The recent outbreak of Covid-19 pandemic has created the following challenges for our economy:

• Domestic consumption to drop significantly as a result of reduced mobility and lack of domestic private investment

• Export to be severely curtailed as global demand slumps and supply chains are disrupted amid global outbreak

• Global travel bans to reduce foreign tourist arrivals, severely impacting Malaysia’s hospitality and retail sector

• Government revenue to be severely impacted as oil prices trend downwards

• Capital market contraction as investors seek safer alternatives.

The potential risks are:

• Increased unemployment, reduced wages, and savings depletion for Malaysians

• Increased government deficit leading to limited ability for aggressive financial intervention

• Recovery for small and medium enterprises may take longer than 12 months, leading many to close down in the coming months.

The economy and health of the people are closely intertwined. Economic stability leads to better healthcare and healthy people leads to higher economic productivity.

Therefore, the recommended economic policy recommendations should be based on the following three pillars:

a. Make Malaysia free of Covid-19

b. Ensuring economic continuity

c. Preparing for the future.

These three pillars should be based on the guiding principle that this is technically a war, a global war, against a universal threat: Covid-19.

The objective of any war is to defeat the enemy, with minimal cost in human lives and economic destruction.

All conventional policy intervention during an economic downturn or recession are insufficient during wartime as we deal with an unprecedented supply and demand downturn.

Due to the severity of the situation and the urgency of the matter, this paper will focus purely on possible policy ideas to fulfil the three pillars.

The author accepts that some, if not all, the ideas may be impossible to execute upon further examination.

The case for special and unconventional measures

Perfect Storm:

- Effects from Covid-19 pandemic reducing domestic consumption and investment, and import and export of goods due to supply chain disruption

- Brent crude 50% below Budget 2020 projection. Currently at US$29 (RM129) and will continue range-bound due to lower global demand and Saudi increasing production

- Beyond economic effect, pandemic may cause loss of valuable human capital, disruption in innovation and fear in investing for future.

Globally, countries have abandoned conventional policy intervention and have aggressively adopted various measures to stabilise the economy or reduce the long-term impact of a prolonged recession.

- South Korean President Moon Jae-in, who has ordered an “unprecedented” action in response to an “unprecedented” situation, chaired the first “emergency economic council” meeting on March 19, 2020, announcing a plan to offer 50 trillion won (RM180 billion) of emergency financial aid for small businesses, microbusiness owners and the self-employed;

- UNCTAD forecast global slowdown between 0.5%-2.0% for FY2020, resulting in economic loss of between US$1–2 trillion in global GDP. They have requested the government to urgently spend now to prevent long-term depression;

- Canada announced on March 18, 2020, a C$27 billion (RM83.6 billion) Covid-19 economic response plan, which includes allowance for those infected with Covid-19, and direct cash assistance for those whose income are affected by the pandemic;

- The United Kingdom has increased its stimulus package twice in just 10 days, starting initially with just a £12 billion (RM62.1 billion) stimulus before announcing a business assistance package worth £335 billion and an unprecedented job-support scheme expected to cost a further £78 billion.

In the above and other countries, the urgency and seriousness of the situation has become too apparent.

Economists all over the world are urging for government and central banks to take big measures and deploy them quickly.

In the following pages, we will propose a framework to approach the problem with specific policy intervention measures for the government’s consideration.

Pillar #1: make Malaysia free of Covid-19

Problem Statement – Malaysia’s number of active cases has recently breached the 1,000 mark with as of the date of this report, eight deaths.

This number is expected to increase exponentially in the coming weeks, as stated by the director-general of health on March 21, 2020.

There is no economy to resuscitate if more and more Malaysians fall sick. Therefore, we should first start with making Malaysia free of Covid-19 with the following policy intervention measures:

a. Extending movement control order by another 14 days.

The current order was initiated on March 18, 2020, and expected to last for only 14 days. Meanwhile, the number of new cases in three weeks has increased.

Just as a matter of comparison, the Chinese government imposed full (and at times, brutal) lockdown on January 23, 2020, in Hubei province and is only seeing no new domestic infections this week, fully two months later.

Now, while Malaysia’s situation may not be as severe as that of China, weeding out this virus takes time, and 14 days is not enough.

Extending it for a further 14 days would allow the government time to practice aggressive social distancing, while rolling out other intervention measures.

b. Increase testing capacity, technology and availability (min RM75 million)

At the end of January, South Korea initiated an emergency meeting with 20 medical companies, promising quick approvals for testing kits and methods of testing for Covid-19. Every week, approvals were granted, and by the end of February, South Korea had the ability to conduct 10,000 tests a day.

