Recession Is On The Cards? (Part 2)

Against expectations, the Malaysia Government throw in a massive RM60 billion (US$16.2b) stimulus package, that is equivalent to about 9% of GDP! The increased spending will effectively blow up Government's budget deficit to 7.6% in 2009.

The RM60bil package, to be implemented over 2009 and 2010, includes RM15bil as fiscal injection, RM25bil in Guarantee Funds, RM10bil for equity investments, RM7bil for private finance initiatives and off-budget projects, as well as RM3bil in tax incentives.

The package is aimed at reducing unemployment, increasing consumption and spending in order to kick start the economy, enhances bank lending and liquidity, providing a lifeline to businesses through improved working capital and incentives.

For me, the next critical step is how efficient and how well these measures are going to be implemented. Based on the history as guidance, implementations tend to be poorly executed and there is also the issue of lack of transparency. I only wish the Government will improve this time, given its significance.

One important point to note is that despite the record amount of targeted spending, the Government has only revised this year's GDP growth to the range of minus one to positive one percent! Which means Malaysia would have certainly fallen into a more severe recession if without these measures taking place! Any blips in execution could well cause a more severe downturn in our economy.

Do not be too surprised if that happens, though!

For the complete story, read here.