Malaysia should heed the latest IMF’s warning yesterday that Asian nations face a stagflationary outlook, where in China the COVID-19 induced shutdown has slowed down growth coupled by the war in Ukraine, has consequently lowered growth prospects and caused higher inflation. Earlier, the World Bank had lowered its Malaysia gross domestic product (GDP) growth forecast for 2022 to 5.5%, from 5.8% previously.
This is the lower end of the government’s 2022 forecast GDP of between 5.5% to 6.5%. Rising prices has also led to higher cost of living as prices of food items including chicken and vegetables spiked more than 10% in March 2022. Stagflation would lead to lower employment prospects with better pay and higher cost of living.
Inflation will be subjected to further pressure with higher imported inflation with the value of the ringgit declining to RM4.35 to the US dollar and a historic low of RM3.16 to the Singapore dollar. The time has come to check higher prices and generate higher growth by establishing a Price Stabilisation Fund and an extension of the interest rate waiver and bank loan moratorium by another 6 months that ended on 31 March 2022.
A RM5 billion seed fund should start off the Price Stabilisation Fund not to arrest price rises but to slow down the quantum of price rises. The higher cost of living extends to the rising cost of input materials for businesses and has imposed intolerable pressure on individual financial position to the extent that there were 5.3 million applications under the EPF Special Withdrawal facility to withdraw a total of RM40.1 billion of their own savings.
For this reason, the government should heed the requests from individuals and the business community, particularly SMEs, for an extension of the interest rate waiver and bank loan moratorium that ended on 31 March 2022. The benefit of the loan moratorium has provided relief to the value of at least RM80 billion that has benefited 8 million individuals and companies. As for the costs involved, the banking industry can afford to do so after recording healthy pre-tax profits of RM41.5 billion in 2019, RM28.5 billion in 2020 and RM33.7 billion in 2021.
Clearly, bearing the costs of the loan moratorium and the interest cost waiver has not affected the profitability of banks, However, much needed assistance and relief from the loan moratorium and interest rate waiver will help individuals and businesses, especially SMEs, to allow them to recover from COVID-19, overcome higher prices and slowing growth.