MARCH 19 — We need a second round of economic package to cushion the impact of Covid-19, with a slight change of strategy from ‘stimulating’ the economy to ‘protecting’ productive potential as the crisis worsens.
The first-round economic stimulus is announced as a RM20 billion package: RM3.5 billion from Federal Government expenditure, RM3.5 billion from BNM and RM13 billion from the reduction of the EPF minimum employee contribution rate.
The number of Covid-19 patients then was 24, now we have 900, and growing. We were not even aware of social distancing then, now we have a movement control order in place.
This means that some of the measures e.g. promoting domestic tourism would not make sense now. As pointed out by a few prominent economists, it also wouldn’t make sense to stimulate aggregate demand when we have social distancing to prevent the escalation of a pandemic.
Coupled with supply-side shocks i.e. disruptions in supply chain and workers not going to work, this could only drive inflation, create panic buying and threaten public health.
Therefore, the short-term strategy should shift away from stimulating economic activities to protecting businesses and households, so that they have sufficient resources to ride out the shocks of the next few months and can restart production as soon as the crisis is over.
With more people being put out of job, plus some employees opting to continue with the original 11 per cent rate, the RM13 billion additional disposable income from EPF rate would likely be overestimated.
The Federal Government would need to pick up the slack by increasing (doubling?) the original RM3.5 billion and potentially reallocating some of them towards this new strategy of protection, while BNM to ensure liquidity in the financial system so that banks can continue extending payment moratoriums to affected businesses and households.
These are the considerations that I hope would go into the second-round economic package, if any.
* Christopher Choong is the Deputy Director of Research, KRI. This is the personal opinion of the author and does not necessarily represent the official views of KRI.
** This is the personal opinion of the writer or publication and does not necessarily represent the views of Malay Mail.
