Pemulih is a welcome stimulus, but recovery may require more

IN A recent television broadcast on Monday (June 28), the government unveiled more strategic details to the National Recovery Plan (NRP) to supplement previously announced goalposts of "exiting" the Covid-19 pandemic in four phases.

By allocating RM150bil in the form of the Pemulih package – the most extensive package to date, which is what strategic initiatives will require – the Government continues to demonstrate its commitment to prioritise the welfare of the rakyat in the difficult task of balancing lives and livelihoods while fighting the Covid-19 pandemic.

However, some parts of the package have to be assessed for potential effectiveness and sufficiency.

Overall, we can see that the government has significantly extended the social safety net to capture more categories of rakyat severely impacted by the movement control measures.

The government initiatives aimed at compensating for income shortfalls and reducing monthly liabilities now include new categories of individuals such as non-Socso contributors (especially fresh graduates, school leavers and informal sector workers), disabled people who have lost their jobs, or new categories of economic sectors such as nurseries, school canteen operators, sport industry operators and travel agencies.

This shows that the government is doing its research and is aware of and responsive to the rakyat's needs.

Assistance to Micro Small and Medium Enterprises (MSMEs)

EMIR Research is glad to see that our earlier suggestions of granting the automatic loan moratorium for all has been implemented while also ensuring there is no charge of compounded interest or penalties incurred during the six-month loan moratorium.

This is remarkable, given the amount of debate around this topic.

However, we still insist it should be an automatic “opt-out” rather than an “opt-in” moratorium without any conditions upon application for all, including the non-micro SMEs.

Leaving the loan moratorium facility for the SMEs subject to review and approval by banks has a danger that the benefit will not reach all the deserving categories.

This is the least desired outcome, given the importance of SMEs to the national economy and the increasing evidence that nearly all SMEs are drastically affected by the pandemic.

Apart from financial leverage, it could be more the toxic combination of operational leverage with falling sales and lower revenues that pushes many SMEs to the point of closure.

According to the recent nationwide survey done by the Micro Small and Medium Size Enterprise Association Malaysia in collaboration with the Klang Parliamentary Office, rentals constitute about 35% of operating expenses.

However, the same study also revealed that only about 28% of surveyed SMEs out of a total sample comprising 1,196 SMEs received a 30% reduction from their landlords versus those who did not receive anything (51%) and those who did not know about the scheme (21%).

Among the most cited reasons why the landlord refused to give a waiver or reduction of rental were the following: the government has offered cash grants to SMEs; the landlord has to service his bank loan (another strong argument in favour of an automatic loan moratorium for all); and landlords are facing losses as well.

It appears that “incentivising” landlords into giving discounts or waivers does not seem to work very well and may require revisiting in the form of temporary law measures similar to other countries.

For instance, Singapore under the Covid-19 (Temporary Measures) (Rental and Related Measures) Regulations 2020 mandates equitable co-sharing of rental obligations between the government, landlords and tenants.

Furthermore, EMIR Research is particularly pleased to see that in line with our strategy recommendations, under the initiative for the digitalisation of MSMEs, the government is now embarking on empowering agri-entrepreneurs, especially in rural areas, to use the latest technology through the collaboration of MDEC and the Pertubuhan Peladang Kawasan, as announced in Pemulih.

Although it is unclear how much would be allocated for this, it could be under the additional RM300mil allocation for the digitalisation agenda and the RM100mil additional allocation for SME Digitisation grant (RM5,000 matching grants for the purchase or subscription of digital platforms).

Nevertheless, EMIR Research believes this deserves the government’s full attention given the multiplier effect that it may have on the country’s economic growth.

The government is also promoting the Shop Malaysia Online campaign by focussing on micro-entrepreneurs. Interestingly, there is no mention of e-vouchers that would have enabled online spending to be done ringgit for ringgit, i.e., the entire ringgit value of the e-vouchers – individually and collectively – would have been spent, resulting in a boost to the campaign.

The e-vouchers will not replace direct cash transfers. Also, these e-vouchers are to be regarded as one-off payments only, which can be renewed/extended but on a less regular basis.

The micro-entrepreneurs under the Digitalisation Enhancement Programme for Micro-Entrepreneurs (Pupuk) will benefit the most as the supply side will then be in sync with the demand side.

The government's easing of the procurement process is a commendable move that requires additional measures to enhance the capacity of the overall supply chain in the public sector.

This entails the expansion of the government procurement programme to SMEs beyond capital expenditure programmes (construction of roads, bridges, buildings, etc), including maintenance, repair and upgrade works to purely operational expenditure programmes.

