With extreme social distancing in place, severe movements restriction and work disruption, it is unclear to me the role of economic stimulus. At the very least, its function to stimulate the economy is becoming irrelevant. There is little to stimulate with the supply-side frontier collapsing.
Moreover, the earlier stimulus must have been rendered inadequate. It is designed to address externally driven supply-side shock. It is not designed for domestically driven supply shock, which is essentially the whole economy running aground.
As I have written recently, Malaysia is experiencing its ultimate supply shock in terms of drastic labor supply cut. Given the massive shock we are facing domestically, there is a strong case for the stimulus to be enlarged quite significantly.
You could keep your powder dry a month ago, but the situation has changed so much since then. In fact in the last day or two, this incompetent government has botched the restriction order so much that a third wave is likely: a policy that was meant to restrict public gatherings ended up created massive public gatherings at the borders, at KL transport nodes and at police stations among others. I am suspecting a longer restriction period beyond 2-week to fight the likely third wave.
And so, if we are not already in recession, this government’s poor handling of our case is ensuring a deep one will happen.
Hence, this is the time for radical policy. We desperately need one.
Examples include: SMEs in particular will need hard cold cash, if they are to hoard labor and preserve their potential. One of my favorite ideas involving the central bank is for Bank Negara to buy SMEs’ assets like account receivables through repo facility. This essentially means the bank injecting cash into SMEs in return for SME account receivables. The whole exercise could be unwind in a year’s time. More assets could consider in fact.
Fiscal policy will also need to play its role. I have heard suggestions for withdrawal from EPF account 2. That is doable without hurting government finances. A more flexible borrowing scheme by the government is also necessary, especially given yields are so low these days. The deficit can wait. An A- sovereign credit rating is not the hill I would want to die on.
If our powder is still dry, we are just not doing enough.