Malaysia, just like many other countries, kicked off the year 2020 with enthusiasm for progress where all of us hoping to move forward with this beautiful number “2020” in order to becoming a more developed nation on the world’s stage. Unfortunately, such beautiful number appears to be deceiving and indeed unlucky to the whole world just like what happened about 100 years ago in “1919” where the influenza pandemic known as “Spanish Flu” infected 500 million people (which was about one third of the world’s population at that time) with the death toll estimated in between 20 million to 50 million.
The whole world was obviously caught off-guard by the unprecedented health crisis brought on by the novel coronavirus disease named as COVID-19. It is affecting 213 countries and territories around the world. As of 9 June 2020 (14:13 GMT), the total number of confirmed coronavirus cases stands at 7,235,124 (3,563,544 recovered) with the total deaths at 409,503 in which USA ranks No. 1 with more than 2 million cases and more than 113,000 people died. As for Malaysia, we recorded 8,336 confirmed cases (6.975 recovered) with the death toll remained at 117 as of 9 June 2020.
In May 2020, Asian Development Bank observed that the global economy could suffer between US$5.8 trillion and US$8.8 trillion in losses, equivalent to 6.4 percent to 9.7 percent of global Gross Domestic Product as a result of COVID-19.
The June 2020 Global Economic Prospects describes both the immediate and near-term outlook for the impact of the pandemic and the long-term damage it has dealt to prospects for growth. The baseline forecast envisions a 5.2 percent contraction in global GDP in 2020, using market exchange rate weights - the deepest global recession in decades, despite the extraordinary efforts of governments to counter the downturn with fiscal and monetary policy support. Over the longer horizon, the deep recessions triggered by the pandemic are expected to leave lasting scars through lower investment, an erosion of human capital through lost work and schooling, and fragmentation of global trade and supply linkages. The crisis highlights the need for urgent action to cushion the pandemic’s health and economic consequences, protect vulnerable populations, and set the stage for a lasting recovery.
1. Financial Crises previously faced by Malaysia
Since Malaysia was formed in 1963, our country had experienced three major financial crises. Firstly, the 1985/86 economic crisis was triggered by the high interest rates in the USA. Malaysia, being an exporter nation, suffered as primary commodity prices along with crude oil prices crashed from 1985 through to 1986 and demand for manufactured goods declined. Malaysia fell into a recession in 1985, with its gross domestic product (GDP) contracting 1% that year. The unemployment rate rose to 5.6% in 1985 and 7.4% in 1986. The non-performing loan (NPL) ratios of commercial banks hit a high of 30% in 1987 and 1988.
About a decade later, Asian financial crisis in 1997/98, which was described as the worst so far, recorded the economy declined, with the GDP contracting 6.7% in 1998 from a growth of 7.7% previously. Ringgit was then fixed at exchange rate of 3.8 to the US dollar by the 4th Prime Minister Tun Dr Mahathir Mohamad. The Pengurusan Danaharta Nasional Berhad Act 1998 was passed in Parliament empowered the national asset management company to take over NPLs from various troubled banks and financial institutions to be restructured and managed.
About another decade later, our country was hit hard by the global financial crisis of 2008/09 often referred to as “The Great Recession”. The crisis began in 2007 with a depreciation in the subprime mortgage market in USA, and it developed into an international banking crisis with the collapse of the investment bank Lehman Brothers in 2008. It shook the global economy and Malaysia was also severely hit in its trade and investments. The Malaysian economy fell into a recession, contracting 1.7% in 2009 and the government unleashed two fiscal stimulus programmes amounting to RM67 billion, roughly 10% of GDP in 2008 and 2009.
2. Malaysian economy hit hard by COVID-19
Almost all industries and Malaysians, with the exception of the rare elite groups, have been hit hard by the COVID-19 crisis this year.
On 18 March 2020, Malaysia, Southeast Asia’s third-largest economy closed its borders and non-essential businesses, and tightly restricted public movements with the implementation of Movement Control Order (MCO) issued pursuant to the Prevention and Control of Infectious Diseases Act 1988 and the Police Act 1967 with various strict restrictions including general prohibition of mass movements and gatherings across the country, restrictions on the entry of all tourists and foreign visitors into the country, closure of all kindergartens, government and private schools, public and private higher education institutions, closure of all government and private premises except those involved in essential services such as water, electricity, telecommunications, postal, transportation, broadcasting, finance, banking, health and pharmacy.
