{"id":3787,"date":"2020-02-28T01:11:56","date_gmt":"2020-02-27T18:11:56","guid":{"rendered":"https:\/\/capitalcambodia.com\/?p=3787"},"modified":"2020-02-29T12:30:47","modified_gmt":"2020-02-29T05:30:47","slug":"spend-it-slowly-and-wisely","status":"publish","type":"post","link":"https:\/\/capitalcambodia.com\/spend-it-slowly-and-wisely\/","title":{"rendered":"Spend it slowly \u2013 and wisely"},"content":{"rendered":"
\"\"
Qarrem Kassim sees many policy tools at the Malaysian government\u2019s disposal. Supplied<\/figcaption><\/figure>\n

The outbreak of COVID-19 sent shockwaves around the world, with governments hastily assembling together stimulus packages in the wake of this unforeseen event. The Institute of Strategic Analysis and Policy Research (INSAP) is greatly concerned about this and is monitoring the situation closely. Whether an estimate of about $3.6 billion by Dr Ahmed Razman Abdul Latiff, manager of business development at Putra Business School [University of Putra, Selangor, Malaysia], has become a reality, the stimulus should be prudent and its scope limited to affected industries, taking precaution not to spend excessively. An overpowering stimulus package has the potential to reduce long-term productivity as public spending crowds out private investment and spending too quickly may cause the stimulus to prematurely run out of steam. Therefore, a boost to infrastructure \u2013 spending on roads and railways \u2013 through funds from a traditional stimulus package, may not necessarily achieve its intended results. Most importantly, the global community is completely in the dark about where we are in the current crisis. Therefore, in my view, the stimulus package should be released in stages or tranches, rolled out through several \u2018mini packages\u2019 sustained over a period of time to manage the outflow of public money to targeted industries, just as a sick patient is advised not to consume all their medicine in one go but in regularly timed intervals.<\/p>\n

It is well known that the first industry casualties of the outbreak would be the aviation, tourism, and retail sectors, with Chinese tourists making up around $2.9 billion\u00a0 \u2013 14.5 percent of total foreign spending receipts in 2018.<\/p>\n

The Malaysian Association of Hotels recently revealed that cancelled bookings have so far resulted in around $9.5million in lost revenue.<\/p>\n

Likewise, the banking sector would be badly affected as businesses struggle to repay loan commitments in the short term.\u00a0 Therefore, a good stimulus policy should carefully consider the needs of such stakeholders. INSA thinks the aim of the stimulus policy should in effect, be double-pronged, firstly to reduce cashflow requirements and secondly to boost consumer spending power.<\/p>\n

Ultimately, as revenue for the tourism and retail sectors are largely seasonal, their day-to-day cash requirements should be of paramount importance. A policy of encouraging banks to provide soft working capital loans through partial government guarantees for affected industries and small and medium enterprises (SMEs) will help to ensure workers\u2019 salaries and supply orders are timely and adequately met. To reduce the burden on working capital, a policy of short-term discounts on utility bills, Human Resources Development Fund (HRDF) government tax levy exemption and a moratorium on hotel levies and import duties on televisions and video equipment similar to the 2003 package may prove effective for the tourism sector, particularly for hotels and casinos. The stimulus should likewise consider a short-term rebate for monthly rental expenses which often make up the largest cost burden for retailers. To\u00a0 boost consumer spending, the government may further continue the e-Tunai cash injection scheme, sustained over a timed interval basis. This is similar to past cash injection programs but with a key difference of forcing consumers to spend within a defined time frame and spurs increased adoption of e-wallet technology among retailers.<\/p>\n

A short-term moratorium on Sales and Services Tax (SST) charges for affected industries should likewise be implemented to allow for greater competition as retailers slash prices to raise sales, boosting consumer spending. Another recommendation is distributing bonuses to civil servants with an option for reducing employee\u2019s contribution to Employees Provident Fund (EPF) from 11 to 9 percent for the year 2020, similar to the 2003 package.<\/p>\n

Greater disposable income will thus act as a strong short-term stimulus for overall GDP growth. A similar policy was introduced in Australia in 2009 where 8 million Australians received a cash bonus of $591. The effect of the cash injection was profoundly beneficial for retailers and the stock market rebounded.<\/p>\n

However, a considerable portion was instead spent on holidays abroad, dampening its intended effect on the local economy. Therefore, the stimulus should encourage spending in the local domestic tourism industry through the zero-rating of all domestic departure charges and levies and through government social media promotion and large promotional events. Although the industries aforementioned are among the greatest concern, Malaysian exporters are likewise particularly vulnerable, especially those in the electronics and electricals\u00a0 sector, where exporters are unable to reach their supply chains in China.\u00a0 It may be necessary to establish an emergency warehousing system and to hold regular discussions with companies along the affected supply chain to resolve issues quickly and avoid a spike in manufacturing unemployment.\u00a0 However, it may not be possible to avoid a certain degree of job losses,as companies downscale their production.\u00a0 Therefore a reskilling and retraining government rebate programme should be widely implemented. It should be noted here that the 2003 SARS epidemic caused an estimated $40 billion in losses to the global economy, but China today is 4.5 times larger than then and the current impact is estimated to be much more wide-reaching and to cost more in damage to the global supply chain.To conclude, although there are a myriad of policy tools at the government\u2019s disposal, the success of the stimulus package depends on the prudence and ability of the government to implement policies thoughtfully and sensibly in stages, providing immediate relief to the business community and creating an effective ecosystem where the economic concerns of all sectors and stakeholders affected are effectively and adequately addressed.<\/p>\n

Qarrem Kassim is an economist at the Institute of Strategic Analysis and Policy Research. This first appeared on Malaysian news website thestar.com <\/em><\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

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