Getting Malaysia back to work


  • Economy
  • Saturday, 02 May 2020

Easing measures: Customers shopping for eggs at a supermarket in Shah Alam. The government has started relaxing measures under phase four of the MCO such as allowing two persons from a family to go out on errands and travel beyond 10km. — Bloomberg

EARLIER this week, the fourth extension of the movement control order (MCO) came into effect, and will last up to May 12.

The initial announcement of phase four of the MCO had many analysts saying that it would give rise to serious economic consequences.

Very much aware that the economy needs to go back to business as usual, the government has started relaxing measures under the fourth phase. These started with allowing two persons from a family to go out on errands and travel beyond 10km.

Yesterday Prime Minister Tan Sri Muhyiddin Yassin said almost all economic sectors and business activities will be allowed to resume business, subject to conditions and standard operating procedure (SOP), starting on Monday.

Muhyiddin added that the nation was losing about RM2.4bil daily during MCO, with total losses so far estimated at RM63bil.



GAN ENG PENG

Director of equity strategies & advisory

Affin Hwang Asset Management


SBW: We are now in the fourth phase of the MCO period. What do you think the government should be doing right now to prepare the country for post-MCO?

Gan: The primary objective post-MCO is to ramp up economic activity without generating a second wave of Covid-19 cases. The economy needs to starting spinning again but not at the expense of widespread health issues.

The government needs to ramp up testing, implement some form of widespread contact tracing and continue to enforce social distancing as well as aggressive localised MCOs where needed.

Businesses need to have a SOP for post-MCO operations too.

This will achieve two purposes by providing confidence to the broad population to restart economic activity and ensure that segments of the population do take social distancing more seriously.

The longer the lockdown, the longer the downturn. What are some of the problems you foresee from a long shutdown, and how should the government handle it?

The longer the MCO, the economic cost becomes exponential. Many businesses do not have the balance sheet or cash flow to sustain longer MCOs.

Supply chain and counterparty risk will rise significantly. Banks become weary of extending new loans. The government cannot and do not have the capacity to continue to stimulate and “privatise” private sector risk.

The government seems to be doing a great job in dealing with the health crisis. For the economic crisis, it has done well within its means without overextending itself, leaving room for further policy response if the crisis deepens. The balance of government spending has not spooked the bond or currency market.

Besides opening the economy back for business, the government should minimise the friction to doing business. Faster and simpler approvals of business operations, providing policy clarity to encourage investments, etc.

For example, they could lower the various taxes on properties to encourage more transactions, so that the bid-ask spread between buyers and sellers are narrowed and would generally encourage more transactions to clear overhang and transfer ownership from weak to stronger players; the oversupplied property market, which is the largest asset class in Malaysia, has broad implications to household and corporate wealth and hence confidence.

Do you think more needs to be done besides the stimulus package? Also, should there be a shift in the people’s mindset (not just expecting a bailout)?

The budget for post-MCO should dramatically be shifted towards the prevention of a second wave. It’s an insurance premium worth paying for as the cost of a second wave might see many individuals, corporate and the government itself exhausting its safety net.

What are your thoughts on the balance between health and the economy?

Economists have long struggled to place a value to life. This is important to help the government allocate scare resources. Just like we don’t stop road transport to prevent road deaths, the government will need to balance opening the economy versus the health risk of a second wave.

When do you foresee Malaysia going back to its “business as usual” mode?

For the world to return to business as usual, there needs to be a vaccine for Covid-19. This is at least six to nine months away, hence we foresee a new normal of reduced activity until at least 2021.

PETER LIM TZE CHENG

Head of research

Equitiestracker Holdings Bhd


SBW: We are now in the fourth phase of the MCO period. What do you think the government should be doing right now to prepare the country for post-MCO?

Lim: I think the main thing that the government needs to do is to instill confidence on two fronts. First is that the Covid-19 situation will be well under control to manage the fear of a second wave. The second would be the confidence in our economy. Business and consumption... move on confidence. If there is a sense of uncertainty, it is hard for the domestic economy to move.

The longer the MCO, the longer the downturn. What are some of the problems you foresee from a long shutdown, and how should the government handle it?

A big part of our economy is SMEs and small scale entrepreneurs. If you look at our statistics, for a country with 30 million population, only seven million are contributing to EPF. Even if you add on civil servants, the numbers are plus-minus eight million, which shows that there are a lot of people in the employment market. The MCO affects this group the most, and the longer the lockdown, the more problem it will be for this group. The only way is to jumpstart the economy post-MCO as soon as possible.

Do you think more needs to be done besides the stimulus package? Also, should there be a shift in the people’s mindset?

Personally, I think the loan moratorium is one of the most practical strategy in the stimulus package, as it frees up cash to be used in economic activities.

Businesses and government have to work hand in hand. If you look at the US approach, under its Coronavirus Aid, Relief, and Economic Security (Cares) Act, the government extends loans to small businesses to cover their major operating expenses (i.e. salary, rent, mortgages) for 20 weeks.

If the business is able to maintain its hiring at pre-Covid-19 level, the loan will be forgiven. This will actually give both the business owners and employees a sense of confidence and certainty, which will speed up recovery of economic activities.

What are your thoughts on the balance between health and the economy?

Both are equally important. One can’t function without the other.

When do you foresee “business as usual” in the United States and the world?

I have a rather contrarian view as I expect that the rate of recovery will catch people by surprise. First, the action by central banks globally this time around is much faster than in 2008.

Second, the method of stimulus compared with 2008 is different as well. While in 2008 we were looking at changes in impairment treatment for banks and also quantitative easing to inject liquidity into the system, this time around we are seeing money getting directly into the hands of businesses and the job market.

Yes, some will argue that it will take a while for consumption to recover. My view is it’s dependent on the level of consumption. For sure, Covid-19 will have a big impact on how businesses are run and consumption dynamics.

Tourism-related businesses will face a challenging period even post-MCO, thus don’t be overly surprised to see negative headlines coming from this sector, while companies related to the technology and semiconductor sector will see stronger demand due to the acceleration of digitalisation and automation.

Article type: metered
User Type: anonymous web
User Status:
Campaign ID: 18
Cxense type: free
User access status: 3

   

Did you find this article insightful?

Yes
No

70% readers found this article insightful

Across the site