The government acts as the spender of last resort in terms of stockpiling and strategic inventory building for redistribution to other sectors including directly to households where appropriate.

This could entail a special scheme only for SMEs and the supply could range from first-tier critical supplies such as personal protective equipment (PPE) like surgical gloves and face masks alongside ventilators, intensive care unit (ICU) beds and ventilator components.

In addition, the second-tier critical supplies would extend to and include construction materials, manufacturing components and semi-processed inputs, hardware, etc that are part of the supply chain of essential sectors.

Food and beverage supplies, stationery, clothing and uniforms, and accessories (shoes, footwear) could be considered third-tier and so on and geared towards the B40 and rural/remote households.

Focus on Seriously Affected Economic Sectors

Extending tax relief to tax cuts should be a way forward to ensure the tourism industry stays afloat and also to capture more sectors.

For example, tax cuts from the current 24% to 18% with the pre-existing schedule for the “marginal rate” (i.e. the next amount taxable out of the total amount) remain intact (which is 17% for the first RM600,000 payable) for the two fiscal years of 2021 and 2022 or even a bolder measure in the form of a total tax exemption for the same two fiscal years.

Tax cuts or exemptions would have two simultaneous effects, serving as cash flow relief as well as financial incentive to survive to restart.

Education Emergency Response

There has been little mention of incentives or new budgets specifically to address emergency education response.

The provision of free 1 gigabyte of daily data until year-end is expected to assist in e-learning, but it was also reported that the share of Internet users for formal and informal education purposes was only 20.8% and 18% respectively in 2020.

Bantuan Taska Khas of RM3,000 each for over 12,000 preschools is a welcome reprieve but does not address the speed of reopening, though it does alleviate some financial distress.

Its impact on survivability may not be significant should closures prolong. These incentives are not expected to have a significant impact on the emergency education response.

National Immunisation Programme

Ensuring a stable and timely supply of vaccines and increasing the daily vaccination throughput are some of the priority objectives in pandemic management outlined by EMIR Research.

We are pleased to see that ramping up vaccination was mentioned as one of three main pillars of Pemulih. Expected measures include increasing vaccination centres (PPVs), establishment of drive-through testing sites and mobile testing.

However, efforts to increase participation of general practitioner clinics and private health institutions was not mentioned.

Most importantly, the effectiveness of these decentralisation strategies requires a large and consistent vaccine supply.

Pemulih included an additional RM400mil for the procurement of vaccines from 120% to 130% of the population but it is unclear how a bigger purchase volume can help address the stability of supply, including the speed and volume of vaccine doses.

Reiterating our suggestion before, it is crucial that the allocation (or new allocations) include (but are not limited to) widening all sources of vaccine procurement, and for the formation of a high-powered inter-ministerial task force for vaccine diplomacy and procurement.

For these measures to be successfully implemented, it requires all sides of the political divide to set aside differences and political ambitions to focus solely on a whole-of-Malaysia approach to fight a common, invisible, and indiscriminate enemy.

Although the extension of Phase One of the National Recovery Plan shows the adherence to a set of criteria prior to moving into Phase Two, our suggestion requires this to be a “total” lockdown to make a difference.

Also, the number of cases on its own may not accurately tell the whole story and therefore, could be a misleading figure in informing the real status of transmission control.

A minimum set of dimensions to better assess this include number of tests and positive rate. Related to this, increasing testing intensity (increased numbers and randomness in sampling) or the purchase of new test kits was not mentioned.

Other Measures to Solidify the Initiative

EMIR Research also believes that having slightly broader fiscal space would help the government better to see the rakyat through the devastating impact of the pandemic.As such, the debt-to-GDP ratio ceiling should be immediately lifted to 65% of GDP for Malaysia Government Securities (MGS), Malaysian Government Investment Issues (MGIIs) and Malaysia Islamic Treasury Bills (MITB) borrowings.

Importantly, under the Emergency currently in place, the government can bypass parliamentary sitting and unilaterally lift the national debt ceiling, thus avoiding excessive politicking around this issue, which is not helpful to the rakyat's situation.

Lastly, the national reconciliation agenda is important for the country to continue to move forward as a unified society that can brace itself for stability amidst the ending of the Emergency soon.

In the call for Parliament to reconvene soon, all parties must ensure that the welfare of the rakyat is prioritised above all else. This places the national agenda at the front and centre of parliamentary business going forward.

Dr Rais Hussin, Dr Margarita Peredaryenko, Jason Loh & Ameen Kamal are part of the research team of EMIR Research, an independent think tank focused on strategic policy recommendations based on rigorous research.