World Bank urges Putrajaya to spend more for Malaysia’s poor, suggests raising debt limit to fight Covid-19

Prime Minister Tan Sri Muhyiddin Yassin has unveiled over RM350 billion in relief and stimulus packages to date, but just RM75 billion in direct fiscal injection, which economists and businesses said is inadequate to keep the economy from tanking and pushing low-income families into destitution. ― Picture by Hari Anggara
Prime Minister Tan Sri Muhyiddin Yassin has unveiled over RM350 billion in relief and stimulus packages to date, but just RM75 billion in direct fiscal injection, which economists and businesses said is inadequate to keep the economy from tanking and pushing low-income families into destitution. ― Picture by Hari Anggara

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KUALA LUMPUR, June 23 — The World Bank said today Putrajaya needs to give continued financial support to the poor and suggested the government raises its statutory debt limit to spend more to help the vulnerable, as it predicted the pandemic would drag recovery.

The recent runaway resurgence of Covid-19 cases and a slower-than-expected roll out of vaccines will likely hinder the country’s economic rebound, the bank said, citing the continuous cycle of “on-and-off” lockdowns that are expected to push more households on the brink.

“The continuous cycle of ‘on-and-off’ closures and reopenings will have negative spillovers on the economy,” the institution said in its Economic Monitor (Malaysia) June edition report launched this morning.

“In addition, the number of vulnerable households is likely to increase. A slower-than expected rollout of the vaccination program or further increases in case numbers and death rates would further exacerbate this situation,” the bank added.

“It is necessary to create additional fiscal space to strengthen the health system as well as to provide additional financial support for the vulnerable groups. Given this, it may be necessary to revisit the debt limit soon.”

Economists and Opposition lawmakers critical of the Malaysian government’s fiscal response to the pandemic have also expressed similar views, suggesting that Putrajaya has been reluctant to increase spending.

Prime Minister Tan Sri Muhyiddin Yassin has unveiled over RM350 billion in relief and stimulus packages to date, but just RM75 billion in direct fiscal injection, which economists and businesses said is inadequate to keep the economy from tanking and pushing low-income families into destitution.

The Malaysian economy contracted by 0.5 per cent in the first quarter of 2021, moderating from a 3.4 per cent decline from the previous quarter as a second movement control order weighed on growth.

Despite gradual improvement in unemployment figures in the same period, the number of jobless remained elevated with those in the 15 to 24 age group found to be relatively high, the World Bank said.

Underemployment rates in the first quarter were also at a worrying level, it added.

The Malaysian economy is expected to register a slower growth of 4.5 per cent in 2021, 1.5 percentage point lower from the bank’s initial forecast.

It said the revision reflected the slower pathway towards suppression of the pandemic and the slower-than-expected vaccine rollout.

The Muhyiddin-led government is facing growing public discontent over its Covid-19 containment strategies, which critics of the government said have been ineffective against the pandemic.

The backlash, which has increasingly shaken the prime minister’s hold on power, could also weigh on the country’s recovery, according to the bank.

“An ineffective containment of the outbreak could see Malaysia remain in an ongoing cycle of movement controls, posing a further drag on the economy. Further delays in Malaysia’s vaccine rollout could also affect the planned reopening of the economy,” it said.

“The current slow pace of Malaysia’s vaccine rollout and any further delay could also affect a more certain reopening of the economy and the ongoing domestic political uncertainty could continue to hinder the progress of the recovery effort in the near term.”

The ongoing third MCO, or the Full MCO, has lasted nearly a month. Amid appeals by small and micro enterprises to reopen, Muhyiddin said recently the country will only loosen restrictions if the number of daily cases drop below 4,000.

The World Bank stressed on the need for fiscal policy that prioritises the welfare of the people over medium-term fiscal consolidation as a response. It also urged the government to take more “proactive measures” to ramp up vaccination.

“In the current context, fiscal policy should prioritize the welfare of the people over medium-term fiscal consolidation,” it said.

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