By Dr Rais Hussin April 8, 2020
- Tied to its fiscal rule, stimulus packages seem to represent ‘drip feed’ efforts
- New normal for economic & industry behaviours must also be anticipated or re-imagined
[Ed Note: In light of the uncharted and turbulent economic waters Malaysia finds itself in, DNA is publishing some economic articles that do not touch on our usual tech topics. We hope readers find them useful. In this case, the writer, Dr Rais Hussin is a former tech entrepreneur and has an investment in an Islamic fintech company as well.]
Following the US$57.2 billion (RM250 billion) stimulus package which consists of US$22.9 billion (RM100 billion) worth of measures for businesses and US$4.6 billion (RM20 billion) for the general economy (both benefiting the SMEs), the Malaysian government announced a further stimulus package of US$2.3 billion (RM10 billion) targeted at the small and medium sized enterprise (SMEs) on April 6 to further address their concerns.
[RM1 = US$0.23]
The following are several key measures announced:
• Expanded wage subsidies for SMEs with workers earning RM4,000 and below;
• Special PRIHATIN grants totalling RM2.1 billion for eligible micro SMEs;
• Abolishing interest rates for Micro Credit Scheme under Bank Simpanan Nasional (BSN) and extending the loan scheme to TEKUN Nasional with a maximum loan limit of RM10,000 per business;
• Rent exemption or discounts for SMEs operating at premises owned by the GLCs;
• Tax breaks for landlords that give rental discounts or exemption to SMEs;
• Reduction in foreign worker levy by 25% for employee permits expiring between 1 April and 31 December 2020; and
• Extension of deadline for the submission of financial statements to three months after the end of MCO.
“Humanitarian” stimulus for SMEs to survive
Before the announcement, an online survey done by SME Association of Malaysia found that 33 per cent of respondents have just enough cashflow to survive through March while 37.8 per cent can sustain up until April only due to the MCO.
The SME Association of Malaysia was pleased with this aid package stating that most of the companies now will be able to sail through the MCO. In particular, the Wage Subsidy Programme allocation has been increased from RM5.9 billion to RM13.8 billion in which there was a modification by having a tiered benefit scheme rather than a flat rate of RM600 in the previous package and the condition to prove 50% income loss was dropped. As a result, more businesses would benefit given the estimated beneficiaries have expanded from 3.3 million workers to 4.8 million workers.
Meanwhile economist, Dr Barjoyai Bardai of Universiti Tun Abdul Razak described the stimulus package as a “humanitarian” measure for SMEs to survive, particularly the micro SMEs.
Drip Feed Package
Nonetheless, as much as we hope government will do more to help SMEs weather the uncertainties going forward, the government is tied to its fiscal rule as the stimulus packages, overall, seem to represent a “drip feed” package.
This is likely to be related to the government wanting to uphold its self-imposed guiding principles on fiscal management in supporting a fiscal consolidation path towards a balanced budget. By definition, a balanced budget means government finances need to be either balanced or there is a ceiling for the deficit level.
The government’s adoption of the Medium-Term Fiscal Framework for a three-year period (2020-2022) was said to be essential in ensuring fiscal consolidation remains on track to achieve the “golden rule”. That is why the fiscal deficit was projected to be at an average 2.8% of GDP within the three-year period, for the government to provide fiscal space in the event of an economic crisis.
The government could also be in a tough position given the collapse in oil price. Budget 2020 projected RM50.5 billion revenue from oil and gas, holding a substantial share of 20.7 per cent of the total revenue (RM244.5 billion). But this was premised on an oil price of US$62 per barrel (US$33.46 per barrel as at time of writing). As calculated by an Ambank economist, a drop of US$27 per barrel would slash oil revenue by RM8.1 billion. Therefore, the revenue loss would pose risk to the fiscal position.
More Stimulus for Survive to Restart
The latest update from the Finance Minister is that the fiscal deficit will widen to 4.7% of GDP in 2020 after taking into account the special RM10 billion stimulus package for the SMEs. But the estimated deficit still would not reach the deepest deficit Malaysia has had in history – which was 6.7% of GDP during the Global Financial Crisis (GFC). This could mean that the government can do more especially with a view to re-starting the economy post-MCO.
