Mustapa Mohamed, one of Prime Minister Muhyiddin Yassin’s economic tsars, last week said the government had brought forward its lockdown-easing plans in a bid to jump-start the economy. Internal projections had shown the number of unemployed people in the country could triple to 1.8 million in the coming months, the economic affairs minister said.

While the government’s latest GDP forecast is for growth this year of between -2 per cent and 0.5 per cent, many others have offered a far grimmer prognosis.

In a commentary last week, Mohamed Faiz Nagutha, the Asean economist for Bank of America Merrill Lynch, said the bank was now forecasting that Malaysia’s GDP would contract by an eye-watering 8 per cent this year. If that materialises, the current downturn would be worse than the 7.4 per cent contraction the country endured in 1998 during the Asian financial crisis.

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While there is no quibble over the scale of the economic shock Muhyiddin’s government will have to contend with, there is rising debate over whether the premier’s stimulus package – the most expansive in the country’s history – goes far enough to save jobs.

Also being hotly discussed among economists is the means by which his administration will fund further stimulus measures, given that it is bound by internal rules that prohibit operational expenditure for any financial year to outstrip revenue.

The government also has to adhere to a debt-to-GDP ratio of 55 per cent, a limit experts say it is currently close to busting.

MORE PROBLEMS, MORE MONEY?

A common refrain among economic observers who spoke to This Week in Asia was that the 260 billion ringgit (US$60.3 billion) stimulus package unveiled so far – which comes to about 17 per cent of GDP – leaned too heavily on non-fiscal measures. Actual fiscal injections amount to 35 billion ringgit, about 2.3 per cent of GDP.

Yeah Kim Leng, an economics professor with Sunway University, said the government urgently needed to study the “adequacy and efficacy” of the so-called National Care Assistance (Bantuan Prihatin Nasional) package.

“In formulating rescue strategies, tax relief and financial aid allocations may need to be increased and qualifying criteria relaxed to widen access to a greater number of distressed firms,” Yeah said.

Firas Raad, the World Bank’s representative in Malaysia, acknowledged the constraints faced by the Muhyiddin government but added that more fiscal space might be needed to meet the “very real needs of households and firms under stress as a result of the crisis”.

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Wong Chen, an opposition lawmaker who frequently comments on economic policy, said his key gripe was with the quantum of the wage subsidy scheme. For three months, firms can claim up to 1,200 ringgit in wages each month for workers who earn up to 4,000 ringgit – with a lower ceiling on claims for larger firms. As a quid pro quo, companies must retain the workers for at least six months.

The topmost payout of 1,200 ringgit – about 30 per cent of the country’s mean average monthly pay of 4,000 ringgit – meant the scheme would be inadequate to keep many firms afloat, Wong said. “The rate of support is actually low and thus not very effective.”

Chris Choong, an economist with the Khazanah Research Institute, said he was more concerned about the country’s employment retention programme, which grants a monthly payout of 600 ringgit for up to six months to employees put on unpaid leave and earning under 4,000 ringgit.

Some 230,652 workers have thus far been enrolled in the programme by their employers, and the government has doubled the allocation for the scheme to 240 million ringgit. With no clear sign yet that the new allocation would be adequate, Choong suggested the programme’s administrators could dip into the 13.8 billion ringgit reserved for the wage subsidy.

Just 13.8 per cent of the funds for the wage subsidy had been approved for disbursement, according to latest finance ministry data.

‘READY TO UP ITS GAME’

Other local economists believe the government has done well to “respond progressively” – rolling out the stimulus in three phases – so the full effect of the injections is felt by the economy.

“The government is keeping an open mind with regard to fiscal policy stance … In a nutshell, it is ready to up its game,” said Mohd Afzanizam Abdul Rashid, the chief economist of Bank Islam Malaysia, adding that the Muhyiddin administration could add more “stimulus dosage” if the need arose.

On the question of finding the funds for more stimulus, analysts offered a range of views. Faiz from Bank of America Merrill Lynch said the government was faced with “extremely constrained” fiscal space, in part due to the legally binding internal rules.

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The economist told This Week in Asia it was likely the central bank, Bank Negara Malaysia, would do the “heavy lifting” through an ultra-easy monetary policy.

Last week it slashed its overnight rate to 2 per cent, and Faiz said the figure could be reduced to an all-time low of 1.5 per cent. “Should the recovery be delayed or become protracted, Bank Negara may ease [rates] well beyond our current expectations,” he said.

Apart from monetary policy, the government is expected to rely more heavily on dividends from government-linked firms, including state energy company Petronas.

Rationalising expenditure, reallocating fuel subsidies and the reclassification of part of the stimulus as capital expenditure are also some tactics that the government can wield to get around its rigorous fiscal rules.

Some analysts suggested the rules – in particular the 55 per cent debt-to-GDP ceiling – could be changed, given the unprecedented nature of the ongoing crisis.

“We must also recognise that this is a construct and that, for exceptional circumstances, we can consider introducing escape clauses to allow us to deviate from the limit for a fixed period of time and put in place corrective mechanisms when things return to normal,” said Choong of the Khazanah Research Institute.

Yeah of Sunway University offered a similar view, saying the ceiling could be raised “by another 5-10 per cent without jeopardising [Malaysia’s] creditworthiness”.

He added, however, that the government would “need to ensure that its debt-servicing payments remain below 20 per cent of total revenue from its current 16-17 per cent so as not to increase its vulnerability to a sovereign rating downgrade”.

“As long as the government is able to revitalise the economy with further stimulus and demonstrate its capacity and commitment to a fiscal consolidation path over the medium term after the current crisis, the ensuing debt spike will not be viewed as a death throe of the economy,” Yeah said.

Whether the fiscal spigot was turned on in the coming weeks would depend on the scale of job losses as well as other economic data, the analysts said.

Bank Negara is expected to release first-quarter GDP data on Wednesday. ■