The government's decision to approve the construction of the Mass Rapid Transit Line 3 (MRT3) and to enhance the implementation of the infrastructure spending on the Sarawak-Sabah Link Road (SSLR) and Trans-Borneo Highway project, as well as to improve flood mitigation projects, is timely.
One of the common features in the post-pandemic economic recovery strategies for many developed countries is an increase in spending on infrastructure.
Empirical studies have shown evidence of the positive impact of infrastructure investments to the economy, including boosting economic growth, refining the depressed labour market, enhancing productivity that benefits the people in the form of business and job creation, as well as improving quality of life.
For instance, the MRT3 project is meant to provide an integrated and affordable transportation system around the Greater Klang Valley area, linking the MRT1 and MRT2 lines into one giant loop known as the Circle Line.
It was strange that this high-impact project was suspended during the Pakatan Harapan rule.
In the history of Malaysian economic development, the MRT project is seen as one of the crucial enablers towards transforming the economy. In other words, it is a game changer.
Arguments that the government then did not have enough money or that the public debt level needed to be contained are misplaced.
Perhaps, some application of the Modern Monetary Theory is useful for a proper understanding of the matter.
A federal government has a high degree of monetary sovereignty, so it is highly unlikely that the government will run out of money.
Yes, Greece and Argentina did go bankrupt. Greece lost its monetary sovereignty when it joined a currency union with the European Union.
This meant Greece's currency, the Drachma, would no longer be in circulation and was replaced by the Euro, which was issued by the European Central Bank and not Greece's Central Bank.
Countries that peg their currencies to the US dollar compromise their monetary sovereignty as well.
In Argentina's case, a big chunk of their debt level is derived from external sources and hence are subjected to agreements beyond their control, increasing the risk of bankruptcy.
Luckily, none of suit the context of Malaysian economy.
Why is it that prosperous, advanced, high-income developed economies usually have high debt and deficit levels whereas poor, low-income and less developed economies usually have low debt and deficit levels?
Many factors needed to be considered, and one would be on how the money or fund acquired through debt can be optimised.
If it is spent for productive investments like infrastructure spending, it benefits the economy and its people for the short-, medium- and long-term period.
It is also important to note that the calculation of the debt and deficit levels are actually in the form of ratio, that is vis-à-vis the gross domestic product.
Thus, high-impact projects like infrastructure investments will boost economic growth and eventually enable us to manage the debt and deficit levels further.
In pure financial terms, if one party is paying more than it earns (deficit), then the other party must be receiving it in equal amounts.
Hence, aren't government debts and deficits also a manifestation that the government is spending more on the people and taxing them less? That the government borrows more from us and gives us more assets?
Perhaps the starting point of the misunderstanding of the concept of public debt is that many commentators and politicians love to use the household budget as a metaphor, wrongly, to explain how federal government should be budgeted. This has led to us misunderstanding the concept of federal budget.
Here's the critical difference between federal government and individuals or private companies: the former is the currency issuer and the latter is the currency user.
The issue that should be focused on is actually the real limit to public debt and deficit, which is inflation. Hence, infrastructure investment and the flood mitigation projects must be lauded and welcomed.
Moving forward, the government must come up with a broader type of infrastructure investment that includes, among others, digital infrastructure.
More important would be infrastructure spending planned towards sustainable, greener and carbon-neutral economy.
The public sector should lead this effort in a more mission-oriented way in the near future.
The writer is Associate Professor of Economics, Universiti Utara Malaysia
The views expressed in this article are the author's own and do not necessarily reflect those of the New Straits Times