By March 21, South Korea had tested 290,000 people and detected more than 8,000 infections, quickly isolating those infected and managing to reduce the number of new infections without resorting to full-scale lockdown, as in Hubei province.

When they started this process, South Korea only had four cases. Now, they can process up to 20,000 people a day.

Malaysia’s situation runs the risk of being too late to mitigate unless we can aggressively increase our capability to test by at least 10-fold.

Malaysia has tested more than 14,000 people since January 25, 2020. The government need to quickly:

- Form a “rapid-fire” committee to daily meet and focus only on approving and expanding testing capacity

- Import approved testing technology and equipment from foreign countries. Both South Korea and Japan have successfully privatised testing and these companies would be prime candidates for this

- Expand location and reach for testing by approving local private partners to conduct testing at the expense of the government based on a pre-agreed bulk pricing.

This is especially a concern due to the out-of-city migration surge before the movement control order. A radical idea would be to utilise empty malls or commercial buildings as makeshift testing facilities and therefore reduce burden to government hospitals.

It is difficult to estimate the cost to be borne by the government in pursuing this path, but assuming our goal is to test up to 500,000 Malaysians within the next 60 days, this would require a peak testing capacity of close to 10,000 people per day.

At a base-cost estimate of RM150 a test, this would mean an additional investment of RM75 million to pay private companies.

c. Increase capacity to trace, isolate and treat (min RM500 million)

Already we have seen how long it took for the government to test huge clusters such as the tabligh gathering in late February.

While this is partly due to limitation in testing, we also understand that contact tracing is a painstakingly manual and slow process.

Towards this end, we recommend for the government to:

- Form a specific “rapid-approval” committee comprising of the Ministry of Health, the Home Ministry, and members of the police and armed forces, to focus on increasing capacity to trace, and speed of tracing

- Create and rapidly expand an investigative unit to conduct thorough interview and contact tracing. It was stated that crime rates have fallen significantly during the movement control order. It is suggested that the police and military investigative unit to be recruited for the purpose of increasing contact tracing investigations

- To employ big-data capability and work with telco companies to automatically track movement and recent contacts to create a hypothetical contact trace from new positive cases.

Upon successful tracing and testing, the government must have the capability to isolate and treat the patients. Already we are seeing shortages in ventilators, air-conditioning units and more worryingly, our healthcare frontliners not equipped with the necessary protective gear and tools to treat patients. This is unacceptable and we recommend:

- Moving all non-critical, non-Covid patients to private hospitals nationwide in a public-private partnership agreement. This could be made favourable due to the major shareholding by government institutions such as Khazanah and EPF in private healthcare provider IHH and Sime-Darby Ramsay, which owns the Pantai, Gleneagles and Sime-Darby Ramsay chain of hospitals. This would ease the burden from critical care areas of our government hospitals and allow for expanding ICU units in them

- Immediately commission the private sector to shift their production towards necessary hospital equipment such as plastic shields, gloves, masks, PPE suits and more

- To isolate the medical front-liners in comfort by commissioning hotels and service apartments to house them, feed them and provide them with a safe, quarantine environment for them to focus on their task

- Prepare to commission private doctors and medical practitioners to help ease the workload of our government personnel

- The government to have a budget “fast-track” team which are given the mandate to focus solely on approving funding for building capacity of government hospitals and purchasing necessary equipment for our healthcare professionals.

Pillar #2: ensuring economic continuity

Problem statement – While Malaysia deals with reducing the number of new infections and treats all those infected, we must acknowledge the impending economic crises caused not only by the significant decline in domestic consumption and investment, but slowdown in global trade leading to further escalation in business downturn. We are recommending the following key policy interventions:

a. “Suspension” of business

The boldest policy idea in this paper is for the government to consider all businesses to be technically “in suspension”.

This does not mean that businesses cease to exist but that businesses can stop operating without fear of bankruptcy or inability to make payroll.

Towards this end, we propose the following three stages of intervention:

- Suspension and deferment of all tax and excise duty collection, essential utility billings, and government – federal or state – fees or statutory payments during the defined period.

- All financial institutions to defer collection on all outstanding debt from businesses and individuals other than credit card commitments during a defined period. In exchange, during this period, banks will also not disburse any existing loan or approve new loan, extend any credit, provide any interest on any savings. In short, we suspend all banking facilities except short-term individual commitment.

- Pursuant to this, all leases and tenancy agreements are suspended during the defined period. All other private contracts which are based on the need to service interest or debt to financial institutions can be filed for suspension except for employment contracts.

