RM100 aid plan may boost Q2 GDP, says economist
PETALING JAYA : The government's decision to offer a one-off RM100 cash handout to all adult Malaysians has won plaudits from economists.
Afzanizam Abdul Rashid, chief economist at Bank Muamalat, said it would give the economy a boost, albeit a short-term one, while Geoffrey Williams said that despite it being a small amount, it would still be meaningful for poorer families.
Prime Minister Anwar Ibrahim, who announced the payout and a host of other incentives yesterday, said all Malaysians aged 18 and above would benefit from the handout.
Afzanizam Abdul Rashid.
Afzanizam said the payout, which is part of a wider RM15 billion aid package under the Sumbangan Tunai Rahmah (STR) and Sumbangan Asas Rahmah (Sara), would likely boost local spending and domestic demand, key pillars of the economy.
'This could give Malaysia's second quarter gross domestic product (GDP) a lift,' he told FMT.
'This will certainly help to increase consumer spending. Given the sizeable share of consumer spending (60% of GDP), it should have a material impact on the overall economy, especially domestic demand,' he added.
He said the handout could act as 'fiscal pump priming' – the government spending money to boost the economy — amid global risks.
'(Combined) with the 25-basis-point drop in the OPR (overnight policy rate), the move should boost GDP growth in the second half, which will benefit all citizens in this country,' he added.
Afzanizam also said the lower- and middle-income groups were more likely to spend the RM100 rather than save it, given their high tendency to spend.
In his announcement, Anwar said that apart from the RM100 cash aid, which would benefit 22 million adults, the pump price for RON95 would also be lowered to RM1.99 per litre for those eligible by year's end.
Geoffrey Williams.
Williams sees the RM100 handout as a 'potential turning point' in the country's welfare policy.
'This is a good initiative. It will serve as a pilot for reform of the STR/Sara programme to create a universal basic income (UBI), which would be a first in the world and set Malaysia as a leader in welfare reform,' he told FMT.
'It has all the features of a UBI because it is a cash transfer to individuals, not households, without conditions and available to all Malaysians without the need to apply.'
Williams said that while the RM100 payout might be considered small, especially as a one-off, it was still meaningful for poorer families and single people.
'For a household with four adults it is RM400 which covers essential food costs.'
He added that the move was affordable under ongoing subsidy reforms and could add up to RM6 billion in spending to the economy this year.
'This is a very good way to use RM2 billion and will add a small stimulus worth RM6 billion to consumption in the second half to support growth which is otherwise expected to be weaker,' Williams said.
'It really is a good move. Although many will be cynical about timing, he deserves credit for this move.'
On the planned fuel subsidy, Williams said the drop in price from RM2.05 to RM1.99 was modest but helpful.
'The small reduction from RM2.05 to below RM2 is helpful but only marginally so. The subsidy rationalisation is not primarily intended to cut daily costs. It is mainly to reduce wasteful subsidy spending.
'It will not be expensive and will be paid for from savings derived from high-income users,' he added.
Williams also said some form of subsidy was still needed to prevent low-income Malaysians from being priced out of fuel.
'We need to see the mechanism, but some form of subsidy is still necessary to prevent the poor from being excluded from access to petrol,' he said.
Afzanizam also said the targeted fuel aid could help curb inflation.
He added that while there is the risk of businesses raising prices, limiting the RON95 subsidy to qualified individuals would moderate the risk of inflation.
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