Full Movement Control Order (FMCO): Is It Necessary?

 

The Government, after much dithering, has implemented FMCO for two weeks, starting from June 1, 2021. Fairly like MCO 1.0, which was from March 18 to May 4, 2020, FMCO will have a severe impact on the economy.

According to the Health Ministry, there are 233 clusters still active with 16,785 cases. The clusters are mainly from factories – 46% of the total. Even after MCO 3.0, factory work clusters remain high (53% of total work clusters).

Our choice is life or livelihood? Is it that simple?

Before FMCO, economists were suggesting GDP growth for 2021 to be between 4.5% to 5.5%. This was below BNM or IMF estimates of 6-7.5%. Many have said the loss per day is RM2.4 billion with MCO. It may be half of that (RM1.2 billion) but that too is significant. Assuming a 6-week lockdown period, the economic loss is about RM50 billion or 3.6% of nominal GDP.

In May alone, 1,290 people lost their lives. Of this, 74% were those aged 60 or older. As of 1st June 2021, only 8% of Malaysia’s adult population has received at least one dose. Chasing single-digit daily infection rate is illusory now and may take another 12 months for us to achieve herd immunity. Then there are 62,000 no-shows at vaccine centres because of the lack of transport. The bulk are from the Malay heartland – Pahang, Kelantan, Terengganu. Where are political parties to help? When there is an election, there are workers available to transport voters! But not for vaccination?

Then do we have room for more stabilization programmes?

Direct fiscal injection was RM77.6 billion. Another RM10 billion need to be included (from KWAN and Pemerkasa+) which will raise budget deficit to 6.3%. Based on above table, our debt to GDP is well below Singapore and Hong Kong. So, there is still room to assist SMEs and others.

Remember the virus does not discriminate – it kills the poor, the rich, the religious or non-religious. We need to have a comprehensive, targeted strategy to contain this dreadful disease. Flip flop policies don’t help but add to the confusion.

What do I mean? If the bulk of the clusters are factories, then that’s where FMCO is applicable, vaccination prioritized, and close monitoring required. If religious bodies are responsible, then we need to stop religious gatherings and do services by Zoom or YouTube.

So, is it necessary (FMCO)? Not a blanket FMCO but a well selected, monitored FMCO. Then we need a targeted vaccination programme and more funds to SMEs to survive. WFH is fine for some but output without physical presence can be challenging for others.

 

Reference:

Pankaj C. Kumar, Insight - Lockdown is painful but necessary, 2 June 2021, Starbiz

 

The Future Shape of Population

 

The first time our world population doubled was about seven or eight hundred years ago, and it took 500 years to double. The second time, it took us 150 years. 70 years for the third time and 39 years (1960 to 1999) for the fourth, where we went from three to six billion!

People have started to become nervous over this overpopulation issue and wonder if the planet could support 12 billion people next. Population scientists however think that, this – population of 12 billion – would never happen. This is because our birth rate has dropped significantly.

Source: BioVidyalaya (Youtube)

A population pyramid is a graphical illustration of the distribution of various age groups in a population. Basically, in industrialized countries, the largest numbers are in the middle or top of the graph whereas in developing countries, most people are in the youngest age categories, with few surviving to older ages. Despite different shapes of population in different countries, the world population overall is still a pyramid shape.

 

World Population Pyramid in 2000 (Lisa Berkman, TEDx)

However, this is not always the case. As birth rate has declined, and same for the fertility rate, population ageing is the dominant global demographic trend of the 21^st century. The world population pyramid is projected to be ‘rectangulated’ soon.

World Population Pyramid in 2050 (Lisa Berkman, TEDx)

What are the concerns of an ageing population?

(1)   workforce shortages, as retirees come to outnumber new entrants to the workforce;

(2)   asset market meltdowns and a drop in the savings rate as older people liquidate their assets and dissave to support themselves;

(3)   economic growth slows down due to labour and capital shortages; and

(4)   fiscal stress, due to rising healthcare costs owing to diseases of old age

Currently in Malaysia, 7% of the population or an estimated 3.5 million people are above 65. The government needs to provide more opportunities for those who are still productive in healthcare, technology, mobility, tourism, real estate, or financial services. Besides government, civil society, international agencies, professionals and the media need to work together for the needs of the elderly, not only in terms of financial aid but the 5 Cs – care, concern, capability, capacity and connectivity.

