Insight - Is there a need for another relief package?

Lee Heng Guie says a double-dip recession or complete halt of Malaysia’s current uneven state of recovery is unlikely.

SINCE the outbreak of the Covid-19 pandemic in 2020, the government has rolled out a total of seven economic stabilisation, stimulus and recovery packages totalling RM340bil or 24% of GDP to save both lives and the economy. Total fiscal injection amounted to RM72.6bil for the period of 2020 to March 17,2021.

Out of the Covid-19 fund totalling RM65bil, RM38bil was spent in 2020 and RM10bil so far in 2021 - leaving a balance of RM17bil.

The economic relief and stimulus packages have helped to slowly heal our economy from the deepest economic contraction since the 1997-98 Asian Financial Crisis.

For the economy, real gross domestic product (GDP) has recovered from a record sharp decline of 17.1% year-on-year (y-o-y) in the second quarter of last year (Q2’20) to a shallow decline of 0.5% y-o-y in the first quarter of 2021(Q1’21).

For households and individuals, there were cash handouts and financial assistance, which included the RM52.5bil EPF’s i-Sinar and RM19.5bil i-Lestari that were approved for withdrawals up to mid-March this year.

The transition from automatic loan moratorium to targeted repayment assistance, as well as the historic low interest rates, have eased their cash flows and debt servicing burden.

For targeted sectors and SMEs, various soft interest rates credit facilities, cash grants and the wage subsidy programmes, among others, have helped eased the financial burden of these groups.

Although statistical data show that the economy has recovered, the recovery pace is disproportionate across economic sectors.

753,200 persons who lost their jobs remain unemployed as of March 2021 (jobless rate at 4.7%), while the economy is still operating far below its capacity with some businesses having only recouped 60-80% from pre-pandemic levels.

New coronavirus cases continue to spread fast in the local community, reinforced by the presence of imported mutated variants, straining our public healthcare system.

As we begin to look forward to an economic recovery, the rising Covid-19 cases and the latest movement control order (MCO) 3.0. – from May 12 to June 7,2021 – has tempered growth expectations in the second quarter (Q2’21) and beyond.

The estimated losses in economic output between RM300mil and RM400mil per day could still dent the “low-base effect” rebound in Q2’21 if movement restrictions fail to slow down the spread of the virus, which could potentially see MCO 3.0 extended with stricter standard operating procedures.

With dining-in disallowed and tighter inter-district and inter-state movement, this will impact the income of restaurateurs, petty traders and stall owners.

Shopping malls and supermarkets are also likely to see reduced footfall as people turn cautious due to the current pandemic.

While MCO 3.0 can be equated to MCO 2.0’s induced dampening impact on the Chinese New Year celebrations, we expect the impact of MCO 3.0’s on Hari Raya celebrations and domestic demand to be larger because of the larger customer base.

For example, every time dine-ins are banned, restaurants, retail outlets and coffee shops would lose substantial amount of their revenue, although this is partially offset by on-line delivery and pick-up services.

Hence, even when the “headline” statistics eventually improve, the prospect of a K-shaped recovery is real.

While the overall economy and those already faring well recover, there are others comprising businesses and households that may be left further behind in an already unequal economy.

That said, a double-dip recession or complete halt of Malaysia’s current uneven state of recovery is unlikely unless the following conditions happen:

> The global recovery track is severely interrupted by uncontrollable spread of mutated virus variants that have spread to both China and the US, threatening to punctuate their strong economic recovery.

If this happens, Malaysia’s exports recovery could also be affected from slowing global demand, and hence, would reverse the exports contribution from net positive to GDP growth to net negative.

We assign a probability of less than 30% for a double-dip in global economy as both China and the US economy have made good progress in the vaccination program; and

> A worsening domestic infections and slow vaccination rate, as well as a stricter extended MCO 3.0.

This would affect domestic demand, especially a cut back in the recovering discretionary consumer spending and continued sluggish private investment.

We assign a probability of about 30% to 40% that MCO 3.0 could be extended due to continued high infection cases.

In the wake of these concerns, further targeted relief could be considered to support segments of the economy that have been badly hit, including the self-employed, micro businesses and the services industry such as restaurants, and retailers.

We concur with Bank Negara that the on-going targeted repayment assistance is good enough to help the affected borrowers (individuals and businesses) during MCO 3.0 to manage their cash flows.

With most economic sectors still operating, a blanket automatic loan moratorium is deemed not necessary.

A flexible repayment assistance should be given to those impacted and needed most for the optimisation of resources.

Loan repayment assistance is a temporary relief tool and must be rolled back immediately when the borrowers’ financial conditions have improved.

The government could consider extending some relief and financial assistance measures like the Wage Subsidy Programme and the Human Resources Development Fund’s levy exemption for selected groups, which will expire in June 2021. Likewise, for the special tax deduction for providing a reduction of rental on business premises for SMEs and non-SMEs, which will expire next month. Utility bill discounts or rebates could also be helpful.

Micro business, the self-employed as well as those in “informal” employment, who are paid on a daily or weekly basis should be given more relief because these groups are among the most impacted with restrictions on movement.

Lee Heng Guie is Socio Economic Research Centre executive director. The views expressed here are the writer’s own.

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