PEMULIH Is A Welcomed Stimulus, But Recovery May Require More

By Dr Rais Hussin, Dr Margarita Peredaryenko, Jason Loh and Ameen Kamal,

In the recent television broadcast on June 28 2021, the Government has 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 RM150 billion in the form of the “Pemulih” package—the most extensive package to date, and that is what strategic initiatives will require—the Government continues to demonstrate its commitment to prioritize 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 the 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 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 and responsive to the rakyat needs.

Assistance to the Micro Small and Medium Enterprises (MSMEs) 

EMIR Research is glad to see that our earlier suggestions of granting the automatic loan moratorium for all while also ensuring there is no charge of compounded interest or penalties incurred during the six-month loan moratorium are all well taken by the government. This is remarkable, given the amount of debate around this topic. 

Although we still insist it should be an automatic “opt-out”, rather than “opt-in”, moratorium void of any conditions upon application for all, including the non-micro SMEs. Leaving the loan moratorium facility for the SMEs be subject to the review and approval by the bank has a danger that the benefit will not reach all the deserving categories which 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 the financial leverage, it could be more the toxic combination of the operational leverage with the falling sales and lower revenues that pushes many SMEs to the point of closure.

According to the recent nation-wide survey done by Micro Small and Medium Size Enterprise Association, Malaysia in collaboration with Klang Parliamentary Office, rentals constitute about 35% of the operating expenses. However, the same study also revealed that only about 28% of surveyed SMEs (total sample comprising 1,196 SMEs) received a 30% reduction from their landlords versus those who did not receive (51%) and those who did not know about the scheme (21%). Among the most cited reasons why the landlord refused to give waiver or reduction of rental were the following: government has offered cash grants to SMEs; landlord has to service his bank loan (another strong argument in favour of automatic loan moratorium for all);  landlord is facing losses as well.

It appears that “incentivising” the landlords into giving the 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 RM300 million allocations for the digitalisation agenda and the RM100 million additional allocation for SME Digitisation grant (RM5000 matching grants for the purchase or subscription of digital platforms). Nevertheless, EMIR Research believes this deserves Government’s utmost 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 the micro-entrepreneurs. Interestingly, there’s 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 substitute for the 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 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. 

And that’s the expansion of the government procurement programme to the SMEs beyond the capital expenditure programmes (construction of roads, bridges,buildings, etc.), including maintenance, repair and upgrade to purely operational expenditure programmes. The government acts as the spender of the 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 1st-tier critical supplies such as personal protective equipment (PPE) e.g., surgical gloves and 3 or 4-ply masks, etc. alongside ventilators, intensive care unit (ICU) beds to ventilator components.  

In addition, the 2nd-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, stationary, clothing & uniforms, and accessories (shoes, footwear) could be considered as 3rd-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) intact (which is 17% for the first RM600,000 payable) for two years (fiscal, i.e., assessment, years of 2021 and 2022). 

Otherwise a bolder measure in the form of total tax exemption for two years (fiscal, i.e., assessment, years of 2021 and 2022). 

Tax cuts or exemptions would have two effects simultaneously, namely serve 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 specific 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 is only 20.8% and 18% in 2020 respectively. Bantuan Taska Khas of RM3000 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 in the emergency education response.

National Immunization Program

Ensuring a stable and timely supply of the 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 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 additional RM400 million 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 (speed and volume of vaccine doses).

Reiterating our suggestion before, it is crucial that the allocation (or new allocations) include (but 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, as a whole-of-Malaysia approach to fight a common, invisible, and indiscriminate enemy. 

Although the extension of Phase 1 shows the adherence to a set of criteria prior to moving into Phase 2, 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. Minimum set of dimensions to better assess this include number of tests and test positive rate.  Relatedly, 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 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.

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