Covid-19: How the gov't should stimulate the economy

COMMENT | This morning I looked in the mirror and realised I needed a haircut – quite badly. And it will be at least another three weeks before I get one. Maybe longer if the movement control order (MCO) is further extended. Now what’s that got to do with anything?

If it has not dawned on you already, that means nobody who cuts hair would have earned a cent since March 18 and won’t until April 14 at least, if the order is not extended again. That’s almost one month – if you have no income and no savings (and millions don’t), what do you do?

Think of all the people who are similarly affected – daily paid workers, vendors of all kinds, salespeople, freelancers, virtually all non-salaried workers in the non-essential sector, the foreign illegal workers who alone might number two million. Soon, or already, they won’t have anything to eat.

They are all affected now – perhaps as many as four million people, or about a quarter of the workforce, and no money has yet reached them.

Some of them, such as illegal workers, are not even covered under the Bantuan Sara Hidup (BSH) programme, which funnels money to those in the bottom 40% (B40) in terms of income. An effort has to be made to get the funds to them. But you have to find them before you can fund them.

Fortunately, there is already a registered group under BSH and these are the people to whom most direct aid must go. That should be the first priority, especially to those poorest in the bottom 20%.

But the question is how much and how to spend.

How much first. One simple way is to estimate what a partial lockdown may cost the economy. The size of the economy in current prices was about RM1.5 trillion in 2019 or RM125 billion on average per month.

Let’s say a partial lockdown crimps production by half. That would mean a month of production halt will cost half that, or RM62.5 billion. If we need, say, two months of partial lockdown (one month is already on its way) to fight Covid-19, the cost to the economy, based on 2019 figures and no growth, would be RM125 billion. That would be the amount of stimulus needed to mitigate the crisis.

With RM20 billion committed, the remainder is RM105 billion. That’s well within the capacity of the government to...