Covid-19 pandemic needs to be addressed in a different manner

The current crisis brought about by the Covid-19 pandemic needs to be addressed in a different manner. The current crisis is very different from traditional economic crisis in the following aspects:

1.  Prolonged shutdown due MCO can cause a crisis in liquidity among companies, especially SMI/SME.

2.  Global disruption in the supply chain will cause rises in input cost across the board, and shortage of materials would mean some businesses may not have the ability to resume operation at normal capacity.

3.  Companies’ failure can result in financial contagion due to falling asset prices and ultimately a balance sheet recession.

The government’s priority should be:

1.  Avoid a crisis in liquidity that seizes-up the production engine of the country.

The current trade system relies on two or more trusted parties to conduct trade on credit. Due to prolonged MCO within and outside the country, many companies may not have enough liquidity to restart their operation.  A crisis of confidence may result in breakdown of previous trading arrangements whereby new supply of material may only be conducted by cash term, putting more strain into the system. The lack of market liquidity may result in further drop in assets prices, there by reinforcing a negative feedback loop to the economy.

2.  Re-establish, and build new supply chains with countries/regions that are unaffected or already in recovery from Covid-19.

Prolonged shutdown by different countries globally has affected the global supply chain, causing breakdown in supplies and increasing cost of both imported and domestically-produced materials, lengthening of the delivery cycle.  All the above may disrupt domestic production due to shortage of raw materials.

The Government should attempt to facilitate and encourage establishment of new supply alternatives through various chambers of commerce especially with countries that are already in recovery such as China, Japan and Korea.

On the same note, the government may also take the opportunity to assist and facilitate local enterprises to capture markets that are left vacant due to disruption in supply chains in other countries.

  

Policy Proposal

 1.      Address market liquidity issues by extending the current Special Relief Facility with a credit guarantee scheme. For maximum effectiveness, the government should persuade private banking and financial institutions to participate in the same scheme, with special arrangements to address cost of funds issues with participating banking and financial institutions. Government should serve as the guarantor of last resort to SMI/SME, subject to track record of individual companies.

2.       Simplify application procedures and reduce red tape for SMI/SME to secure access to various funding provided by the stimulus. In order to address the information access gap, the government should consider providing multilingual support when providing assistance to SME/SMI in needs, and a single source of information in a clear and simple manner.

3.       Further enhance market liquidity by:

a.   Abolish RPGT for 2 years. Some SME and businesses may require additional cash, by allowing easy liquidation of property, this would allow distressed businesses to liquidate property to fund business operations without worrying about additional taxation.

b.  Special packages for expatriates with valid work visas to purchase certain class of properties and cars. E.g. discount on stamp duty.

c.   Allow foreigners to purchase certain classes of commercial and residential properties.

4.       Special attention should be paid to SME and micro enterprises operating on hand to mouth existence, this entails:

a.   Enlarge the base of assistance, especially those that do not currently pay taxes to the IRB. Government may encourage such enterprises to seek help by declaring a general amnesty to those that may not have been paying taxes e.g. electricians, small contractors, insurance agents, barber etc.  

b.  In addition, government should look into additional tax relief and zero-interest loan to help the same group of SME

c.   Bigger wage subsidy program and job support system to cover additional businesses not defined within the current SME/micro enterprises definition. E.g. Businesses that are in distress due to MCO but not covered by current definition for assistance.

5.       The government should set up a new task force composed of various ministries in addition to existing one. However, this task force should focus solely on efforts to revitalize the national economy, and secure an environment conducive for businesses.

6.       The economic revitalization strategy should be formulated based on a ‘bottom up’ approach with extensive feedback from various stakeholders.

7.       Postpone and cancel all new and planned regulations that are scheduled to take place in 2020-2022 that do not have direct benefits to the economy, e.g. proposed DOSH-SIRIM PPE certification scheme. 

8.       Trade and Investment promotion after the Covid19 pandemic- MATRADE to increase 300% allocation to provide subsidies for more SMEs to participate in trade fairs to be held overseas, especially China in the coming years.

9.       Allow more enterprises from China to participate in the establishment of free trade zones.

a.   Malaysia can capitalize on increased trade tension between China and US and build on Malaysia’s unique multilingual capabilities to encourage manufacturing and hi-tech FDI from China into the country.

b. Special Channel for China-originated FDI, such investments should be placed under MIDA.