clear, as the ERP hints at several places, the return will be to a new normal. The old normal is an invitation to pandemics. 

The ERP may be about recovery between now and December, but getting the economy fit is going to be a long fight. Economic happiness is more evolution than revolution. The ERP is part of six long stages: resolve, resilience, restart, recovery, revitalise and reform. The fourth-stage ERP envisages medium-term and long-term plans, the  last two being the 2021 Budget to be revealed in October and the 12th Malaysia Plan

The ERP has set itself three goals — empowering people, propelling businesses and stimulating the economy — to get the country back to a new normal. It may be just what the doctor ordered.

The plan's RM35 billion may not be big money by global standards, but there is enough of it to empower people, propel businesses and stimulate the economy. A sizeable piece of the recovery cake for all. In the words of economy, the ERP is comprehensive as it provides relief to a large sector of the most affected parties.

There is the RM9 billion employment subsidy to help employers and employees, the RM1.5 billion subsidy to firms to reduce the unemployment rate and the RM2 billion for reskilling to improve productivity. Ditto for the My30 public transport subsidy, RM300 million grant to non-governmental organisations, RM350 million for the agro fund and many more.

Well, that's on the pro side of it. Many thanks to our prime minister.

However, on the cons, we know that Covid-19 has inflicted two negative shocks on the economy. One is 'supply' shock, much of what the economy produces depends on face-to-face human interaction or the rakyat, and two is a 'demand' shock as the results of laid off workers and falling output that led incomes to fall.

All these constrains the ability of households and businesses to spend. These distinct shocks clearly reinforce each other in a downward spiral of economic activity.

Can the government afford more aid on the back of declining purse? As for now we adapt to 'transfer payments' in ensuring the revival of some sectors. However, the govt needs to consider another one or more stimulus plan should Covid-19 prolongs.
There is no question of affordability here. The govt must of course PAY for these transfer but at the same time has to service foreign loans (of the previous govt) and putting to shelve major projects which are already planned as economic booster and uplifting the well being of the rakyat - building roads, putting in place utility projects etc.
To remain productive in a long run is our objective but with the much slower world indicator will not help much in the short and medium run.
By the time the aid and incentive reach the rakyat and the industries, it will go dry again and needs to be replenished. Recession is building up, and many major companies, airlines, hotels and others are filing for ceasing operation and bankruptcy, which will rattle the economy further. Friday’s announcement sent down the stocks market.
No doubt it is a relieve to the rakyat and the industries but it failed to cover each and every sector comprehensively. Perhaps most important is the tax regime that we are willing to give in for POLITICS without giving much thought on the future of the country’s capital account, scalability, real growth, liquidity, net national income, fallout risk, poverty trap, quantity supplied, regulatory risk and others.
In simpler words, is general election around the corner?

At the rate of spending spree, the people are getting comfortable with it, being pampered too much, and there are already contemplation that Putrajaya might come up with new ones during the Movement Control Order (MCO).

Again, the question is about affordability. Another is about one party looks out for money, the other one just spends freely!

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