WHILE Putrajaya has implemented some sound economic policies and measures in the course of the last one year, the direction forward remains unclear, economists said on Perikatan Nasional’s (PN) one year in power.

The first anniversary of its parliamentary coup that ousted the Pakatan Harapan (PH) government elected in 2018 is next week, following Prime Minister Muhyiddin Yassin’s swearing in on March 1 last year.

PN took power at a time when Malaysia was grappling with the triple threats of health, political and economic crises, economists said.

A little over two weeks after forming a government, Muhyiddin announced a nationwide movement-control order to curb the spread of Covid-19 infections. The MCO also meant that many economic activities were halted.

As a result, Malaysia recorded a 17.1% contraction in gross domestic product (GDP) for the second quarter of 2020, its worst performance since the Asian financial crisis in 1997 and 1998.

To counter the impact of Covid-19, the government dished out several economic stimulus packages collectively amounting to more than RM300 billion.

Sunway University Business School Professor of Economics Dr Yeah Kim Leng said some measures were effective and helped the economy recording a deeper contraction that would have exceeded the slump caused by the Asian financial crisis when the economy shrank by 7.4%.

Malaysia’s GDP contracted by 5.6% in 2020.

Yeah said the 5.6% contraction was just marginally lower than the expected range of -4.5% to -5.5%. 

“It’s much worse than the 2009 recession, during the global financial crisis, but better than the 1998 recession during the Asian financial crisis. The contraction would have been the worst ever if not for the strong fiscal and monetary policy measures mounted by the government,” the former Bank Negara monetary policy committee external member told The Malaysian Insight.

The five Covid-19 relief packages in 2020 amounted to about 20% of the GDP with direct fiscal injection estimated at around 4% to 5%.

“The cash support for affected households and small businesses, tax rebates and utility reliefs, wage subsidies, loan moratoriums and guarantee schemes have been helpful in alleviating the widespread economic hardships, especially felt by the severely affected sectors, particularly the tourism, hotels, restaurants, leisure, hospitality and retail sectors,” Yeah added.

Additionally, the wage-subsidy programme and the employment insurance system claims have mitigated unemployment and associated economic and social stresses.

Head of research at the Malaysian Institute of Economic Research, Dr Shankaran Nambiar, agrees that the wage subsidy was a useful policy.

He also commends the government for paying attention to the needs of the bottom 40 (B40) group and small and medium enterprises.

The government appears to have struck the right balance between keeping the economy going while protecting lives, he said, adding that more could have been done if the fiscal space was not limited.

“The current situation has demanded that the government respond appropriately to the Covid-19 crisis. This has required the government to curb the spread of the disease, ensure that adequate care is provided in the hospitals and flatten the curve.”

On the economic front, the government must ensure that downswing is minimised.  

“The government must also prepare for the post-Covid-19 recovery,” he added, noting that like many other countries, Malaysia, too, had implemented cycles of strict measures followed by more relaxed restraints in grappling with the pandemic crisis.

However, Shankaran said there is still no clear strategic plan to lift the economy out of its present state. A clear plan is essential for the next stage of the recovery, he added.

“Some of the underlying issues that plague the economy were heightened by the Covid-19 crisis. It is still not clear if the government has learnt the right lessons from these problems – the extensive use of unskilled migrant labour being one of them.”

Yeah said economic recovery and rebuilding strategy needs greater clarity as Putrajaya has indicated that it would be incorporated in the 12th Malaysia Plan. 

“Nevertheless, this should not preclude the government from formulating more comprehensive ‘build-forward-better’ sectoral plans, especially for the sectors badly affected by the pandemic, such as aviation, tourism, hotels and retail industries.”

Rebuilding investor and consumer confidence will also be a challenge, and Yeah said this has been hampered by the triple crises of health, politics and the economy.

“While the declaration of emergency rule has averted a political crisis, it is noted that triple public health, economic and political shocks have not been helpful to consumer and investor confidence. 

“Fortuitously, the diversified economy is benefiting from the current global upswing in commodity demand and prices.” – February 28, 2021.