Weathering the Covid-19 storm

 

BEING among the first nations in South-East Asia to close its borders and put in place a movement control order to curb the spread of Covid-19, Malaysia has made a recovery to record the strongest gross domestic product (GDP) result among neighbouring countries.

The impact of the pandemic on the global economy, coupled with Malaysia’s MCO, has battered the country’s GDP in the second quarter to -17.1%. It was among the lowest in the region but the early adoption of preventive measures has allowed Malaysia to bounce back with a significant jump to a contraction of only 2.7% in the third quarter, placing it ahead of Singapore at -7%, Indonesia at -3.5% and the Philippines at -11.5%.

Speaking in a special interview session yesterday, Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz (pic) shared the government’s plans and aspirations through Budget 2021.

The initiatives are aimed at helping Malaysians ease their financial woes during these testing times and the country’s post-pandemic recovery.

Q: There were many suggestions raised during Parliament debates on Budget 2021, such as to give those in the M40 category more assistance. What are your views?

A: Of course those in the B40 category received help including cash assistance.

For the M40 group, assistance is extended to them as well. This is divided into two categories – those who lost jobs and those still employed.

For those who were laid off, we had increased the allocation for job search allowance – for those covered under the Employment Insurance Scheme (EIS) – and extended the coverage period from six to nine months.

We had also allocated RM1bil for reskilling and upskilling for the M40 group.

When they are retrained, there is a guarantee of securing a job. We are carrying out these training sessions with the Welfare Department so that they can get a job after reskilling or upskilling.

In terms of other aids for the M40 group, there are also many tax exemptions that had been increased up to RM20,000.

We had also eased the process for the M40 group to restructure loans or get a moratorium extension by only requiring a self-declaration. They do not have to show proof that they had lost their jobs or their incomes had been affected.

Having said that, about 98% of requests from the M40 group have been approved so far.

Those who lost jobs can still withdraw from their Account 2 of the Employees Provident Fund (EPF) under the i-Lestari facility.

There are also other efforts such as the MySalam scheme and the Tenang Protection Voucher programme.

For the M40 that are still employed, we have announced a reduction of income tax by 1%, for those who earn between RM50,001 and RM70,000, on top of the expansion on tax reliefs such as education, healthcare and sports.

The minimum EPF contribution rate has also been reduced from 11% to 9% and this will release RM9.3bil into our economy.

There is also the My30 unlimited travel pass initiative which has benefited many of those in the M40 group, based on our analysis.

The most important things for us to look at are long term solutions, as far as the M40 group is concerned.

We have to look at employment opportunities. In this regard, the government is giving the assurance that we will focus on this area and provide 500,000 new job opportunities through various programmes announced in Budget 2021.

Economic relief: The minimum EPF contribution rate has been reduced from 11% to 9% and this will release RM9.3bil into the economy.

Budget 2021 has sought to reduce the minimum EPF contribution rate from 11% to 9%. If the government is having reservations on allowing withdrawals from Account 1, can the contribution rate be reduced further?

The extra liquidity of RM9.3bil from the reduction of 11% to 9% is a huge amount and we also have the i-Lestari at the onset, which allows EPF members to withdraw RM500 monthly for 12 months until April.

About 4.7 million workers have withdrawn from their Account 2 and the total is about RM12bil as of now.

Coupled with the RM9.3bil, this would already be more than RM21bil.

We did have reservations on the Account 1 withdrawals initially. We are worried about Malaysians’ savings in the future but at the same time, we are concerned about their well-being. This is why I announced in the tabling of Budget 2021 that we will allow members to withdraw from Account 1 on a targeted basis.

We are still negotiating, we are still listening to the pleas from the people and I am discussing with the EPF on how to widen our initial target of 600,000 contributors.

The EPF and I will announce something in a few days.

We will also give a detailed explanation on why we want to expand it to more than 600,000 people.

Budget 2021 sees the allocation of RM177mil to the Chinese community. Some claimed this is 77% lower than the Budget 2020 allocation. Can you explain the actual allocation to the Chinese community?

This reduction is overstated. In fact, the RM177mil announced was meant for micro credit (RM90mil), new villages (RM84mil) and RM3mil for others.

