William Pesek is an award-winning Tokyo-based journalist and author of "Japanization: What the World Can Learn from Japan's Lost Decades."
Many developing nations are facing a triple economic threat: a global recession, weak domestic demand and collapsing commodities prices. But on top of these challenges, Malaysia is suffering from political paralysis as the coronavirus shakes up one of Southeast Asia's most eventful economies.
The timing could not be worse. Bank of America Merrill Lynch has warned gross domestic product could shrink 8% this year, more than during the 1997-98 Asian financial crisis. The mere specter of Malaysia plumbing such lows should have Prime Minister Muhyiddin Yassin scrambling to stimulate growth or, at the very least, raising the 55% debt to GDP ceiling.
Instead, Muhyiddin's newish government is preoccupied with maintaining its narrow hold on power. To raise the debt limit, Muhyiddin must allow parliament to come back into session, but if he does, a no-confidence vote he may lose awaits him. So, forget bold action to safeguard growth -- Malaysia's future is once again at the whim of dueling political interests.
Malaysia's social-distancing procedures to prevent the spread of COVID-19 are, from what we know, working. Officially, it admits to just under 7,000 cases in a nation of 32 million people.
But that does not negate the need for stimulus. Last month, the government announced a splashy package totaling about $60 billion. That sounds generous, equating to about one sixth of GDP. Yet most of it had been previously announced; the amount of new fiscal spending equates to only about 2.3% of GDP. The wage subsidy portion, for example, only allows small companies to claim a maximum of about $275 each month for workers earning less than $920.
Blame Malaysia's fiscal straitjacket. At the end of 2019, its debt-to-GDP ratio was around 52.5%. Understandably, Ministry of Finance officials worry breaking the 55% ceiling might have credit rating companies pouncing. The real problem, though, is a government which is too busy keeping its job, rather than doing its job.
The triple threat upending Malaysia's year is challenge enough. HSBC, for example, forecasts a 4.8% contraction in global GDP this year. That augurs poorly for Malaysia's exports of liquefied natural gas, palm oil, petroleum, rubber, wood and other commodities. Those proceeds fill government coffers and create jobs, particularly at government-linked companies. The fallout on domestic consumption is likely to increase heading into 2021.
The economy needs bigger and more creative fiscal jolts. It is not just about putting a floor under growth, but ensuring there will be enough jobs to protect per capita income levels once COVID-19 subsides. Muhyiddin's government is largely relying on Bank Negara Malaysia, the central bank, to save the day.
With benchmark interest rates at 2%, Bank Negara Malaysia has room to ease. But when monetary authorities from Washington to Jakarta are also cutting rates, government spending is more important. Credit growth is no substitute for bold fiscal steps to restore broader economic growth and incomes.
Malaysia might have to wait until July. That is the earliest date Muhyiddin seems willing to hold an extended legislative session where stimulus can be debated. Yet three months is a long time in coronavirus-adjusted terms.
During the jockeying, the opportunity costs add up. This is time the government is not using to dismantle affirmative action policies benefiting the ethnic Malay majority that hurt competitiveness and productivity. It is time not being used to reduce bureaucracy, catalyze a startup boom or invest more in education. It is time not being used to root out cronyism and graft.
In fact, the opposite may be occurring. Earlier this week, Muhyiddin's attorney general dropped money-laundering charges against predecessor Najib Razak's stepson -- involving $248 million of public funds related to the 1Malaysia Development Berhad, or 1MDB, case, where billions of dollars were allegedly stolen from a state development company.
There is rampant speculation Muhyiddin might replace leaders of key government-linked companies with allies, running afoul of efforts to raise corporate governance standards.
Considering how much the globe has changed in the last three months, Malaysia cannot afford to squander another 90 days. The government seems determined to do just that, regardless of the economic consequences.