This measure may appear to be radical, but it immediately allows for businesses and individuals to be less concerned about payment outgoing while they deal with the drop or complete stop in earnings (which they would anyway due to the economic meltdown).

b. Ensuring full employment and minimum wage (min RM16.5 billion per month)

One of the biggest economic threats we will face is increased unemployment, not only during but also post-crisis as employers who cut their workforce would be reluctant to immediately fill those roles as demand slowly picks up in a forecasted U-shaped recovery. As such, we propose the following interventions:

- A direct cash transfer of RM1,100 a month for all adults above 21 and below 65 years of age during the defined period. This would act as a temporary universal basic income regardless of whether the individual was working pre-crisis. Estimating 15 million Malaysians eligible under this category, this would cost the government an estimated RM16.5 billion a month.

- Allow companies and business owners to renegotiate a temporary salary cut-back up to a maximum of RM1,100 a month for all employees earning RM2,300 and below which will be offset by the above-mentioned direct cash transfer. Companies may renegotiate up to 20% of salaries of those earning above RM2,300 and suspend all benefits and bonus guarantees for the defined period. Companies planning this must guarantee employment during and at least three months post defined period which will be offset by the corporate benefits stated.

- All government linked companies and companies majority owned by GLCs or GLiCs to guarantee full employment during the defined period and at least three months post with all financial obligations to be met and assisted by the government or GLC or GLiC as majority shareholder with all KPIs reset towards this purpose. All planned redundancies or rationalisation to be suspended.

- To immediately increase the capacity and capability of our industrial and labour court system with enhanced temporary jurisdiction that allows both employers and employees to not only seek immediate redress but also affirmation and clarification of their agreements pursuant to the above measures.

Pillar #3: preparing for the future

Problem statement – Dealing with a post-Covid world would require a different kind of agility, with many economists already predicting a prolonged recession, suppression of commodity prices although in general, some nations or regions would experience a sharp uptick in economic activity.

For Malaysia to bounce back from what is certainly going to be a flat 2020 in terms of GDP growth, we must prepare our economy for the new future with this crisis to be used as an opportunity for major restructuring of our economy.

a. providing best environment for private enterprise to thrive (long-term)

One of the key areas the government can play a critical role in is focusing its attention on providing the best environment for private enterprises to thrive.

These would be mega projects that cannot be undertaken by private enterprises but would allow for the private sector to later capitalise and create new areas of opportunities for Malaysia.

The following are the recommended areas of investment:

- Ensuring power and water supply are secure, sustainable, stable and available to all areas and communities consistently. These would mean mega investments into renewable energy – from solar to hydro – and into water plants, pipe connectivity, repair and replacement

- Investing into a world-class fibre and cellular network nationwide to ensure always-on high-speed internet connectivity especially into previously underserved areas in the East Coast of Peninsular Malaysia, Sabah and Sarawak

- Investment in human capital by rethinking what kind of talent and skill is needed in the new global economy, assessing our shortfall, and heavily investing in closing that gap.

Announcing these three long-term commitments by the government would mean projects in the billions and give something for the private enterprises to look forward to, further improving business confidence post-crisis, and encouraging domestic private investment into capacity building.

An example of industries that could take advantage of the above three mega investments are massive data centres for cloud computing needs, demand of which will continue to grow in the future.

b. Reformation of GLC and GLiCs with increased investment (medium-term)

For years, efforts to reform Malaysia’s deeply entrenched GLiC, GLC and agencies related to the economy, has been met with resistance and resulted in an ever more increasing centralisation of economic power.

This has led to stagnating innovation in terms of business ideas and economic inefficiency without a corresponding growth in real wages for most Malaysians. During the defined period, the government can execute the following ideas:

- Resetting KPIs for all GLCs and GLiCs to utilise their excess cash balance and profits towards producing greater economic value for more people with little consideration for profit and loss at least for two years post-crisis. These value creation activities will mostly be in the form of pursuing capital expenditures and pursuing new business ventures that will require engaging multiple vendors. Success is measured by number of vendors engaged and employment created due to the projects pursued.

- Consolidation of ministries and respective GLCs, GLiCs and agencies based on cluster of competence related to economy. These economic cluster of competence are:

o financing and growth – eg: all banks, development banks, soft-loans, grants, private equity

o Capacity building – eg: all training, reward and recognition

o Market access – eg: International trade, domestic promotion, regulatory framework

These cluster would provide clarity not only in execution but also in terms of increasing market confidence towards the government.

c. Committing to all existing projects (short-tem)

The government must list down all existing approved projects directly from the government, its agencies, investment companies and government owned companies that were approved and committed prior to March 1, 2020.

These projects must be renegotiated with a discount of 10-20% due to the suspension of debt repayment by the banks as suggested earlier.

In exchange, we propose for the government to form a “project delivery” task force created with specific mandate to monitor and quick approval for disbursal of payments.

* Najmie Noordin is group chief operating officer of Cosmopoint.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.