Wednesday, March 11, 2009

Malaysia's RM60 billion Stimulus Package

RM60 billion over two years means 4% per annum to a RM740 billion economy in current prices.

This is substantial. Assuming no leakage, no multiplier, no inflation, economic growth in 2009 post-stimulus of -1% to +1% means the pre-stimulus scenario could be -5% to -3%.

Nature of the stimulation over two years:
1. Construction of infrastructure and housing (RM5 billion)
2. Private investment fund (RM1.6 billion)
3. Capital for SMEs (RM20 billion)
4. Microcredit (RM0.3 billion)
5. Savings Bonds (RM5 billion)
6. Tax exemption

I see the immediate impact to be the RM5 billion for infrastructure and low-cost housing, in as far as I can itemise them.

There is substantial attempt to recapitalise the private sector (RM21.6 billion) - which is good for the medium term - the building of capacity.

The microcredit looks a small sum but it may have wide coverage on the lower ground.

The savings bonds are an anomaly in a stimulus package - this is an attempt at correcting the flaw in the monetary policy. It is far better to ensure reasonable deposit rates while cutting the mark-up by banks.

[On reflection, the RM5 billion savings bonds could be to finance the RM5 billion construction projects. This could mean that RM10 billion of the RM60 billion is neutralised. This brings the net impact to 3.4% of GDP a year.]

The cost and benefit of tax exemption may at best be estimated variously, and treated [corrected from "tested"] as a residual factor. With help to house buyers and those retrenched.

I observe with great encourage the help given to the unemployed, especially first-timers, through more studies and retraining.

I am sure that there are many things I have left out from the whole package. The above are specifics I can observe at present.

This is a fairly modest budget while a lot of help given to promoting investments for the next few years. Would be useful to get an economic vision and direction.


hishamh said...

Good summary! I don't understand this comment though:

"The cost and benefit of tax exemption may at best be estimated variously, and tested as a residual factor."

etheorist said...


My special English for taking note of the residual in my summary of the RM60 billion, i.e., tax exemption etc. The budget put a number to it but I doubt it is accurate or meaningful.

The puzzle is a typo. I will correct the text from "tested" to "treated."