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.
