South-East Asia saw a variety of strategies address the slumping economies of the COVID-19 era. What can we learn from their billion-dollar plans?
As the COVID-19 pandemic disruptions have hit national economies, the scale of government stimulus packages has continued to increase.
In Singapore, for example, the government announced its fourth stimulus package – the so-called Fortitude Budget – in late May, worth SG$33 billion.
This takes the value of all four Singapore packages to SG$92.5 billion, or an estimated 19 per cent of GDP.
In Australia, the Morrison Government announced a A$130 billion wage subsidy scheme called JobKeeper in March (this amount was subsequently revised down to A$70 billion), following two earlier packages worth A$84 billion.
This total stimulus of A$154 billion amounts to 10.6 per cent of Australia’s GDP. The Morrison Government also announced a fourth package in early June aimed at the building and construction industries.
These efforts may sound big, but have been dwarfed by the policy measures in Japan, where Prime Minister Abe’s Government has unveiled a series of measures which according to Bloomberg tallies up to about 40 per cent of GDP.
According to Rob Carnell, the Singapore-based Asia chief economist for ING, it's not the size of the package which is important, it is where the funds are targeted.
Understanding stimulus package priorities
Carnell points to the US measures, of the US$2 trillion offering as an example of a package which is impressive in sheer size, but which also comprises a significant amount of “lazy money” which will not necessarily maximise the impact.
Many of these packages, he says, contain “fluff” which serve largely to “massage” the size of the package and make them seem larger.
Some include double counting and soft loans and access to people’s own savings.
“Whether it is enough is not the right question to ask,” says Carnell. “What you do with the money should be the first question.”
Carnell says he believes the priorities of these packages should be twofold: providing a lifeline to companies so they can keep employees on their books and to keep the companies “ticking over”.
“As long as governments are spending enough to do that then that holds out the prospects of a recovery, and if you haven’t then you haven’t spent enough,” he says.
Singapore, says Carnell, has been on a learning curve as it has rolled out packages.
The early ones were less targeted, but as the disruption has continued and the likely economic impacts became clear – with Singapore expecting a 7 per cent fall in growth this year – the measures have become more targeted around business and income support.
A two-speed recovery in the making?
Carnell notes a divide between wealthier nations such as Singapore and Australia, where low levels of government debt and good credit ratings have enabled massive fiscal spending, and countries like Malaysia and Indonesia.
Malaysia has announced four packages totaling 295 billion ringgit (US$69 billion, approximately 17 per cent of GDP), but Carnell says it has been constrained by higher levels of government debt and lower ratings.
“Their package includes tax credits and access to savings, because they just don’t have the same room to manoeuvre on the fiscal front,” he says.
“The reality in what we are seeing is that those countries which can afford to protect their economies do, and those can’t don’t, and that creates the prospect of a real two-speed recovery in the region as those poorer countries lose productive capacity and find it harder to come back.”
Carnell contrasts Malaysia with neighbouring Singapore, where he anticipates more stimulus beyond the Fortitude Budget.
This can be funded by the huge Singapore Government reserves, the size of which is not disclosed but is believed to be several times the national GDP.
In Australia, Bank of Queensland economist Peter Munckton says the federal government “got a lot right” with its package and, as in Singapore, he believes the composition of measures is getting better and more targeted.
“When you are confronted with one of the biggest challenges we have had since the Second World War and the Great Depression, you have to have a very clear eye on what is needed and they have done that,” he says.
Over the last three decades, says Munckton, monetary policy has been the chief economic tool as the Reserve Bank has set interest rates. With official rates now at a record low 0.25 per cent it is now the turn of fiscal policy.
Previously, Australia has relied on monetary policy along with a low exchange rate and strong global growth, but with none of these options available the recovery had to be funded by government debt.
“When you have government debt amongst the lowest in the world then you may as well use that firepower,” says Munckton.
He also sees more stimulus on the way as the government seeks to ensure the economy does not “fall off a cliff” when current programs, such as the JobKeeper employment subsidy, expire at the end of September.
“The government can see the cliff coming, understands the problem and there’s little chance of allowing it to happen,” he says.
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