Secondly, references to the Chinese community in the Budget 2020 speech only added up to RM270mil.The fact is the amount given for Chinese SME micro credit is actually the same as the year before. So on a like-for-like basis, the difference is only that in this year’s speech, the allocation for school maintenance was not itemised according to types of school.

I will leave it to the Education Ministry to explain the breakdown.

I’m sure you also know the allocation for Universiti Tunku Abdul Rahman (UTAR) was zero in Budget 2020. The current government is the one that put the UTAR allocation back into the Budget.

I also want to clarify that we continue to provide money for UTAR but again, we don’t classify it separately.

Fourthly, this government has shown that it’s very pro-business. We know, let’s not be shy about it, that the economy is being driven by all races, including Malays and Chinese.

And of course, 80% of the SMEs are Chinese and non-bumiputra.

Are you telling me that the wage subsidy of RM12bil benefits and the RM10bil Special Relief Fund (SRF) only benefited bumiputra?

I think we shouldn’t racialise this and look at it objectively instead. The contribution and support we provide is for those who need it.

Unfortunately, like it or not, the Malays are behind. The B40 group, the unemployed, who are they?

I don’t want to racialise this. What’s important is this Budget is for the rakyat and to rebuild the economy. We must work together to achieve this.

There were many who said that the projection for a gross domestic product (GDP) recovery of 6.5% to 7.5% is not realistic. Your thoughts?

Our forecast is based on our assumption of economic growth.

Through Budget 2021 alone, the development expenditure will give us a 4% boost to the GDP and we’re not alone in this estimate. The International Monetary Fund (IMF), the World Bank, Standard & Poor’s (S&P) and the Asian Development Bank are all within the same range. And these are all international agencies. In fact, IMF’s projection is higher than ours at 7.8%.

Our first assumption is the availability of a Covid-19 vaccine. We feel the commercialisation will be faster and hopefully, it will be in the first six months of the year.

So, the global economy will improve and for us as a country with an open economy, we will see positive results as the global economy expands.

We have already seen the economy improving because of external demand in the third quarter and we will continue to see further improvements next year.

Secondly, this is also due to our GDP this year, which gives us a very low base. The lower the negative performance this year, the higher the rebound will be next year due to the low base.

This does not mean that we will get the trajectory that we experienced before this. This only shows a positive recovery and that is the most important thing.

We make projections every quarter and it may be more than 7% or 7.5% if our economy advances stronger.

Like what we are facing now with the conditional movement control order. Of course our economy will be slightly affected, especially the retail and tourism sectors. But our export and manufacturing industries are still functioning, so our economy will not be affected like what happened in the second and third quarters.

God willing, the fourth quarter will be better than the third quarter. We will continue to see our economy improve.

What we should be focusing on is tackling Covid-19 because the faster we win this war against the pandemic, the earlier we can see an economic recovery.

My advice to everyone is to please follow the standard operating procedure (SOP), this is of utmost importance. Because we know what the consequences are if we don’t win this fight.

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Tour bus operators are requesting for government help in terms of loan payment moratoriums from credit companies. Is anything being done?

They have borrowed from financial or credit companies that are not under the purview of the Finance Ministry or Bank Negara. These are companies under the Domestic Trade and Consumer Affairs Ministry, and the Housing and Local Government Ministry.

The ministers had discussed this issue with those affected. Let them comment on this.

It is said that the government’s debts are too high. How are we compared to other countries? Does the government have the capacity to generate the economy in the event of unforeseen circumstances?

As a government, we will not compromise when it comes to the lives and livelihoods of Malaysians.

At this point, our deficit will hit 6% this year, which is higher than the initial projection in Budget 2020 of around 3.2%.

In fact, if you look at the deficit in 2019, it was 3.4%.

So we’ve increased our debts until our projected deficit this year is around 6%.

Of course, we have higher debts and the GDP has contracted but we are still capable and we have high liquidity.

All the fiscal injections made this year such as Prihatin, Penjana and the Prihatin SME Plus, amounting RM55bil, were from local borrowings.

That means we tapped local domestic currency. We are not dependent on the foreign currency and we have this opportunity because of our ample liquidity and low interest rate. We are in a good position.

