RM45b stimulus needed after unemployment rise and lower production

 

MP SPEAKS | An additional RM45 billion economic stimulus package is urgently needed for Budget 2021 to save jobs following the unexpected rise in the unemployment rate to 4.7 percent and the contraction of the industrial production index (IPI) by 0.5 percent in October 2020.

The Department of Statistics Malaysia (DOSM) recently announced there were 748,200 unemployed persons in October, an increase of 0.1 percent to 4.7 percent in October compared to 4.6 percent in September.

The country’s year-on-year (y-o-y) IPI contraction in October 2020 by 0.5 percent was a surprise following three consecutive months of growth in July, August, and September, as the nation contended with the economic impact of the Covid-19 pandemic. DOSM said prior to the IPI’s y-o-y 0.5 percent contraction in October 2020, the IPI grew 1.2 percent in July, 0.2 percent in August, and one percent in September.

Many had expected unemployment to drop and IPI to continue growing in October following the easing of Covid-19 movement restrictions. The 748,2000 unemployed persons appear to match Human Resources Minister M Saravanan’s prediction of one million unemployed Malaysians by September, including both the informal sector, school-leavers, and new university graduates.

Clearly, the anticipated economic recovery from improvements in global economic growth and trade has stalled in Malaysia and run out of steam. Not only has the IPI contracted, but there is a sharp decline in Malaysia’s gross fixed capital formation by 11.6 percent in the third quarter this year.

This sharp decline is a setback for economic confidence of future growth and damages Malaysia’s competitiveness since other countries in Asia are not experiencing the same phenomenon.

An additional RM45 billion for Budget 2021 is therefore needed to create new sources of economic growth and slow down retrenchments, job losses, and business closures. The RM45 billion should be utilised to address five key thrusts.

Five key thrusts of RM45 billion economic stimulus package

First, there should be the immediate implementation of the increase in monthly welfare aid from RM200-300 to RM1,000, including for the unemployed that is expected to hit one million Malaysians, that will cost RM12 billion a year. This will provide an immediate safety net for unemployed workers during the duration of the Covid-19 crisis.

Two, an automatic extension of the moratorium of bank loan repayments, excluding the top 20 percent (T20) of income earners, by another six months after Sept 30, costing RM6.4 billion that will help eight million Malaysian individuals and companies.

In contrast, the targeted bank loan moratorium extension and bank assistance after Sept 30, have assisted only 645,000 borrowers, which is only eight percent of the original eight million borrowers.

This has benefited only financial institutions by merely extending the loan repayment period, thereby requiring borrowers to pay even higher interest payments. The fact is that the banking industry recorded RM32 billion in profit in 2019 and despite the Covid-19 crisis in 2020, continues to record profits without any banks incurring losses.

Three, work hiring incentives over a period of two years, under Malaysia@Work of RM500 a month to employees and RM300 per month to employers to encourage them to hire local workers as proposed by Pakatan Harapan in the 2020 budget.

Expanding this scheme to cover 600,000 Malaysian workers and their employers would cost RM13 billion. This would also help the more than 500,000 youths who are unemployed.

Fourth, the remaining RM4 billion should be spent on digitalising education, including buying laptops to provide online learning for students not able to attend schools. Malaysian education is in crisis this year when students attended only four months of schooling. The loss of human resource training is immeasurable. Malaysian students should be given the option of online learning.

Fifth, RM10 billion in financial grants should be given to provide a lifeline for new and existing businesses, loans, and credit extensions, especially for the crippled tourism industry.

For the tourism industry alone, for the first nine months of this year, Malaysia received RM54 billion less in tourism receipts as compared to the same period last year. Not just the tourism industry is on “life-support”, other industries are also suffering.

There is growing pessimism that there will be positive economic growth for the final quarter this year and 7.5 percent economic growth next year as predicted by the Perikatan Nasional federal government.

The government must lend a helping hand with a RM45 billion economic stimulus package next year if we are to generate sustainable economic growth and prevent the unemployment rate from deteriorating to the previous high of 5.3 percent in May 2020 during the nationwide Covid-19 lockdown.

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LIM GUAN ENG is Bagan MP, former finance minister, and former Penang chief minister. - Mkini

The views expressed here are those of the author/contributor and do not necessarily represent the views of MMKtT.

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