Less money to go around means action time for Fiscal and Monetary Policy

Date : 17 May 2020

Report Version

Exhibit 1: IMF forecast on the economic outlook of the world and ASEAN countries


Source: imf.org


The Paradox of Thrift

The International Monetary Fund (IMF) has forecast the world economic contraction by 3 per cent of the global GDP, due to the spread of COVID-19. Less money in everybody’s pocket automatically means cutting back spending and keeping our cash on hands. John Maynard Keynes, the renowned British economist, has stated this money-saving phenomenal as the paradox of thrift (or paradox of saving). An increase in autonomous saving that leads to a decrease in aggregate demand. Thus, the decline in gross output. In other words, what seems right for an individual does not yield positively for the entire economy.

According to Keynesian theory, the proper response to an economic recession is more spending, more risk-taking, and fewer savings, which is opposite to what the crowd would generally do. Once people are spending less, the government needs to spend more with an immediate fiscal policy and monetary action. 

Although the priority for any nation was to save lives, most countries in ASEAN were facing limitation in health capacity, and national funding. Comparing to countries in the advanced economy; like G20, with the average fiscal package of around 11.6 per cent of GDP, the number for countries in emerging markets was much lower at about 3.2 per cent.

Fiscal Response around ASEAN

The crisis-mode has prompted all governments to launch rescue measures to ease the constrain both on the healthcare front and the worst world economic shock since the 1930s or WWII.

While Singapore has announced the most significant pandemic package compared to other countries in ASEAN, the budget spending size should not be mistaken for the effectiveness of the crisis management of the country. Take Vietnam for example; the mass testing, contact-tracing program, and nation-wide quarantine has led the country to less than 300 confirmed cases and no deaths outcome. The success has made Vietnam, one of the most talked-about on pandemic control.

Health and non-health are the two countermeasures toward the spread of COVID-19. On health, the action has covered monitoring, containment, and mitigation of the infection. While, the work under non-health is responsible for softening the economic blow on the livelihood of people, especially the vulnerable or the hardest-hit business sectors. 

Exhibit 2: The comparison of COVID-19 spending in ASEAN


Source: imf.org

Exhibit 3: The cumulative confirmed cases as of 15 May 2020

Source: ecdc.europa.eu

It could either be spending or earning measures.

Once there is less money to go around, the fiscal response could either be handing out some cash (increase revenue), cutting back spending (decrease expense) or both. The period of cash handouts is generally no longer than three months; starting from April to June. Exhibition 4 is showing the comparison of the maximum transfer amount to eligible households.

Exhibition 4: The comparison of Coronavirus handouts in ASEAN


Source: Various sources | Consolidate by C asean’s officers

However, there are several criteria for the eligible household, which made one family qualified for a different amount of cash received. More of the direct payment and stimulus package is in the full report.


  1. https://www.csis.org/analysis/breaking-down-g20-covid-19-fiscal-response
  2. https://www.imf.org/en/Publications/FM
  3. https://www.bbc.com/news/business-52450958
  4. https://www.investopedia.com/terms/a/advanced-economies.asp
  5. https://indonesien.ahk.de/en/infocenter/news/news-details/covid-19-developments-in-indonesia
  6. https://home.kpmg/content/dam/kpmg/fr/pdf/covid-19/fr-06042020-DA-int.pdf
  7. https://www.soyacincau.com/2020/03/27/malaysia-covid-19-stimulus-cash-aid-up-to-rm1600/
  8. https://www.aseanbriefing.com/news/malaysia-issues-second-stimulus-package-combat-covid-19-salient-features/
  9. https://www.scmp.com/week-asia/politics/article/3078674/coronavirus-malaysia-announces-us23-billion-third-stimulus

Collaborate for the Better