29 Apr - 8 min read
I was hoping to start this #SaveMoneyWithHann web series on a more positive note. Unfortunately, we as a nation are facing an unprecedented (and never before seen) situation in our health, economy, business, and personal money matters.
Malaysia is sadly, but correctly shutting down movement and businesses from March 18 to May 12 (so far). The fact that Malaysia partially locked down the country before the Covid-19 situation got even worse is a testament to the relative preparedness of healthcare system that we have (globally we can see how each country is dealing with this, some worse than others).
Unfortunately, the Movement Control Order of March-May 2020 will have a devastating and terrible impact on jobs, income and financial positions of many Malaysians.
In short, bad. Previous “financial crisis” events, while definitely bad, were not on a scale close to this. Where the Asian Financial Crisis 1997-1998 was a regional (Asian countries) crisis, and the Dotcom 2001 or the Global Financial Crisis 2008-2009 were sector-driven crises (the tech and financial sectors respectively), the Covid-19 pandemic affects every single major sector of the economy (tourism, retail, manufacturing, etc.), and every single country in the world (180+ countries are impacted heavily).
I could get into the economic specifics and data points backing my statement above, but more importantly we looking at a terrifying outlook, where we’d face at least 12 months of:
To ease the situation, the government announced the RM250 billion Prihatin Rakyat Economic Stimulus Package on 27 March 2020, followed up with an extra RM10bn a week later for SMEs. This was RM230+10 billion of new stimuli to add to the RM20 billion package announced by Interim Prime Minister Tun Dr. Mahathir Mohamed on 27 February 2020.
It’s basically a RM250 billion fiscal, financial, and monetary package aimed at responding to the economic and financial damage of the Covid-19 crisis affecting the national economy, local businesses, and of course, the rakyat.
Was it good enough? Well, at RM250bn, it amounts to roughly 17% of our country’s GDP, and is supposedly one of the largest in the world.
My amazing editorial team led by Pang has been working round the clock to list down and analyse each line item of the package, to give everyone a good sense of what it means for each one of our readers, and you may check them out here.
It’s a little complicated, but there is something that all countries have to manage which is their budget deficit. It is the difference in the spending (eg. schools, hospitals, civil service salaries, #Budget2020 goodies etc.) and income (taxes, investment income, petroleum dividend etc.) of a country.
If a country spends more than they earn in a year, this is a budget deficit which has to be funded by loans issued out by the government (our government has set a self-imposed limit of 55% of GDP for total debt/loans outstanding).
In general, developing economies such as Malaysia don’t have as much leeway to increase their debts compared to developed ones (where debt-to-GDP ratios can exceed 100%) because of investor concerns on default. Malaysia’s is currently is at 52.5% but this is likely to go up as a result of the Prihatin stimulus package to somewhere between 55% – 59% depending on how the economy fares in 2020.
However, if the government itself raised spending by RM250 billion (~17% of GDP) in the stimulus package, we would have increased that level by way more (ie. even 70%+), but the actual fiscal spend by the government is actually only RM25 billion, with the rest coming from other parties such as EPF via individual contribution reductions and withdrawals (RM41 billion), BNM for the 6-month loan moratorium (RM100 billion), and other GLCs/agencies (such as TNB, PTPTN etc.).
At times like these, it is crucial to know what assistance the government has to offer. The Prihatin stimulus package has something to offer for consumers and businesses alike, and here’s a breakdown of the most important ones:
Cash payments to various groups:
Despite being an unprecedented amount, is the RM250bn stimulus enough? It’s hard to say, but given the damage done to the economy, I certainly hope so. What’s more important is that our government needs to react quickly to the science (on the health side) and the data (on the economic side, such as unemployment rates etc.).
Whether you’re an individual, an SME or a household, all our focus should be on getting through not just the disruption to our lives from the MCO, but also as we go into a post Covid-19 world.
Next week, I’ll be sharing some thoughts on surviving and adapting to a post-MCO Malaysia, and some ideas and tips on where to start, where to optimise financially, and how to get through this tough financial time.
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