The MCO was extended for 5 times as follows (i) to 14 April 2020, (ii) to 28 April 2020, (iii) to 12 May 2020, (iv) to 9 June 2020 in the form of Conditional Movement Control Order (CMCO) and (v) then replaced by Recovery Movement Control Order (RMCO) from 10 June 2020 until 31 August 2020 where interstate travel (but not travelling overseas) is allowed from 10 June 2020 onwards and almost all social and economic activities are allowed to resume in stages under strict SOPs except several sectors and activities such as pubs, nightclubs, entertainment outlets, reflexology centres, karaoke centres, theme parks, mass religious parades, open houses or other activities that involves the attendance of many people which makes it hard to maintain social distancing and compliance of the SOPs. Since the MCO and CMCO were imposed, all of us were delighted to see a declining trend of COVID-19 cases in Malaysia particularly the Health Ministry statistics show that the rate of transmission among locals is low and under control though this success so far comes with a heavy economy price tag. The Prime Minister informed that Malaysia was losing around 2.4 billion ringgit per day during the full lockdown. He estimated the total loss up to May 1 at around 63 billion ringgit and warned of billions of dollars in further losses if the restrictions were not eased for another month.
3. Economic Stimulus Package announced to mitigate the impact of COVID-19
27 February 2020 : RM20 billion Economic Stimulus Package was announced by the Interim Prime Minister Tun Dr Mahathir Mohamad to reinvigorate the growth of the Malaysian economy.
27 March 2020 : PRIHATIN Economic Stimulus Package with the injection of RM230 billion into the economy was announced where the Prime Minister Tan Sri Muhyiddin Yassin frankly remarked before ending his speech : “We are a nation at war with invisible forces. The situation we are now facing is unprecedented in history. And, this Government may not be the Government that you voted for. But I want all of you to know that this Government cares for you. I accepted the fact that I came in as your Prime Minister not at the best moment. I face political, economic and health crisis all at the same time. This unprecedented situation of course requires unprecedented measures…..”
6 April 2020 : PRIHATIN SME Economic Stimulus Package was announced with an additional allocation of RM10 billion to further support businesses particularly the small medium enterprises (SMEs) and micro SMEs which make up a significant 98.5 percent of Malaysian businesses (with more than 900,000 SMEs). The SMEs have been screaming for more direct and effective financial assistance from the government though we know that the government has its limitation due to limited resources and further aggravated by the current unprecedented political turmoil and uncertainty in our country.
The above 3 separate Economic Stimulus Packages amounting to the total worth of RM260 billion were aimed to cushion the economic blow from the COVID-19 pandemic particularly to address the imminent cash-flow issues faced by various industries in the short term. Notably, the PRIHATIN stimulus package includes a direct cash injection from the government to the tune of RM35 billion (about 13.5% of the RM260 billion stimulus packages announced so far). The rest of the stimulus consists of indirect measures such as loan deferments and tax breaks. The said direct funding of RM35 billion will increase the budget deficit to 4.7 per cent this year from an earlier projection of 3.2 per cent.
In the 2020 Budget tabled by the then Finance Minister Lim Guan Eng on 11 October 2019, the federal government’s revenue was expected to drop to RM244.53 billion in 2020 (down 7.1% from RM263.3 billion in 2019) which would be equivalent to 15.2% of gross domestic product (GDP). The federal government’s total expenditure was forecast to be RM297 billion or 18.4% of GDP in 2020. Operating expenditure estimated to be RM241 billion while development expenditure of RM56 billion makes up the balance.
As aptly observed in the Malaysia’s leading online financial news The Edge Markets on 20 April 2020 : “To put that into perspective, RM35 billion is 14.3% of the RM244.53 billion total federal government revenue and 10 times the RM3.5 billion current balance (revenue minus opex) projected in Budget 2020 last October. It is also 1.2 times the RM28.6 billion investment income originally expected for this year, which includes the RM24 billion “normal” dividend that Petroliam Nasional Bhd had committed to pay, RM2 billion from Bank Negara Malaysia and RM1 billion from Khazanah Nasional Bhd. There are scant specifics on how the additional spending will be funded apart from looking to the trio for additional dividends. Bank Negara has now committed to pay a RM3.5 billion dividend. It is not immediately certain if thegovernment has found other means to unlock good value from its assets in the current challenging environment to supplement the necessary fiscal spending.”
