KUALA LUMPUR, Feb 28 — Economists are divided over the efficacy of the 2020 Economic Stimulus Package launched in response to the coronavirus disease (Covid-19) yesterday.

Interim prime minister Tun Dr Mahathir Mohamad said the package was meant to soften the blow that the outbreak has had on the Malaysian economy that was already reeling from the US-China trade war.

However, the RM20 billion package could widen the country’s fiscal deficit from 3.2 per cent to 3.4 per cent as a ratio of the nation’s gross domestic product (GDP).

At the same time, Dr Mahathir also said the government was slashing Malaysia’s GDP growth target for the year from 4.8 per cent to between 3.2 and 4.2 per cent.


Professor Dr Mohd Nazari Ismail from Universiti Malaya's Department of Business Strategy and Policy said the stimulus package did not address fundamental issues that were causing the economy to stagnate.

“The stimulus package is a political move to make sure the rakyat is not angry at the government for not doing anything about the economic slowdown.

“Actually, it is not a real solution,’’ he said.


He also said that studies have shown that pump-priming measures do not produce lasting benefits.

Malaysians’ high level of debt could also mean the handouts and incentives might not go towards increasing consumption, he said before adding that many faced serious financial risk in the event of an economic slowdown.

“So, in principle, I am not in agreement with the economic stimulus measure. I prefer that society learn that they need to avoid debt so that they will not be too adversely affected by any slowdown in the economy.  

“That way we don't burden the government (which in reality means we don't burden the rest of society) due to the reckless decisions of companies which took too much debt,’’ he said.

Prominent economist Tan Sri Ramon Navaratnam argued otherwise and said the stimulus package was necessary to reinvigorate the slowing economy.

“Even as demands for more funds and the availability, which is constraint due to the budget deficit, I think based on those two factors, this is a pragmatic budget for now  

“Meaning that we have to watch the situation carefully if more funds are required, we might have to sacrifice a bigger deficit and enable more stabilisation,” he said.  

However, Ramon said the government should seek to reduce wastage in order to free up more funds.

Ramon also lauded Dr Mahathir for prioritising the needs of the people with the announcement of the stimulus package despite the political crisis in the country.

Separately, Datuk William Ng of the Small and Medium Enterprises Association Malaysia (Samenta) also welcomed the stimulus package, stating that it was timely following the negative effects of Covid-19 on trade and business.

“In particular, we are appreciative that the government has zeroed in on the tourism, hotels and transportation sector, which are among the earliest casualty of Covid-19, by providing numerous reliefs to the sector.  

“These include deferment of corporate income tax payment, electricity subsidy, exemption of service tax, and a RM1,000 tax relief for Malaysians to choose domestic travel destinations.

“The retail sector, which has been badly hit by Covid-19, will also benefit from the up to RM 10 billion freed up from reduced employee EPF contribution and an earlier Bantuan Sara Hidup payout.

“For SMEs in general, the government has set aside RM2 billion soft loans at 3.75 per cent interest for working capital. This would come handy for SMEs who have seen cancellation or deferment of orders,’ he said.