 

Reference:

1.     Lisa Berkman, The shape of population to come, TEDx Talks

2.    Malaysia's fast ageing population: Are we ready to handle the consequences? 16 Mar 2021, The Star

3.    David E. Bloom, For the economy to cope with an ageing population, we must identify new solutions – here's how, WeForum

Blanket Loan Moratorium: No Legal Ability?

  

The latest economic aid package under MCO did not include a blanket loan moratorium. The Finance Minister believes the Government has no legal ability to do so. So, how did he do it the first time around in March 2020 – was that illegal? Government has no control over banks? Only BNM? And BNM is a law to itself?

For a SME, it has to consider rental, staff costs and interest cost. Rental could, hopefully, be re-negotiated with the landlord; staff costs must be reduced including other fixed costs; but loan interest or repayment is not easy to negotiate with banks! A proper case must be made.

For Q1 2021, many banks reported RM1 billion to RM2 billion in net profit (over last three years, eight of Malaysia’s banks made in total RM93 billion in profits). Obscene under the circumstances.

Many SMEs are struggling to survive. And where do banks get their money – depositors or interbank money market! Using depositors’ money (paying them pittance like 1.5% p.a. or thereabouts) they lend cautiously to businesses and charge interest of 5-8% - which is risk related. If banks crash like during the Asian Financial Crisis, taxpayers’ money is used to bail them out. This is not unique to Malaysia – the U.S. did the same in 2008, except for Lehman, the others were bailed-out – including Citibank and Goldman Sachs.

This pandemic and the slow vaccination rate will prolong the pain to May 2022. Meanwhile, SMEs are expected to survive? Over 40% of SMEs still alive will close with the latest MCO. And that is the estimate of the SME Association.

We are in extraordinary times and extraordinary measures are required. Then there is the argument that a blanket loan moratorium will dissuade foreign investors from investing in Malaysia. Do you believe this? Foreign investors are going to Singapore, Indonesia or Vietnam. And the MITI Minister says we are selective to who comes here! Really? We don’t need Amazon, Facebook, Google or Hyundai? They don’t qualify under our high standards? Douglas Lim should do a parody on this!

 

Source:www.nst.com.my

The purview of the Minister of Finance includes BNM. Using moral suasion, BNM can propose a blanket moratorium which all banks will invariably follow. So, what is your problem, Minister?

 

Reference:

Blanket moratorium – Zafrul explains no legal ability to force banks, Kow Gah Chie, Malaysiakini, 1 June 2021

 

Additional RM60k Per Year in EPF for Retirement?

Additional RM60k Per Year in EPF for Retirement?

The Employees Provident Fund (EPF) revised the Basic Savings from RM196,800 to RM228,000 on 1 January 2017. The amount was set as the minimum EPF savings target for members when they reach age 55.

The Basic Savings, however, was expected to be sufficient to support basic retirement needs for 20 years (from age 55 to 75) only. This was benchmarked against the minimum pension for public sector employees, which was raised from RM820 to RM950 per month from age 55 to 75. Again, this is only for basic needs, what about the rising medical costs? And our life expectancy is now forecasted to 82 years from 75 years.

 

www.imoney.my

According to iMoney, the reality is most Malaysians are still struggling. About 65% of all retirees can only afford to spend RM208 a month, 70% of retirees spend all their EPF savings within 10 years after retiring, and 26% of EPF members have no savings apart from EPF!

If you intend to maintain your current lifestyle, you need 70% of your last drawn salary in retirement, as suggested by iMoney. For example, if your last drawn salary is RM5,000, you will need RM3,500 per month during retirement.

B K Sidhu from The Star (24 May 2021) suggested that one way to boost your retirement savings is by topping up RM60,000 a year into your EPF savings, on top of the monthly statutory requirement. Combined with the statutory monthly deductions of over 30 years, dividends and compounding interest, will give you RM2 million at the point of retirement. You may expect RM10,000 monthly for spending (you may also opt to withdraw only the dividends, which could be around RM8,000 per month at 5% pay-out). Of course, this does not mean you have to live a frugal life now to save that RM60,000. It all depends on your plan, how much you will need to maximise on returns and whether you have the resources to save RM5000 per month or enjoy a generous bonus from your employer.

Financial planning for retirement should be done early unless you are from the public sector where a pension scheme exists. Save your money in EPF if you are not a risk taker. EPF’s dividend pay-out in 2020 was at 5.20%. If you are looking for a higher return, search for other instruments. But of course, higher returns always carry higher risk. So, invest as early as you can to enjoy the compounding effect!

