Vaccine main driver for economic rebound in 2021

by NUR HANANI AZMAN / source: Fahrenheit 88

EFFECTIVE rollout of the Covid-19 vaccination programme is expected to drive Malaysia’s economy to a rebound in 2021, which would see continuous improvements in exports and a greater momentum in consumption and investment.

World Bank Group senior economist Shakira Teh Sharifuddin said the forecast is based on the success of the vaccination programme that is expected to be initiated the first quarter of next year.

She said the sectors that are projected to show positive growth include manufacturing, especially the electrical and electronics (E&E) segment, as well as agriculture that has been fairly resilient.

“Going forward, with the gradual re-opening of the economy, we expect the improvement to be broad-based. The pace may differ across different sectors, but we will definitely see an improvement.

“Obviously, certain sectors such as tourism will be affected but moving forward, our expectations will be a broad recovery in 2021.

Agriculture will be resilient with growth is seen quarter on quarter basis,” she told reporters after the launch of the latest Malaysia Economic Monitor: Sowing the Seeds yesterday.

The World Bank expects Malaysia’s economy to grow by 6.7% next year after a projected contraction of 5.8% this year due to the impact of the Covid-19 pandemic.

During her earlier presentation, Shakira said the growth projection is subject to considerable downside risk, including unexpected delays in Covid-19 vaccine roll out could result in movement restrictions being extended hence will drag the recovery.

She said the absence of smart containment measures would have an impact on the border economy and social sectors.

“An elevated number of vulnerable households is another downside risk as the Conditional Movement Control Order has placed pressure on businesses and employment.

“Ongoing domestic political uncertainty could continue to constrain private investment sentiment,” she said.

As for the upside risks, the World Bank’s projections include successful containment of the third wave of Covid-19 infections currently being seen and the effective roll-out of the vaccine.

Shakira said the government should look into a fiscal policy that strives towards raising revenue and enhancing spending efficiency.

In terms of revenue, she said the government could also consider strategies that prioritise increasing the progressivity of the personal income tax framework.

“The government could look into removing exemptions from consumption taxes on non-essential items, expanding capital gains tax and exploring other forms of progressive taxes including wealth taxes.

“The government could also maximise gains from tax expenditures and enhance revenue administration,” she added.

For next year’s budget, Shakira said the government has added and expanded it to allow for more aides and cash assistance that would benefit vulnerable households.

“It also offers a lot of the upscaling and rescaling programmes that would definitely help during the transition period as we recover, going forward.

“It is also the first budget that aligns with Sustainable Development Goals,” she said.

Meanwhile, World Bank Group country manager for Malaysia Dr Firas Raad said that the bank has been supporting the government’s efforts to review the chapters and policies by giving general inputs into the reform of 12th Malaysia Plan.

He said it is a difficult time due to Covid-19 and a lot of the government’s efforts now are focussed on the medium- and- short term.

“This five-year plan presents an opportunity to focus on some of the structural reforms over the medium- and longer-term.

“We see the government is becoming more forward-leaning with the climate change agenda. We hope that they will move forward with more momentum and could be happening over the next few months,” he said.

Overall, Firas said Malaysia did “sail into a large storm in 2020” with Covid-19 that has not fully left.

“We hope, going into 2021, the containment measures from the government will continue as the deployment of the vaccine comes.

“The big upside risk is to help promote growth and job creation in 2021. We believe Malaysia underscores that this is an opportunity for the government to focus on agriculture, especially the agrifood sector and modernise it to ensure it fits for the future,” he added.

Read our earlier report

Malaysia’s economy projected to grow 6.7% in 2021