These numbers shouldn't scare Malaysians. More than 90% of Malaysian debts are Ringgit-denominated. So the currency risk is minimal. Only 7% of Malaysian debts are foreign-currency denominated.
But, the thing to watch is how the additional RM10 billion stimulus package is to be executed because a poorly executed package will make the seriously high fiscal deficit a long-term economic burden that Malaysian taxpayers will have to bear. The long-term damage to the Malaysian economy will be serious.
The dubious effect of the first RM7 billion stimulus package
The first stimulus package of RM7 billion has a dubious application. As we know, the first stimulus package announced in November 2008 has been allocated mostly to infrastructure projects, which include:
- The building of low and medium-cost houses;
- The upgrading, repairing and maintenance of police stations and living quarters, and army camps and quarters;
- Minor projects like village roads, community halls and small bridges;
- Public amenities such as roads, schools and hospitals; and
- The building and upgrading of roads in rural areas, villages, as well as agriculture roads.
As MIER has correctly questioned, the first stimulus package benefits the construction sector, but what about the rest of the economy? What is the multiplier effect of the first package? How much leakage goes to foreign workers who liberally populate the construction sector?
Principles to observe for the second stimulus package
The second stimulus package, estimated at RM10 billion, has got to be better spent.
Najib will do well to note the cautionary advice generously dispensed by Tengku Razaleigh Hamzah:
To be reminded of the bold projects that Ku Li spoke of click here for his ASLI speech. Read, in particular, paragraphs 27 to 37.
Postscript: It is always nice to know that one is in good company. Maybank Investment Bank (formerly known as Aseambankers) has written a piece entitled The second economic stimulus package should focus more on micro measures which appear to be consistent with the propositions put forward by this blog over the past months.