In the short run, STR and Sara will boost consumer spending and help the wider economy grow.

“People in low-income groups have a higher propensity to consume, which means they spend most of the cash aid.

“This adds consumption to the economy as a whole, especially to local businesses and small and medium enterprises (SMEs) since it is mostly spent locally,” Geoffrey Williams told FMT when asked about the effectiveness of the schemes implemented under Budget 2024.

With more business activity and revenue, Malaysian enterprises can in turn raise wages.

In 2024, the government allocated RM10 billion and RM700 million under the STR and Sara schemes, respectively.

The STR alone benefits 60% of Malaysia’s adult population, but even Malaysians ineligible for cash transfers benefit from the economic spillover.

Khazanah Research Institute previously estimated that every RM1 in cash transfers generates RM2.52 more in the economy. Budget 2024’s cash transfers translated into an estimated RM27 billion channelled back to businesses and the wider Malaysian economy.

But cash transfers must be distributed effectively, explained Williams, in order to reap short- and long-term socioeconomic benefits.

Programmes such as STR and Sara transfer money to people on low incomes on a quarterly and monthly basis, respectively. Regular transfers, instead of lump sums, are more effective for economic growth and development.

“Monthly payments regularise the income and encourage normal spending and saving patterns similar to normal wages.

“For example,” he said, “if you had RM200 per month, you would be more likely to put RM20 into an EPF account. But if you get a RM1,000 lump sum ahead of a holiday period, you would be more likely to spend it all in one go.”

Raising socioeconomic mobility

Besides boosting consumption, STR and Sara increase economic growth and incomes by providing Malaysians with more financial security.

In the short term, cash transfers cushion the B40 and poor— especially the hardcore poor— from inflation or rising costs of living.

But cash transfers like STR and Sara also reduce poverty directly. “In fact,” noted Williams, “the only way to begin poverty reduction is to raise incomes first.”

The STR and Sara also provide more funds to spend on education, healthcare and other assets that can help Malaysians generate more income and gain more skills.

“If people are very poor, they have to work longer hours to make ends meet and so do not have the time or money to improve their skills,” he added. “Cash transfers give them some financial space to make long-term plans to improve skills or switch jobs.”

Reducing poverty can hence improve productivity in the long run. This can put the Malaysian economy on better footing in the long term, as productivity is critical to economic growth.

“Productivity is economic value per person or per hour worked. If this improves, you get higher value-added— which is by definition real economic growth,” said Williams.