MCO extension could see another round of stimulus


THE government may be required to dish out more cash and incentives to insulate the economy from negative shocks resulting from the extension of the Movement Control Order (MCO), experts said.

The country extended its nationwide lockdown for the third time last Friday as Prime Minister Tan Sri Muhyiddin ordered all Malaysians to stay home for at least another two weeks to prevent the spread of the coronavirus which has affected over 5,700 people in Malaysia.

Despite efforts to reopen some segments of the economy, most businesses continue to remain shuttered with the economy losing about RM2.4 billion every day during the MCO.

Collectively, the four MCO phases would total 55 days, which amount to an overall loss of RM132 billion.

IHS Markit Ltd Asia-Pacific chief economist Rajiv Biswas said support for the corporate sector will be important to prevent a wave of insolvencies due to the protracted lockdown and the gradual process of reopening various sectors of the economy.

“Due to the extreme economic shock, further support measures will likely be needed to assist worst-hit sectors, such as tourism, airlines and retail.

“Vulnerable low-income households may also need additional support measures due to the severity of the downturn,” Biswas told The Malaysian Reserve.

The government has so far announced three stimulus packages worth a total RM260 billion — nearly a fifth of the country’s GDP — which include cash handouts, wage subsidies, tax rebates, discounts on utility bills and a six-month moratorium on existing bank loan repayments.

The relief plan involves a direct cash injection from the government of RM35 billion.

As of mid-April, the vast majority of households and individuals who are eligible for funds under the government’s RM260 billion spending package have received their payments, said Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz (picture) . The remaining fund will be disbursed in May.

Institute for Democracy and Economic Affairs research manager in economics and business Lau Zheng Zhou said while the stimulus packages would have made major contributions to stabilise the economy in the immediate aftermath of the MCO, what is needed next is an exit strategy.

“I think at this point, businesses would have factored in the likelihood of a prolonged period of human movement restriction and a relatively longer recovery period post-MCO. This may mean company owners not making new spending and investment decisions, while they await greater policy certainty.

“It is, therefore, crucial for the government to communicate an exit strategy which should entail a gradual MCO loosening in phases, targeted industries which the government may nurture, and financial assistance available in this endeavour.

“Our economy’s productive capacity is largely idle at this point, and greater policy clarity can induce companies to mobilise their resources and pivot into new business opportunities,” Lau said.

Hong Leong Investment Bank Bhd in a recent note had downgraded its 2020 GDP forecast to -6% from -4% previously.

This is premised on the assumption that the economy is operating on the capacity of 50% of GDP, it said. Bank Negara Malaysia forecasts the economy to shrink by 2% or grow 0.5% this year.

In a statement last Friday, Tengku Zafrul said his ministry and the Economic Planning Unit have begun to engage industry stakeholders on efforts to restore and develop the economy.

The feedback will be used to formulate a comprehensive short-, mid- and long-term economic recovery plan.