Thursday, April 15, 2021

Government got money or not?

Ramadan 4, 1442: When the Prime Minister of a country says the Government does not have much money left, that's serious. Everyone should be panicky. It means the Government no longer has the funds to manage the country properly, let alone pay its debts. In other words, we're reaching rock bottom. Will there be enough money to pay civil servants' salaries? 

 Well, that was what PM Muhyiddin Yasin said yesterday, believe it or not. 

KUALA LUMPUR – Prime Minister Tan Sri Muhyiddin Yassin said Putrajaya’s coffers are depleting after the government allocated more than RM600 billion for Budget 2021 and other stimulus packages to help Malaysians weather the Covid-19 pandemic.

He said the government had spent large amounts of money last year and this year due to the virus, adding the stimulus packages for the national budget totalled RM340 billion, while RM322 billion was set aside for the national budget.

“I went to school, but I am not good at calculation... how much it adds up... it's more than RM600 billion – that’s a big sum of money,” Muhyiddin said during a Vaisakhi celebration event with the Sikh community in Petaling Jaya.

“What I am trying to say here is that we don’t have much money left.” 

Fortunately, there was no panic reaction to Muhyiddin's remarks. There was no bank run, no riot or looting, nobody died, the stock exchange was nonchalant. In short, nobody was panicky. But how come? 

"Nobody believed him, probably," said one corporate leader friend.

Aiyoo, really?

Well, maybe. One think tank has come to argue that what Muhyiddin said was NOT TRUE. 

PETALING JAYA: A public policy think tank has described as “unsubstantiated and misleading” the statement by Prime Minister Muhyiddin Yassin that the government is running out of money after spending RM340 billion on economic stimulus measures and RM322 billion on the 2021 budget.

Research for Social Advancement said the statement has misinterpreted the term “government spending” and overstated the fiscal burden on the state coffers.

Researcher Jaideep Singh said the RM40 billion in withdrawals from the Employees Provident Fund was not a fiscal stimulus as it had come from the contributors’ own savings.

“For other macro-financial measures, support typically comes from Bank Negara, which does not rely on government money and therefore does not directly affect the country’s fiscal deficit,” he said in a statement.

Jaideep said the finance ministry itself had admitted that only about RM72.6 billion, or 21.4%, of the total RM340 billion figure took the form of direct government expenditure through fiscal injections.

“This figure covers health spending, cash transfers, the Wage Subsidy Programme and infrastructure spending, which are all borne out of the government’s budget,” he said.

He said the actual amount of government spending to date was likely to be even lower than the RM72.6 billion previously announced by the finance ministry, since not all fiscal injections were immediate.

“There is a time lag between the announcement of fiscal policy measures and the eventual disbursement of funds,” he said.

The remaining RM267.4 billion, he said, covered a range of strategic, operational and monetary policy measures, including loan moratorium extensions, tax exemptions, loan guarantees and financing schemes.

“Some of these, such as tax relief, do not have a direct accounting value apart from the opportunity cost of tax money foregone, which is likely to be negligible for affected sectors anyway.”

He also argued that higher spending due to the stimulus measures was not unprecedented, citing the 2009 budget, which had a fiscal deficit of 6.7% amid the financial crisis.

Jaideep said now was not the time for alarmist claims, adding that the country can already expect an increase in government revenue beyond the 2021 budget’s forecast, with recent hikes in oil prices.

He said the most recent Pemerkasa package had also suggested that the government still had fiscal space to introduce substantial new injections.

“Ultimately, the way out of the pandemic-induced contraction is to implement more directed, strategic expansionary fiscal policy measures to promote consumption and crowd-in private sector investment, not to make unsubstantiated claims about the government’s fiscal situation,” he said.


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