 

 

Reference:

1.     B K Sidhu, The RM60k EPF savings top-up benefit, StarBiz, 24 May 2021

2.     Can You Support Yourself In Retirement? iMoney

 

UN Study: PPR Folks Need Cash Aid!

Cash trans­fers from the government shored up the average income of some of the country’s poorest urban households. But 71% say they still need fi­nancial aid in the coming months. And 60% still could not buy enough food for their families. This is based on a study commissioned by two United Na­tions (UN) agencies.

While the average household income av­eraged RM2,895 (RM2,582 without cash transfer) in March 2021, up 4% compared with RM2,777 (RM2,546 without cash transfer) in 2019, many representatives of households living in Kuala Lumpur City Hall Projek Perumahan Rakyat (PPR) low-cost flats surveyed by the UN agencies in February and March this year “expressed a strong need for con­tinued, regular and reliable financial assis­tance”. This was reported in the “Families on the edge” report (Part 4) by the United Nations Children’s Fund (UNICEF) and United Nations Popula­tion Fund (UNFPA). This exercise was conducted in partnership with Malaysia-based public policy research outfit DM Analytics. 

Other indicators of hardship that the study say reflect the pre-existing low-in­come situation faced by these households even before the pandemic include the fact that one in two could not pay utility bills or mortgage and pay rent on time, one in four of participants continue to reduce food intake while one in three have at least some difficulty or severe difficulties providing enough money for their children to buy meals in school.

According to the report, some 71% of respondents believe they will require con­tinued financial support over the next six months, and they expressed “a clear pref­erence for monthly allowance” — some­thing that researchers say provide a level of comfort and certainty for the low-income PPR folks depending on cash transfers to make ends meet.

Direct social assistance from the gov­ernment now makes up 11% of overall household income, rising to as high as 19% among female-headed households and 36% among households headed by persons with disabilities.

Almost 40% of respondents still need to use their savings to mitigate a reduction in income, despite one in three heads of households and four in 10 female heads of households depend on government assistance.

As such, researchers continue to high­light the need to help urban low-income families, especially those with children, persons of different abilities and the aged, despite it being more than a year since the first Movement Control Order (MCO 1.0) was implemented in March last year.

Even though it is encouraging to see a number of socio-economic indicators im­proving from the survey in December 2020, researchers say many PPR folks are not out of the woods while already exhausting their savings. Unemployment, for instance, remains 12% or 2.5 times higher than the pre-crisis baseline while that among female heads of households remains at 16% or three times the national average, research­ers note.

Overall, pre-transfer median household income of RM2,117 per month remains 5% below pre-crisis levels (RM2,219 in 2019) but improved from RM1,400 in May 2020 and RM2,000 in September and December last year, researchers note. Pre-transfer me­dian household incomes for female-headed and disabled-headed households in March 2021 of RM1,300 and RM1,200 respec­tively, are the same as in 2019. The average household size is 5.5 persons.

At least nine in 10 households and al­most all children live in relative poverty, the survey found.

Indeed, 25% think their finan­cial situation will worsen in the coming six months compared with between 37% and 41% in the previous three surveys (in May, September and December 2020), but only 11% of the respondents think their fi­nancial situation will improve in the com­ing six months, up from 10% in May and December 2020 but down from 14% last September. About 56% of respondents think their financial situation will remain the same in the coming six months, com­pared with 41% a year ago.

According to the survey, having a job is still a major concern among the respond­ents, many of whom are in the informal sector or self-employed and want opportu­nities to generate better income for them­selves and their families.

Some 37% think they are unlikely to get a job in the next few months and 56% say the lack of jobs being the reason they’re not able to obtain employment. The unemployment rate was 37% among adult children of the survey respondents.

A total of 500 heads of households from 16 PPR flats in Kuala Lumpur were inter­viewed between Feb 26 and March 12 this year, with 4.34% margin of error at 95% confidence level. The survey was designed to capture a sample of 25,096 households in low-cost flats under DBKL with heads of households aged 30 and above.

So, will the Government devise plans for these people or provide cash transfers on a permanent basis? We have no real focus on the urban poor except for cash transfers. Federal Government, local authorities and GLCs could improve health, education, employment and general welfare of these people. But politics is in the way!

