Watch the video here (Interview starts at 3:25) 

Produced by Astro Awani 

How should the government allocate its spending during a national crisis such as COVID-19?

In an interview with Niaga AWANI, REFSA Visiting Fellow, Hafiz Noor Sham highlights the necessity to raise spending level significantly to solve the crisis at hand. The spending should be funded by government debt. Additionally, the government should prioritize solving the health and economic crises over any fiscal consolidation exercise.

Here are the 3 salient points he touched:

#1 RM5 billion actual government spending that comes as part of the Pemerkasa+ program is too small to solve the crisis once and for all. The government should recalibrate its spending plans based on at least three factors:

• Raise the capacity of the public health system
• Hasten the pace of vaccination
• Provide sufficient financial assistance to those affected by disruptive but necessary restrictions, which will enable an effective lockdown to combat the pandemic

#2 Hafiz proposes the government to raise its 2021 deficit-to-GDP ratio from approximately 6% currently to 9%-10% to combat the pandemic more effectively.

#3 It is too soon to carry out any fiscal consolidation exercise. Nevertheless, the spending should also be accompanied by a long-term fiscal plan, instead of an immediate fiscal consolidation exercise that would shock the economy and worsen Malaysians’ living standards. Any consolidation should happen only within 10-15 years after accounting for other public needs.