KUALA LUMPUR, March 23 — A new stimulus that focuses on helping workers and small and medium businesses must not be used to “bail out” large companies, former economic adviser to the seventh prime minister, Muhammed Abdul Khalid, cautioned.

Muhammed has urged the new administration to table additional spending to aid workers and protect small firms, the country’s largest employers, as part of a three-pronged strategy to contain the economic fallout from the Covid-19 outbreak that has devastated the economy.

Suggesting the second round of stimulus announced by Prime Minister Tan Sri Muhyiddin Yassin to be inadequate, the economist said billions of ringgit more are needed to protect the most vulnerable workers, who form two-thirds of the labour force.

Among others, Muhammed suggested that each worker earning less than RM5,000 be given RM1,000 in cash aid as well as employment retention subsidy, reducing personal income and business taxes and bank loans to ease cash flow so employees can be retained.

“The second stimulus allows for a delay in loan and business tax payments. This isn’t enough,” the former economic adviser said in a letter.

“Business and personal income taxes should be reduced for the year. Bank and credit companies are suggested to reduce loans for a few months. Wage subsidy can help offset their costs.

“But they must be reminded that this assistance is not meant to ‘bail out’ firms, but to assist workers directly.

As many as a million workers could face retrenchment if just 10 per cent of SMEs are forced to shut down, according to Muhammed’s estimation.

In a message to Malay Mail, the former economic adviser to the prime minister said the additional funding must be used to help workers directly, as well as assist firms to manage the cash flow so that they stay in business and not retrench their workers.

“We must avoid cash flow issues as it has serious implications; cash flow problems become solvency problems which lead to business failures and unemployment,” he said.

The economist was among key figures that pushed for the RM20 billion package announced by Tun Dr Mahathir Mohamad at the start of the second wave of Covid-19 infections earlier this month.

Shortly after the Perikatan Nasional government was sworn in, the Muhyiddin administration unveiled an additional RM650 million stimulus that included a 2 per cent discount for electricity and postponement in business tax collection.

But pro-Opposition critics said the package announced by Muhyiddin will do little to protect workers, especially those in the informal and SME sectors. Several economists have warned that millions of workers could lose their jobs should the two sectors fail to receive assistance.

Muhammed’s caution against bailing out large firms comes amid talks that big corporations are already looking to the government for financial help.

Last week, business paper Focus Malaysia reported sources as saying carriers AirAsia, Malaysia Airlines Berhad, Firefly and Malindo Air had met with Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz to discuss “aid and other reliefs”.