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Malaysia may soon head towards the full reopening of social and economic activities sooner in 4Q2021 under the ramped up national Covid-19 vaccination programme, with the revised goal to vaccinate 80% of the population by October.
With the vaccine acting as a cushion, the government should use this opportunity to relook its existing lockdown approach to enable Malaysians to live alongside the virus, says MARC chief economist Firdaos Rosli.
“Considering the emergence of newer and more contagious Covid-19 variants in time, we still want to avoid unnecessary gatherings even after the vaccination programme ends,” he tells The Edge in an exclusive interview.
“We should address factors contributing to these unnecessary congregations instead of opting for highly restrictive SOPs that disincentivise capital owners from finding new ways to operate more efficiently, thus leading to a deadweight loss to both consumers and producers.
“The government should offer incentives to entice capital owners to expand their production capacity instead of offering helicopter money to improve private consumption,” he says.
“It is difficult to observe social distancing if production capacity remains as is. Supply should go back up so the nation can fully benefit from the pent-up demand as the environment improves. That same additional capacity may also allow businesses to operate safely in future outbreak environments, but to reach that, the rules of lockdown will have to be improved and be enforceable,” he adds.
Allowing transactions safely through improved channels
In its latest policy paper touching on Malaysia’s Covid-19 lockdowns, MARC recommends two principles that must not be constricted in any manner of outbreak control mechanisms in the future i) the right to reciprocal transaction principle; and ii) the channel-variable principle.
Under the first principle, the government should allow individuals and businesses to undertake all transactions, monetary or otherwise. This allows them to adapt while the ecosystem continues to create value, promote greater economies of scale, and improve the overall economic welfare of the public.
“The government should view allowing companies to operate, albeit with social distancing measures, in the same light as allowing a sole proprietor to conduct his or her business transaction,” says Firdaos.
“The principle will enable greater liquidity where economic agents can readjust their priorities accordingly with minimal government intervention.
“Simply put, the owners of capital should be allowed to calibrate their business models to suit the current operating environment,” he notes.
The commonly used highly restrictive SOPs, even under targeted lockdowns, contradict this reciprocal principle and disincentivise capital owners from finding new ways to operate more efficiently.
The government should instead place a “floor” level of SOPs, such as compulsory mask-wearing and social distancing practices and leave capital owners to determine their own “new norm” business model, he says.
This approach can be made possible if the channel-variable principle is also practised, Firdaos says.
“The underlying idea here is to avoid congregation and minimise density in all business areas, particularly those operating indoors, such as shopping malls, office buildings, and shop lots.
“This principle cannot be constrained by physical space and time,” he says. “Capital owners should be encouraged to increase their supply channels in a way they deem fit while satisfying the floor-level SOPs.”
Past lockdowns enforced capacity reduction and curfews with the goal of reducing mobility, but it comes at another cost, which is congregation, as everyone goes to the shop at around the same time before and after working hours.
In a supermarket, for example, the reduced capacity also results in 4 of 10 cashiers being off duty, which results in longer queues and people remaining outside for a longer period of time for that specific errand.
“By allowing businesses to operate under these two principles, small shop lot operators could think about expanding their business by increasing their cash tills or automating them altogether to minimise density without bearing the risk of another closure.
“Furthermore, certain businesses that require more physical interaction, such as hairdressers and beauty centres, could operate without time constraints and spread out their supplies so that SOPs can be strictly adhered to,” he explains.
“Contrary to popular belief, we believe that the government should promote businesses to expand their businesses instead of restricting supplies. Financial support to invest and improve channels of supply during the pandemic is of high priority,” he adds.
On the Covid-19 front, 8 of the 13 Malaysian states are already in Phase Two of the National Recovery Plan (NRP), with an expanded list of allowed sectors with strict operating hours.
Deputy Prime Minister Datuk Seri Ismail Sabri Yaakob has been reported as saying that the other states could move to Phase Two from as early as the next few weeks, as one-third of Malaysians would have received at least one vaccine dose.
Further, the government’s initial NRP sees Malaysia transitioning to Phase Three by September which allows inter district travel, and for almost all sectors to operate except for high risk ones with physical contact or mass gatherings upon achieving 40% vaccination, new cases drop below 2,000 daily, and when ICU capacity improves to an “adequate” level.
Malaysia is now vaccinating over 400,000 people daily and aims to vaccinate one million every two days and complete the 80% population target by October, earlier than the initial December deadline.
In the meantime, the government is expecting the nation’s fiscal deficit to rise further to 6.5% - 7% of gross domestic product by end 2021. Finance Minister Tengku Datuk Seri Zafrul Aziz has also hinted at plans to raise the national debt ceiling to 65% from 60% of GDP, as the metric was supposed to hit 58.5% even before the two latest stimulus packages Pemerkasa Plus and Pemulih were announced in June.
This comes as the government makes more provisions this year to assist vulnerable groups and those impacted by the lockdowns, such as another RM8.1 billion in cash handouts from June onwards, and RM6.8 billion in wage subsidies.
On investments, it is comforting to note that numerous financing facilities are available for that purpose. As at June 11, some RM12.14 billion worth of soft loan funds had been approved for SMEs as part of the Covid-19 relief measures, Bank Negara Malaysia data shows.
Bank Negara’s fund for SMEs also totalled RM8.6 billion, functioning as recovery facilities as well as investment for technology adoption, digitisation, agrofood and tourism, to name a few.
“The assumption is that life would return as closely to pre Covid-19 days at the end of the NRP, but risk of new variants linger,” Firdaos says. “Further, we are not a vaccine producer and may again be at the mercy of the manufacturing countries when it is time to bring in another 26 million booster shots, assuming the world will never experience another novel virus.
“There is also a time lag between the time when all vaccine doses are administered and when the government feels it is safe to reopen, as human bodies take a few weeks to fully process the vaccine to produce sufficient antibodies. There will be ethical issues as to how the government deals with reopening to people who refuse to take the vaccines for whatever reason,” he notes.
“Instead of further spending on consumption and risking raising even more debt there could be another challenge to get MPs to vote for the debt ceiling revision sans emergency we need to reprioritise and spend to improve our productivity. We can no longer have both supply and demand shocks occurring together,” Firdaos points out.
“It is possible to recoup the economic losses in GDP from this year’s lockdown by acting fast. We believe that the proposed principles are paramount in resuming economic activities. The government should quickly recoup output losses and place the economy on a stronger recovery path,” he adds.
The challenge remains for the government to decide how to relax certain mobility restrictions as a means towards slowing the outbreak, such as roadblocks and interstate travel bans.
“Notwithstanding the lockdown costs, we believe that mobility restrictions cannot be dismantled/reversed in practice amid its wide reaching application in the overall global pandemic response,” Firdaos says.
“As a democratic society, the government needs to offer ample reasoning to ensure the public is aware of the consequences of crisis-mode public policy,” he observes.
Source: https://www.theedgemarkets.com/article/move-past-lockdowns-new-norm-says-marc