This article first appeared in Forum, The Edge Malaysia Weekly on November 2, 2020 - November 8, 2020

The Covid-19 pandemic is unprecedented and after a very good start at containing it, there has been a spike in new cases in the last few weeks, with cases in Sabah escalating to new highs after state elections were held there.

We are in the middle of a public health crisis, one that has been going on since the beginning of the year and that has forced the imposition of Movement Control Orders (MCOs) of varying degrees — a measure that has exacted a very high price on the economy and the economic well-being of millions of people.

We are in the midst of both a public health crisis and an economic crisis whose depth depends on how much longer before a vaccine is developed and when the movement and congregation of people can normalise. It will take a bit more time for a vaccine to be developed and still more time before normalisation is obtained and a new economic landscape is formed. We will get out of this but it will take some time, and we must mitigate its consequences in the meantime.

It, however, looks like we have a bigger crisis: a political crisis. It almost got to the point of parliament being suspended. Ironically, the call for suspension was justified as a means to better manage the pandemic. It was all very disquieting as the suspension of parliament would have had disastrous effects on the economy. It would have made the recovery from the pandemic all the more difficult.

Quite obviously, the suspension of parliament would have negatively affected investors’ confidence in the system of governance in the country. It would likely result in a sovereign rating downgrade, which would affect both the cost and ease with which the government borrows — and borrow it must because of the deficit budget. Capital flight and loss of confidence would have also weakened the ringgit. Just bad things all around.

To suspend parliament would not have made the containment and management of the pandemic any easier but it would have worsened the economic environment considerably. The use of the Prevention and Control of Infectious Diseases Act 1988 since the implementation of the MCO in March already gives the government wide powers to manage the pandemic nationally or in specific locations — things it can continue doing. The National Security Council Act 2016 also empowers the National Security Council to issue directives during the MCO, which is what it has been doing in issuing SOPs (standard operating procedures) and specific MCO directives.

It was therefore a great relief that the checks and balances that are in place in our constitution functioned as they should. There was great wisdom and foresight in having those checks and balances in place, and in this instance, they were used wisely indeed.

Actually, it is parliament that should be the forum to resolve a political crisis. It exists for that very purpose — to resolve the fundamental question of who should govern and, of course, to make laws and also approve budgets. And that is the next “crisis”: the budget for 2021. Unlike the health crisis, where we confront a real but invisible virus, there is no crisis at all in having a budget for next year — if parliament functions as it should.

Budget 2021 will have to be a “mitigating the consequences of Covid-19” budget. The truth is that there is limited flexibility to what the budget can be. The government allocated RM297 billion for Budget 2020, split about 80:20 between operating and development expenditures. Revenue was projected at 82% of the budget, which means that 18% or some RM55 billion was borrowed. One simplified way of looking at these numbers is that revenue just about covers operating expenses, and all of the development expenditures were borrowed.

Looking a bit further at the operating budget, one sees that 60% of it is fixed commitments — emoluments, pensions and debt servicing — so there is really no discretion on those. It does not matter who the government is! The remaining amount, which is split into subsidies, supplies and grants to states, offers some flexibility but not much. A 5% to 10% cut here is possible without affecting government service delivery but there will be a great hue and cry. The real scope for variation lies in the development budget and reassessing the implementation of mega projects.

The mega projects — from the East Coast Rail Line to the Klang Valley Double Tracking project and various phases of the mass rapid transit (MRT) — worth hundreds of billions will not address the immediate need of those affected by the pandemic. Yes, they will register GDP growth from an accounting sense but they will make little difference to the lives of people in households and the small businesses affected by the pandemic.

This is not a question of whether these are bad projects; this is about the prioritisation of fiscal resources under the constraints being faced. These projects should be delayed as should projects planned to be financed by the development budget in 2021. There is no need for any spending on developing new capacity on anything in the next year or so.

Using Budget 2020 as the departure point, the postponement of major development projects will result in some RM55 billion being freed up to implement safety net programmes to mitigate the effect of the pandemic for both affected households and businesses. Almost all of Budget 2020’s development budget was financed by borrowings at a budget deficit of just under 3.5% of GDP. Budget 2021 can have a slightly higher deficit, anticipating shortfalls in revenues, but with an additional operating budget equivalent to the development budget in 2020.

The consensus is that a vaccine will be found by year-end and it should go into mass production next year. The extra-wide safety net needs to be in place for another 12 to 18 months before the return to some normalcy. This safety net will effectively put a hard floor on aggregate demand so that recovery on the supply side later on will not be based on a badly depressed demand.

This provision of a safety net also addresses the widening inequality trend observed even before the pandemic. Without it, the pandemic would have aggravated the inequality, which would, further down the road, be a constraint on growth as well as create other socio-political instabilities.

A budget that addresses the short-term effects of the pandemic with slightly more borrowings than in Budget 2020 — around RM60 billion and another RM35 billion to service existing debts — but one with a sizeable allocation to provide a safety net, will be a commendable Budget 2021.

As to developing the specifics and passing the budget, that is what parliament is for: It is the political marketplace where the political game is played and these things are decided. For too long, budgets, like any legislation introduced by the government of the day, were considered done deals when tabled by the government.

The tabling in parliament and the debates at policy stage in the Dewan Rakyat and details at committee stage are just formalities instead of platforms to debate, negotiate and obtain a consensus. Parliament, including this fractured one, can pass a budget if it functions as it should, and members, including members of the administration, behave accordingly. They should sit down and do what it takes to come up with a budget they can approve.

Dr Nungsari A Radhi is an economist. The views expressed here are not related to any of his organisational affiliations.

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.