 

Reference:

One year after MCO 1.0, 71% PPR folks still need consistent cash aid –UN study, Cindy Yeap, TheEdge CEO Morning Brief, May 12, 2021

Vaccination Rates and Recovery Globally

 

Many countries are stepping-up vaccination rates so that recovery will be sooner rather than later. Malaysia may take another 22 months to reach herd immunity, that is by early 2023. It is in the Government’s interest to step this up and reduce the time frame to 12 months or less for recovery to blossom. The PM and the Vaccine Minister now wants this done but are we geared?

 Race to Achieve Herd Immunity

Note: Data is correct as at 10pm 28 May 2021. Herd immunity is defined as when 75% of the population of a country is inoculated.

Source: Bloomberg/Straits Times Graphics

So, at best we may have 4-4.5% growth in 2021 and 2022. Inflation remains muted while unemployment improves to 3.2% in 2022 from 4.5% in 2020. Retail sales may rise significantly in 2021 as a result of pent-up demand or revenge buying. That assumes vaccine in arms is at a significant level.

 

 

China seems to be leading comfortably with steady industrial production and exports besides reporting improving retail sales, according to Moody’s Analytics in a recent report and reported by Starbiz on 29 May 2021.

The United States has also jumped on the recovery bandwagon, while Europe is trying to accelerate growth. But the road ahead for the Asia-Pacific (APAC) region seems long and winding, according to the report. This is due to the vaccination rollouts being slow in some countries as well as the emergence of new coronavirus variants.

These threats are forcing governments to impose more measures to contain the pandemic, which may in turn harm economic recovery. However, the continued global demand for goods and trade is the strongest source of optimism. The exports by most APAC countries are already above pre-Covid-19 levels and should expand further.

Countries with high trade exposures to the United States and China will gain. The beneficiaries are Vietnam, Hong Kong, Singapore, Malaysia, South Korea and Thailand. Therefore, the speedy rollouts of vaccines are key to containing the virus and facilitating economic recovery.

The Vaccine Minister now says he wants to get clinics, private medical centres, drive-thru, mobile-units to aggressively implement vaccine injections. What took you so long to decide? And there are other channels for distribution, like pharmacies!  In a neighbouring country, senior citizens just turn up at vaccination centres, no registration, no appointments, no MySejahtera to get vaccinated. Can’t we be more creative in implementation or is it about money? 

Source:

Speedy rollout key to recovery, Starbizweek, 29 May 2021

Is Malaysia’s Healthcare System Failing?

World healthcare expenditure was at about 9.8% of GDP in 2018. Japan spends about 9 percent of its GDP on healthcare, where 80 percent of the expenses is funded by the government. Malaysia, on the other hand spends only about 4 percent of GDP on healthcare, and where government funds only 50 percent of it. (Data source: countryeconomy.com).

Anas Alam Faizli pointed out in 2016 that the GDP percentage spent on healthcare ranks Malaysia at number 156 in the world. Majority of Malaysians go to public healthcare facilities. 75 percent of Malaysians seek in-patient treatment and 90 percent of Malaysians seek out-patient treatment at public facilities. Despite that, the government spends only slightly higher than 50 percent for total healthcare expenses.

The Malaysian government in 1983 under then-prime minister Dr Mahathir Mohamad introduced privatisation policies which allow the private sector to play a greater role in taking away the government’s responsibilities in both healthcare and education. Healthcare has exhibited ever increasing costs since then.

As a result of privatisation, highly qualified and experienced doctors flocked to the private sector. Within twenty years, according to Anas (2016), the private sector held two-thirds of the total number of medical, surgical consultants, and specialists. Brain-drain by default? Eventually the waiting time and quality of service in government hospitals deteriorated significantly. Some have experienced tragedies where relatives met their death due to late diagnosis or late treatment.

We need to find the real cost of healthcare. Why are there Approved Permits for medicines?  And large health conglomerates, government-linked companies (GLC) like Sime Darby, Pantai, Khazanah, KPJ and others account for more than 40 percent of private hospital beds. These are not cheap. And if there is an insurance cover then procedures not really required are put through—why? For profit of course!

The government is wearing three hats, as the public healthcare provider, regulator, and as an investor in profit- oriented healthcare facilities. Isn’t there a conflict of interest? Perhaps during this Covid pandemic we should re-examine our healthcare sector and determine how low- and middle- income folks could avail of the facilities.

Reference:

1.     Aas Alam Faizli, A barometer on Malaysia’s healthcare system - are we doomed to fail? 23 Sep 2016, Malaysia Kini

2.     JD Lovrenciear, Private healthcare in Malaysia: Millstone or milestone? 19 May 2021, Aliran