FEB 16 – One Cabinet minister calls it the inevitable march to a recession while another believes that the government will have little choice but to give cash handouts of up to RM1,000 to each retrenched Malaysian to survive the country’s worst economic crisis.
After hoping for the best and believing that the Malaysian economy will have a soft landing of about 3.5 per cent growth this year, ministers and senior government officials are now singing a different refrain in private.
They believe that there is a good chance that Malaysia could be in recession this year and concede that even if the administration unveils and implements a mini-budget soon, growth will still be between 0.3 per cent and 0.5 per cent.
This bleak economic picture will complicate the already difficult task the Barisan Nasional government faces in shoring up its support at the political front, and could have a significant impact on the public perception towards Datuk Seri Najib Tun Razak when he takes over the premiership in March.
Since unveiling the RM7 billion stimulus package in November, the administration has been upbeat about the ability of the Malaysian economy to deal with the global crisis, given the strength of the financial system here, liquidity in the markets and reasonable commodity prices.
Government planners predicted that the RM7 billion package if implemented by the first quarter would add 1 per cent to the GDP growth for 2009. But some of the assumptions have been thrown out of whack. Malaysia’s exports have plunged more sharply than anticipated – the result of the country’s main trading partners performing much worse than expected.
December’s figures showed that exports contracted by nearly 15 per cent. Compounding this increasingly dire situation is the great Malaysian malaise – the inability to execute policies quickly.
The Malaysian Insider understands that some RM5 billion of the RM7 billion stimulus package was disbursed by the Finance Ministry to individual ministries in January but much of it has been trapped by officialdom and suffocating red tape.
As a result very few pump priming projects identified under the stimulus package have taken off. In short, the multiplier effect which the government was predicting from the RM7 billion package will not be felt soon.
Najib has announced that the administration will announce a mini-budget in Parliament on March 10. He is likely to present a grimmer picture of the Malaysian economy than the one he sketched on Nov 4.
Official figures show that as many as 40,000 Malaysians could lose their jobs this year but those figures are misleading because they do not capture the employment status of contract workers.
The Malaysian Employers Federation believes that as many as 200,000 workers could be jobless in 2009 – the result of manufacturing plants shutting down operations or reducing their workforce in the face of limp demand.
The state likely to be hit badly will be Penang. Manufacturing makes up 43 per cent of its economy. The Malaysian Insider understands that the mini-budget could include a suspension of the service tax; a cut in the employers’ contribution to the EPF and Human Resource Development Fund.
There will also be a slew of pump-priming projects including the lengthening of the Malacca Airport.
Also being considered seriously are cash payments to retrenched Malaysians. The quantum could be between RM700 and RM1,000 per worker and the time frame could be for a period of six months. Not wanting to create the impression that this is a dole scheme, the government is likely to tie any cash payment to re-training.
A senior government official told The Malaysian Insider: “The unemployment situation is going to get bad for the next 12 months and we must be able to put some money in the hands of those who have been retrenched.”
The budget deficit is expected to grow from 4.8 per cent of the GDP to beyond 6 per cent with the additional spending under the mini-budget.
But the government is less worried about stretching the budget deficit at this point.
The priority is to ensure that despair does not set in. Signs are already there that pain of the global crisis has hit home. A focus group study by pollster Merdeka Centre showed that the working class had anecdotes to share about the loss of overtime, shorter working hours and retrenchments.
The news could get much worse.
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