Should MCO 2.0 Be Different?

Based on BNM data, Malaysians had savings deposits of RM172.8 billion as at end January 2020. This increased to RM211.7 billion by November. Why?

Households were spending less. The moratorium and restriction on travel put more money in the hands of Malaysians. Then there is the curtailment of “minimum Teh Tarik” or just “lepak” in restaurants and malls. Even in CMCO the spending pattern was subdued. Many rather save than spend – expecting tougher times ahead.

Private consumption was in negative territory in 2020. For 2021, Government expects aggregate domestic demand to rebound to 9.8%. That’s before MCO 2.0. With MCO domestic tourism is now dead. Traditionally, private consumption (for 2015-2019) contributes 80% of GDP growth. MIDF Research views the decline in private consumption to have bottomed-out in Q2, 2020. That may not be the case. And with MCO 2.0, the chances of recovery in private consumption is further deferred. People worry about jobs and health.

MCO 2.0 should have been different, not a “copy and paste” of MCO 1.0. We should have learned lessons from 1.0. Does it make sense for small businesses in services sector to close? Even car assembly plants are closed. Then there are the inter-district crossings, over 10km from home, which disrupts anyone working beyond that range. Of course, one could get a permit – many wouldn’t and just let it be! For restaurants, the take-away feature does not replace the dine-ins. Malaysians love to go for a “teh tarik” and that constitutes 75-80% of total revenue for a restaurant. In other words, takeaways only provide 20-25% of total revenue. How does one pay rental or staff costs? Is there a Government-support scheme in place for entrepreneurs to get grants on rental/ workers’ wages? There is the wage subsidy scheme for those earning below RM 4000. But to qualify for the RM600 subsidy for one month, the entrepreneur must show the impact of Covid on his business! That’s just an example. Why not a loan moratorium to June 2021? Only people left screaming in this case are the bankers.

The Government through the PM has suggested the ‘Permai’ stimulus worth RM 15 billion. These are detailed below:

 

As M.Shanmugam (formerly from Star) argues cogently that MCO 2.0 cannot have the same rules as MCO 1.0. With limited handouts from the Government, SMEs are in dire straits. We also need private consumption to recover, otherwise the forecast of 7-7.5% GDP growth is another “pie in the sky” phenomenon.

 

Reference:

1.     M.Shanmugan, MCO 2.0 should be different, The Starbiz Week, 16 January 2021

2.     Ganeshwana Kana, Surviving another lockdown, The Starbiz Week, 16 January 2021