Other countries do not enjoy such liquidity and they have to borrow from other countries, but we don’t have to.

In fact for Budget 2021, our projection is to tap the local domestic market. We will borrow more. The RM322.5bil Budget 2021 is the largest Budget in our history.

I’m not so concerned as long as the deficit is within the range.

The debt-to-GDP ratio that got Parliament’s approval is 60%. That’s our ceiling. Even if we touch the ceiling, we still have room.

Every 1% of deficit equals RM15bil of borrowings or expenditure. So at around 5% would be a lot, that’s RM75bil in our economy.

What’s more important is that every ringgit we spend in development expenditure has to generate more than that.

That’s what we want. We want to spend to revive the economy and benefit from the multiplier impact. That’s important to help our economy expand.

You have to look at it in the short, medium and long terms.

What would be the impact on our ratings by rating agencies?

We’ve held virtual meetings with Moody’s, Fitch Ratings, and S&P. We have briefed them on our economy and our country’s financial situation.

I think they understand the issues we’re facing now and I am quite optimistic with their suggestions and having our suggestions discussed in detail. We’re on the right track.

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Hotels, travel agencies and tour guides are severely affected. The second conditional MCO has made it worse. Is there anything the government can do to help them?

I agree that the tourism industry is the worst affected sector. Based on our studies in May, Covid-19 had impacted them since February and being the first ones to be hit they’re probably the last ones to recover.

During the recovery MCO, tourism has picked up in resort areas like Langkawi, Penang and Desaru but the hotels in cities are still affected.

As a caring government, we had several initiatives because this is a big sector, which touches on retail, aviation, hotel and services.

We had allocated RM1bil in the Penjana package and in Budget 2021, we announced another RM200mil to strengthen the local tourism industry. That’s a lot of money being allocated to upgrade local tourist spots.

Tourism is an important sector and its multiplier impact is important in terms of our GDP.

Our focus now will be to further develop local or domestic tourist areas.

The initiatives will be announced in the future because even if you announce today, no one can start travelling yet.

Looking at our unemployment rate, are there any initiatives for fresh graduates?

More than 300,000 fresh graduates enter the job market annually, which is why we have the hiring incentive, meant for them and also the M40 group.

If the employee’s salary is RM10,000, the government will give a hiring subsidy of up to RM4,000 or 40% for six months.

We’re also working with the Higher Education Ministry on the KPT-PACE programme for professional certifications, amongst various other programmes.

Having said that, the unemployment rate is still high at 4.6%. But you also must remember that the national unemployment rate for the last 15 years is about 3.3%. The increase due to Covid-19 is about 1.3%.

So you must look at the difference, which is not so much. Because there will always be people in transition between jobs.

SMES are saying that there are no benefits for them in Budget 2021. They want more targeted programmes or packages. What is your opinion?

We tried to cover as many people as possible, including SMEs. We feel what’s most vital for SMEs now is liquidity or cash flow

We’re working with the banks on this. Bank Negara announced there will be new initiatives for SMEs but there are no details yet.

Meanwhile, the wage subsidy programme for example, has extended a helping hand to 330,000 SMEs and retained 2.6 million jobs which cost RM12bil so far, which is not small.

This subsidy is extended for three months and in Budget 2021, it is extended to sectors that are most affected – tourism and retail.

We are definitely helping SMEs. The quantum of support for SMEs is the largest. I’m not saying it’s the best, I’m saying we can always do better, we will and we have been.

We will listen to the issues at hand.

RM1bil has been allocated to tackle the Covid-19 pandemic next year. Is that sufficient?

This is extra allocation for the Covid-19 Fund in 2021. We have the flexibility to increase it.

Currently, the projection is RM1bil. In my Budget speech, I mentioned that we will raise the ceiling of the Covid-19 Fund by RM20bil from RM45bil previously.

Out of that, RM10bil is for Prihatin and the other RM10bil is for Covid-19, especially for the procurement of vaccines.

Also in my speech, I said the government is committed to acquiring vaccine supplies and to make allocations to tackle the pandemic.

We had discussed with the Science, Technology and Innovation Ministry and the Health Ministry, and RM3bil is what they need for the procurement of the vaccine, which would be sufficient for around 70% of Malaysia’s population. - Star