PETALING JAYA: The Malaysian Institute of Economic Research (MIER) expects the impact from the US-Iran conflict to affect business performance over the next two to three months, particularly among small and medium enterprises (SMEs).
In a statement, MIER said a key expectation is that logistics costs and input prices will “inevitably rise”, which will in turn, be “quickly reflected in the cost of living”.
MIER stated sectors such as agriculture, printing, food services and small-scale enterprises are likely to be particularly affected, with some businesses already beginning to feel the impact.
“Implications were also highlighted in relation to food security, including concerns over fertiliser shortages, rising diesel prices for agricultural machinery, and recent drought conditions in Kedah. These factors may contribute to disruptions in the food supply chain and affect national food self-sufficiency,” it said.
The conflict, MIER said, has disrupted a key trade route for Russian fertiliser exports, while China has initiated a fertiliser export ban, raising concerns over the outlook for fertiliser costs.
Notably, Russia and China are the two largest exporters of fertiliser to Malaysia, together accounting for more than 45% of imports in 2024.
“In this context, there is a need to strengthen domestic food production, particularly in light of declining yields, prolonged dry weather conditions, and constrained fertiliser supply,” MIER said.
In its consultations with industry and businesses, MIER said participants generally agreed that prolonged conflict could increase the likelihood of insolvencies, bankruptcies, and business failures across vulnerable sectors.
It was also suggested that the government adopt a more pre-emptive approach to managing these risks should economic conditions deteriorate further.
With regard to financing, it was noted that microfinancing schemes and assistance for SMEs are available.
MIER noted the banking system has also introduced targeted repayment assistance programmes to support viable businesses facing temporary financial difficulties.
“Furthermore, enabling agencies and the financial sector indicated that they are actively monitoring signs of portfolio distress, drawing on experience from past crises, including the Covid-19 pandemic,” it said.
Nonetheless, MIER said access to information and support programmes remains “fragmented and limited”.
Looking at past crisis-related funding interventions, MIER said significant allocations have not always effectively reached certain categories of SMEs.
“It was therefore suggested that relevant information could be better disseminated through business bodies and associations to improve accessibility for affected enterprises,” MIER said.
According to MIER, the fiscal space is considered relatively constrained. Hence, any fiscal assistance should be temporary in nature, such as targeted reductions in taxes and fees.
Further, with respect to relief measures, MIER stated it was proposed that adjustments to the Budi95 subsidy mechanism could allow savings to be redirected towards reducing diesel prices for SMEs and business.
“Furthermore, streamlining and temporarily reducing sales and service tax rate to 5% over the next two years, with exceptions for liquor, cigarettes, and gaming, could help ease cost pressures for consumers and businesses.
“Another proposed fiscal balancing measure involves the gradual reduction of RON95 subsidies, with savings reallocated to subsidise diesel consumption for businesses.
“This would help ease the cost of doing business, particularly for SMEs reliant on diesel fuel for machinery and logistics,” MIER said.
MIER said the government may also consider reducing stamp duties for business restructuring and repayment to a standardised rate to assist businesses and reduce the cost of doing business in the country.
Moreover, technology firms are seeking to relocate operations to Asia, in light of ongoing geopolitical turbulence in the Middle East. MIER said Malaysia is well positioned to capitalise on this development.
“This trend could be further leveraged through recent investments in technology infrastructure and the development of high-value industries in the Johor-Singapore Special economic zone,” MIER said.
