Whoever is in the new cabinet, the government will face major constraints in stimulating the economy. Ramon Navaratnam explains why the economic situation is so tight.
The government faces an economic dilemma.
On the one hand, it faces a global slowdown and even possibly an impending recession, especially with the current Covid-19 virus attack.
On the other, our national budget has been running deficits for several years. Therefore, we cannot depend on it to adequately stimulate the economy, to counter the weakening business climate, especially for the small businessmen and women, and to tackle growing unemployment and underemployment.
Hence, although the government is obliged to and will provide an economic stimulus package, it has serious limitations over how much it can do to help the business community and to prevent more damage to the economy and the welfare of particularly the poor and more vulnerable Malaysians.
What then can we do to face this economic dilemma?
First, the stimulus package cannot be strong nor too weak. It has to be moderate and affordable. The previous stimulus package was about RM8bn for the Sars epidemic in 2003. Maybe our new package could exceed this amount?
We cannot expect the government to provide much more because of the continuing budget constraints and the lack of sufficient high savings in our reserves to meet the uncertainties and hazards of rainy days and storms ahead, like we now face.
We cannot also say for sure, how long this nasty Covid-19 will last. So far we have done pretty well together with the drastic and gallant action taken by China to control this vicious virus.
Second, we should understand the government’s current budget limitations. We should face up to the inevitability of periodic economic cycles, the ups and downs in our businesses and the unpredictability of virus attacks that have come even before. After all, we have overcome serious economic uncertainties and socioeconomic setbacks in the past. We must therefore brace ourselves for this looming crisis again.
Third, we should reform and restructure our economy even more now to face future crises with more resilience, confidence and determination. We should learn from this crisis to become more efficient and competitive. This would help us overcome external threats and internal weaknesses that would undermine our capacity to face more future dilemmas with greater resources, competencies and self-confidence. Let’s also learn how some smaller and more vulnerable economies will do better than us in overcoming their own crises.
Fourth, the new stimulus package needs to prioritise small and medium-sized enterprises (SMEs) and low-income groups. We could help bigger businesses by reducing uneven business practices in tenders and contracts and interference in their awards, as we have witnessed recently. As for SMEs and the poor, we could reduce rates and charges for them eg lower fees, charges and utility rates, more subsidies, and loans to SMEs.
Face up to challenges
Let’s resolve to face up to the challenges unfortunately brought down upon us. We cannot and should not hope to gain much from the government’s stimulus package as the budget itself is weak.
If we insist on a bigger stimulus package, it would aggravate the federal and state budgets well beyond our budget limits. This could then trigger longer-term disruptions and damage to the economy.
If we allow the economy to become more competitive and if we encourage the private sector to participate more strongly in our economic development, the public sector would be smaller, the civil service would be leaner and our economy would become more resilient and more sustainable in facing our delicate dilemmas, inclduing our socioeconomic dilemmas.
Let us learn more from these lessons to perform better and to become a better country.