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Guan Eng’s suggestion to borrow more needs rethinking : economists

Lim Guan Eng

TheMole
Written by TheMole

By Nur Amirah Abd Rani

KUALA LUMPUR – September 8, 2020:  Former Finance Minister Lim Guan Eng needs to rethink or improve his suggestions on how to manage the country’s unemployment rate.

This was the view of several economists of the matter.

On Monday, Lim suggested for the government’s financial focus be shifted from controlling debt levels and fiscal deficit, to borrowing more money.

He also suggested that the government increase monthly welfare aid from RM200-RM300 to RM1,000; extend the loan moratorium by six months from Sept 30; and provide provision of hiring and work incentives amounting to RM500 a month for employees and RM300 for employers.

Professor Zulkifli Senteri of Binary University said it was acceptable for the government to increase borrowing to revive the economy in order to create jobs.

But he pointed out that the government had, in fact, already made the move to do so by recently increasing the country’s statutory debt limit of gross domestic product (GDP) to 60 per cent from 55 per cent.

He, nonetheless, stressed that Lim’s suggestion to increase monthly aid was only feasible if the government had the ability to repay the amount to be spent on it in future.

“Our main concern is not about the debt percentage. As for now Malaysia’s debt ratio is still under control as the government can still afford to pay the country’s debt as compared to some of our neighbouring countries, which have debt levels exceeding 100 per cent,” he said. 

Zulkifli added that Lim’s estimation of RM12 billion for the monthly welfare aid programme would contribute to the economy through consumer spending and it would increase the aggregate demand for the country.

Associate Professor Dr Ahmed Razman Abdul Latif of the Putra Business School, Universiti Putra Malaysia, while agreeing that the government could increase borrowing to provide financial aid, cautioned that the money needs to be paid back sooner or later.

He also pointed out that borrowing more would mean that the amount of debt would keep increasing and eating into the country’s revenue.

“The higher proportion of revenue will be spent to pay the debt and in turn this will affect other expenses and have a negative impact on government spending such as emolument and in capital infrastructure,” he said.

Razman said the government should consider studying the long term impact of accumulating debt and also real causes of the raising unemployment rate before providing more cash assistance.

“Further improvements should be done by addressing the root cause of the problems on why unemployment happened in the first place,” he said.

Razman also suggested for more financial assistance be given to especially small, medium and micro enterprises so that they have the necessary capital injection to expand and hire local workers. 

“It is a win-win situation between business survivability with managing unemployment, where the capital injections are dispersed to the business that create more job opportunities. It is better than continuously supporting people to settle their debt,” he said. 

Meanwhile, Professor Dr Faridah Hassan of Universiti Teknologi Mara disagreed with Lim’s suggestion that more government’s borrowing could help in managing unemployment as it would only create “more holes of debt”.

She believes that financial aid is not a practical solution since there were yet signs that the Covid-19 pandemic may ends soon and therefore the government needs to calculate the risk of continously providing handouts.

“Instead of adding up the country’s debt, the government should provide more business opportunities to help the jobless to be financially independent so that they may survive the crisis,” she said.

She stressed that instead of cash handouts, the government should engage youths in initiatives which could empower entrepreneurship.

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