Insight - Controlling the outbreak

Lee Heng Guie: The prevalence of a slackening SOP compliance, including social distancing, inadequate testing and contact tracing, created more opportunities for the spread of the virus at a worrying pace.

THE public has generally felt frustrated by the government’s response to this pandemic – with an opportunity to suppress the virus in the fourth quarter of 2020 when cases were starting to rise being wasted, and instead, inter-state travel being allowed and some form of lackadaisical attitude in the compliance of SOPs in public social gatherings/ events, restaurants and crowded places being practised.

The prevalence of a slackening SOP compliance, including social distancing, inadequate testing and contact tracing, created more opportunities for the spread of the virus at a worrying pace.

Our national healthcare facilities have reached an inflection point as the third wave of Covid-19, which started on Sept 20, has been spreading fast and ballooned to climb past the 2,000-3,000 mark each day in recent weeks, overwhelming the healthcare system in the process.

The rapid virus spread and mounting strains on the healthcare system have left the government with no choice but to declare a national emergency and implement three stages of movement restrictions according to the level of infection risk by states for a two-week period (Jan 13-26) – an MCO in Penang, Selangor, the Federal

Territory (Kuala Lumpur, Putrajaya and Labuan), Malacca, Johor and Sabah; a conditional MCO (CMCO) in Pahang, Perak, Negri Sembilan, Kedah, Terengganu and Kelantan; and a recovery MCO (Perlis and Sarawak).

With the distribution of vaccines and vaccination programme in some advanced economies towards December 2020, and also the welcome news on the supply of vaccines for Malaysians in February 2021, there is an increasing sense of optimism that vaccines could return Malaysia to normal by the first half of the year.

However, cautious optimism is being tempered by serious concerns that the continued surge in infections has placed the country’s healthcare system under heavy pressure.

If uncontrolled, in many ways, it would be even tougher for hospitals and healthcare frontliners to cope with the surge in infection numbers while trying to clear the backlog in the non-urgent operations and procedures cancelled or deferred in the previous waves.

While waiting for the distribution of vaccines and mass vaccination to take place, probably end-February or in March this year, the next two to three months will be critical to Malaysia’s Covid-19 flight and scheduled vaccination programme.

Inoculating as many people as quickly as possible will be key to the containment of the virus spread.

But vaccinating everyone will take time, which is why tougher movement restrictions are necessary in those high-risk states to reduce widespread community transmissions.

Mass testing and pooled testing, an effective contact tracing strategy as well as supported isolation, are central to controlling the virus.

Most importantly, we must stop any opportunities to infect others.

Hence, we need to strictly follow and enforce these new restrictions, continue to practise social distancing and avoid crowded spaces, wear our masks, practise proper hygiene and do our best to avoid getting infected and passing the virus on.

How will the economy cope with these restrictions?

In particular, Penang, Selangor, the Federal Territories (Kuala Lumpur, Putrajaya and Labuan), Malacca, Johor and

Sabah, together contribute 66.3% of the total national GDP output.

The inter-state travel ban and two-week MCO for these states would result in some loss in output and demand.

It is estimated that two weeks of MCO and CMCO will reduce the GDP by 0.5% percentage points.

If we assume a one-month MCO/CMCO, it will reduce our baseline estimate to 4.0% from 5.0% previously in 2021 (estimated -5.5% and -5.8% in 2020).

The chances are that we will cope, but at a short-term cost, depending on the duration of the MCO/CMCO.

The cost will be even bigger and have a long-lasting impact for not doing well enough to balance the health risk prevention and supporting the economy.

It is a tough health-economic decision to force on these latest movement control measures.

Health and economic performance are interlinked, and hence, a sustained economic recovery is only possible if the pandemic continues to be suppressed and contained.

The domestic economy is healing and has yet to be restored to a full capacity as the pandemic has disproportionately impacted the services sector versus the manufacturing sector due to social distancing measures and changes in consumer behaviour.

Businesses across the retail, hospitality and leisure sectors have endured many months of challenging revenue stream and are slowly on the mend, followed by a cycle of limited re-openings and more closures.

Cash-flow problems remain a constraint. The jobless rate was still at a high level of 4.8% as at end-November 2020 with about 760,000 persons unemployed.

The construction sector is likely to be dampened by the shortage of foreign workers amid their compulsory testing.

The implementation of the emergency must be carefully managed and enforced in a transparent manner and well communicated to instil confidence and ease investors’ uncertainty.

More importantly, it must be lifted when the emergency decree has served its purpose as a protracted emergency period would undermine private investment prospects.

We recognise that the shape of Malaysia’s economic growth in 2021 is dependent on the development of infection rates and vaccination, the effective implementation of Budget 2021’s spending programmes and cash assistance, consumer and business confidence as well as the economic performance of Malaysia’s major trading partners.

In this critical time, a quick implementation and disbursement of Budget 2021’s allocation and programmes is vital.

More financial relief/aid to come? The continued one-off cash assistance, ongoing enhanced targeted loan repayment assistance, the EPF Account 1 (i-Sinar)

withdrawal facility, and other financial assistance/grants for SMEs, including the wage subsidy programme, are expected to soften the impact.

Some form of one-off financial aid for small traders and micro businesses; more compassionate support from banks in the loan repayment assistance; rental relief; electricity discount; and payment of the balance of taxes for the assessment year 2020-2021 in three monthly instalments can be considered.

Bank Negara may consider cutting its policy rate by 25 basis points to 1.50% to provide some insurance against sentiment risk.

Lee Heng Guie is Socio Economic Research Centre executive director. The views expressed here are his own.