On 24 March 2020, Bank Negara Malaysia announced an additional measure in support of efforts by banking institutions to assist individuals, SMEs and corporations to manage the impact of the COVID-19 outbreak in which all banks will grant an automatic moratorium on all loan/financing repayments/payments, principal and interest (except for credit card balances) by individuals and SME borrowers/customers for a period of six months from 1 April 2020 provided that the loans concerned are not in arrears exceeding 90 days as at 1 April 2020 and is denominated in Malaysian Ringgit. However, there is no moratorium for housing loans taken by civil servants via the Public Sector Housing Financing Board (LPPSA) as the Board said that the welfare of civil servants has been sufficiently taken care of as they still receive their salaries and pensions to cover their monthly expenses during the MCO.
On 5 May 2020, as a further measure to cushion the economic impact on businesses hit hard by COVID-19 and to support the improvement in economic activity, Bank Negara Malaysia’s Monetary Policy Committee had reduced the Overnight Policy Rate (OPR) by 50 basis points to 2% which is the lowest since the 2009 global financial crisis. Consequently, all the commercial banks in Malaysia have reduced their Base Rate (BR) and Base Lending Rate (BLR) by 50 basis points accordingly which means lower debt servicing charges and monthly instalments for variable interest rate loans for borrowers though for those who are cash-rich with fixed deposits in the banks, it also means a reduction in the fixed deposit interest rates.
On 5 June 2020, Short-Term Economic Recovery Plan (PENJANA) comes with 40 initiatives worth RM35 billion was announced as the government’s latest initiative to stimulate the economy of which RM10 billion will be direct fiscal injection by the government. This is our country’s 4th Stimulus Package to combat the economic impact of COVID-19. Various incentives will benefit hard-hit sectors including the housing, tourism and automotive industries. So far, the incentives worth RM295 billion in total had been announced to soften the impact of COVID-19 pandemic with the government vowing to directly inject RM45 billion (mostly raised through domestic borrowings) into the economy.
4. A worrying rise of unemployment rate
In early May 2020, it was reported that Malaysia’s unemployment rate is now the highest in a decade at 3.9 % (3.7 % was recorded in June 2010 after the global financial crisis of 2007-2008; The rate was at 3.2% during the Asian financial crisis in 1998; The highest unemployment rate ever recorded in Malaysia was 7.4 % in 1986) where the number of unemployed persons increased by 17.1 per cent to 610,500 in March 2020, as compared to 521,000 in March 2019. This reflects the negative impact of MCO on the job market as the pandemic has devastated economies across the world to varying degrees. World Bank and International Monetary Fund forecasts do not predict quick “V-shaped” recoveries in Southeast Asia, with most economies only expected to return to pre-pandemic levels of GDP growth in 2022.
In Malaysia, the recent surveys revealed that most of the companies in various industries were unable to pay beyond two months’ worth of wages to their employees due to the fact that about two-thirds of companies did not earn any income during the MCO. The Department of Statistics Malaysia predicted that unemployment rate may go up to 5.5% this year. The Malaysian Institute of Economic Research said that it may even go up to 9.2% in a worst-case scenario i.e 1.46 million based on the country’s 15.87 million labour force! High unemployment rate would test the competency of the government of the day in resolving myriad problems arising therefrom. As the global economy is already in a recession, the year 2020 certainly is a nightmare for majority of the new graduates, diploma holders and the youths who are keen to join the job market in various industries in the next few months.
Under the 4th Stimulus Package announced on 5 June 2020, to tackle the rising rate of unemployment and to ensure job sustainability, we are delighted to note that almost RM9 billion was allocated thorough various initiatives (including Wage Subsidy Programme of RM5 billion; Hiring and Training Assistance for Businesses of RM1.5 billion; Reskilling and Upskilling Programmes of RM2 billion to assist those unemployed and youths) which is expected to benefit three million workforces in the country. However, as recently pointed out by The Institute for Democracy and Economic Affairs (IDEAS), according to the Ministry of Finance, only RM3.22 billion out of the total RM13.8 billion that was previously allocated in PRIHATIN stimulus package had been approved as of 31 May 2020 and this low take-up rate raises concern over the efficiency of approval and disbursement processes.
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