Muhyiddin’s stimulus plan and the ‘wow’ factor

This morning at 11.16am, FMT had a headline that read “Putrajaya’s Covid-19 rescue plan set to create history as largest ever”. In the article, sources told FMT that the package would be more than 10 times what was announced by interim prime minister Dr Mahathir Mohamad on Feb 26. This implies a plan of more than RM200 billion! Crazy? Well, think again.

The government has to take the lead. This has been the repeated message coming through over the last 10 days since the movement control order (MCO) was announced. With consumption expenditure, investments, exports all going down since Q4 last year, the government must show leadership.

Over this last week, quite a few articles have appeared advising the government on what it needs to do. MIER calculated an almost 3% contraction of the economy for 2020 and possibly 2.4 million people losing their jobs. To counter this, it proposed a package of at least RM95 billion. Pakatan Harapan proposed an even bigger package of RM150 billion while many others have gone into various details, with many open letters including one reminding the prime minister that now is the time “for action and leadership”.

If the current government – the prime minister and his Cabinet – is made up of “rational” individuals, they should put forward a comprehensive stimulus package that “leaves no one behind”. In short, it must have a “wow” factor. It must try to make everyone happy. Will it and can it be done?

It must be clear that this is not only a Covid-19 stimulus package. It is also a referendum on the government. With quite a large segment of the population still unhappy about the unsavoury politicking and questionable behaviour of our politicians over the last few weeks, it is only rational that a wow-factor plan is needed. If what is announced this afternoon is perceived well and makes people “happy”, the current government and Cabinet will stay until GE15, and possibly even after. Self-interest put to good use.

Of course, economic limitations will constrain politicians. So, can it be done and do we have the money? A supplementary budget is not the same as a stimulus package. The former may directly refer to the government’s revenue and expenditure, but stimulus packages go beyond this. Stimulus packages can involve government guarantees, delayed revenues (tax payments or licence fees) as well as policies to stimulate the market and unutilised “money” in the banking system. It can also involve the issuing of government papers in the form of bonds or sukuk.

As an example, of the RM20 billion stimulus package announced by Mahathir, only RM3.5 billion was direct government spending. Another RM3.5 billion was from government guarantees while RM13 billion was from various tax allowances and exceptions. This translates to about 15%-20% direct expenditure, with the rest coming from other sources.

Can we go for a wow-factor stimulus of more than RM200 billion? It is possible. But how much and from where? That is the RM200 billion dollar question. If we take this figure as an example, the government has to find about RM40 billion from its various funds – Petronas, KWAP and other GLCs. It could also take it from Bank Negara Malaysia reserves, if needed. The rest can come from stimulating the private sector through incentives and guarantees.

Munir Majid’s statement a few days ago that there are “hundreds of billions of outstanding loans” still in our banking system is one such source. With “directed lending”, and if these funds are used wisely and effectively, the wow-factor package can materialise.

However, there is a caveat: announcing packages with a wow factor is one thing. It will be even tougher to implement the plans and packages. Then we go back to the central challenge faced in Malaysia all these decades: governance! Good governance, transparency and eliminating all leakage is paramount.

Whether the stimulus package will be RM95 billion, RM150 billion or RM200 billion, there is no place for anything less than exemplary leadership by the government. The nation awaits. Failure is not an option.

Mohamed Aslam Haneef is from the Department of Economics, IIUM.

The views expressed are those of the author and do not necessarily reflect those of FMT.