Clarity needed before discussions moving forward can take place

Prime Minister Tan Sri Muhiyiddin Yassin had announced easing the MCO starting May 4.

While he was aware his government’s move might cause a new wave of infections, the announcement was deemed as a solution to the ongoing economic impacts.

The premier has pointed out that he is currently in discussion with the Economic Action Council, National Security Council and cabinet to find a way to restore the economy with interest in containing the outbreak but an exit strategy is clearly far from ready.

But what  if the MCO had extended?

Business Today Malaysia looks into this as businesses across the nation were urging the government for more support to be given to the corporate sector especially, hinting on the need for a fourth stimulus package.


By Poovenraj Kanagaraj

Businesses across the nation are urging for more support, with some hinting on the need for a fourth stimulus package to cushion the negative shocks that are arising from the MCO.

It is reported that the country has already lost up to RM 63 billion throughout the duration of the MCO. A number of hotels have since closed down and many employers are opting towards retrenchment and paycuts.

While the tension among businesses rise, is another financial injection needed or will a recovery plan at the end of the MCO suffice?

A clear strategy needed

IDEAS research manager, Lau Zheng Zhou tells Business Today Malaysia that what is needed now more than ever is a plan from the government to provide more clarity on how to get on from the current situation. “What would the post-MCO world look like?” Lau asked.

“The government needs to present a clear exit strategy, for example, which geographical area needs loosening which will then allow businesses to plan ahead and devise new business models to meet demand,” Lau says.

“Businesses under uncertainty would only go on with retrenchments and paycuts. We can’t have all these discussions without deciding on a clear direction,” Lau opines.

He further adds that if the government wanted to make injections into the economy, businesses will need to know which sectors will they be focusing on.

According to Lau, previous stimulus packages were done to reduce the fear and protect the more vulnerable groups, however in the long run, there has to be a plan moving forward.

Furthermore, Lau says the public health crisis in hand has to be dealt with before approaching the economic slowdown.

A Fellow in the Economics, Trade and Regional Integration (ETRI) Division of ISIS Malaysia, Juita Mohamad on the other hand says if the MCO were to be extended beyond two months, the cash transfer for households needs to be extended as well.

Additionally, if the partial lockdown were to be extended beyond three months, wage subsidies for employers need to be extended too.

“It is difficult to gauge how big the stimulus should be as this is the first crisis of its kind experienced by Malaysians and the global community. What is certain is that fiscal deficit targeting should not be the priority at this time,” Juita tells Business Today.

She goes on to highlight that importance should be placed on aiding firms in both the essential and non-essential sectors to retain their workers, to secure cheap loans to cover overhead costs and to help households and vulnerable groups in sustaining their lives during the lockdown.

“Dialogue and feedback between stakeholders and government is very much needed to address what is needed on the ground in the short term,” Juita says.

How will the outbreak affect Budget 2021?

“I imagine that more allocation will be given to the healthcare sector especially when the vaccine is not ready and we cannot risk another wave of infection in the new year,” Juita tells Business Today.

She further adds that more allocation may be given for SMEs, household cash transfers and wage subsidies to help businesses, households and workers, if the economy does not expand as much as the pre-MCO rate by early 2021.

While issues related to housing cost and declining tax collection have been brought up after Budget 2020 was tabled, Juita believes that the government will continue to address these issues as they have been recurring throughout the years.

“We have seen that many issues have been more pronounced with the spread of the virus and the MCO. These issues include cost of housing, optimal tax rate, cost of living, quality of our education system, foreign workers and immigrants,” Juita shares.

However, she points out that what could be different in the upcoming Budget is the share of allocation for education for example assuming that limited resources are prioritised for healthcare, SMEs, household cash transfers, wage subsidies and infrastructure in the new year.

Bank Islam Malaysia chief economist,  Mohd Afzanizam Abdul Rashid says his concern in regards to Budget 2021 lies in the premature tightening of the government’s budget as the economy might see a turnaround next year. “The fiscal consolidation has to be done gradually,” he added.

He further believes that there would also be an allocation on development spending to spur private investment in the country.

Lau on the other hand expresses a similar train of thought as ISIS Malaysia fellow, Juita did.

“The government has to ensure demand capacity is met for medical supplies and assuming if MCO is not ending by this year, development expenditure has to be considered as well,” he says.

While allocation for education always appears as one of the biggest every year, Lau says as most of the budget are spent on teachers, this year the government will have to look into training the teachers to come up with a syllabus to fit the online learning experience and to perhaps even introduce personalised coaching sessions.

The government will also have to re-imagine the way we work and will have to figure out on how to use the spending to push businesses and employees on to digital platforms, Lau points out.

While past concerns will remain, importance should be placed on focusing on the future, Lau says. He adds that the government’s role is to provide for an environment that works for all to survive in.

“And this can be translated into enhancing competitiveness, education and clean energy for instance,” he concluded.

 

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