We at Emir Research propose additional measures to aid the government in fine-tuning the packages that have been introduced for the SMEs so far. This is meant to help the businesses as well as workers in weathering the challenges that are about to come, especially after the MCO is lifted and beyond throughout the year.
After all, as the Prime Minister mentioned in his speech, the SMEs as well as micro businesses contribute 40% to the GDP and two-thirds of the workforce. While we welcome the government’s cumulative efforts in providing assistance to each part of the economy, it is also crucial to continue enhancing the measures from time to time as the uncertainties remain.
As mentioned, the RM250 billion stimulus represents 18 per cent of GDP. In contrast, the UK’s is 15.8 per cent. Malaysia’s higher ratio is an indication that the government is prepared to spend more to revive and re-start the economy.
In terms of the injection of the stimulus into the economy, it represents the amount the government is prepared to give at this stage of fighting the virus and ensuring the survival of the economy during the MCO. Our injected stimulus now stands at RM35 billion, which is 2.3 percent of GDP. In contrast, the UK’s injection is 2.6 percent, which is comparable.
Additional Recommendations for our SMEs
When it comes to wage subsidy, we propose a two-tiered Wage Subsidy Programme.
Firstly, all employees earning below RM4,000 a month must not be retrenched or given no-pay leave for six months in lieu of the 3-month wage subsidy programme, even if the cap on 200 employees has been exceeded. If this is not possible, then such number of employees in excess of 200 must not be retrenched or given no-pay leave for three months.
The second part of the wage subsidy is for employees earning above RM4,000 to be protected from retrenchments and no pay leave for the duration of three months.
Foreign worker levy
We would like to see a reduction of foreign worker levies by 25% for three months, followed by a complete waiver.
The government, via Danajamin, will provide guarantee facilities to SMEs of up to RM50 billion for working capital loans, limited to 80% of the loan amount. The loan facilities will be distributed with a ratio of 70% for small businesses with not more than 250 employees, and 30% for the medium-sized businesses with more than 250 employees.
The loan amount for this guarantee is for RM100,000 to RM2 million for the small businesses, and RM10 million to RM25 million for the medium-sized businesses.
Fees or charges for the application for this government guaranteed loan should be discounted or waived. Additionally, this guarantee facility must be made available now until Dec.
Transportation/ Logistics Sector
For the lorry drivers, the government should provide a monthly living allowance of RM1,200 for up to three months. On top of this, the government to top up EPF of lorry drivers by up to RM200 (maximum) per month for up to three months.
For the employers/ owners we would like to see the government work with the PMLOA (Pan Malaysian Lorry Owners Association) and insurance companies to waive annual insurance premium by 50% post-MCO on the expiry of the existing insurance cover.
Annual road tax for the lorries should be waived with immediate effect upon expiry of the current road tax.
The government via the Inland Revenue Department (IRD) should also increase the capital allowance (as tax deductible) for new lorries by 50%.
To further help lorry owners, the government should issue Touch ‘N Go cards free of charge – with a maximum value of RM300.
And from a policy angle, for government to expand gradually the number of essential services industry during MCO so as to re-start their manufacturing process which requires imports and exports of raw materials and finished products that will enable these lorry drivers to get back to work or increase their workload – thus preventing loss of income on many fronts.
e-Commerce and Digitalisation
On the increasingly important e-Commerce and digitalisation aspects, where digital is not more a nice layer to add to business but a new imperative, we have four recommendations.
The immediate implementation of the RM500 million fund under Budget 2020 to digitalise the operations of Malaysian SMEs as well as the RM300 million allocation provided by Bank Negara under the SME Automation and Digitalisation Facility (ADF).
Second, the government should provide a 75% subsidy for SMEs to advertise and promote their products and services online, such as through Facebook and Google AdWords advertising.
Third, e-Commerce platform fees for SMEs should be waived for a period of six months, with a particular focus on the Digital Free Trade Zone (DFTZ) in relation to the e-Fulfilment Hub and the e-Platform Services.
And, SME Corporation and MATRADE to offer free of charge services with a particular focus on small businesses, including favourable lines of credit and export insurance. Duration should be indefinite.
The post-MCO phase is a crucial for the survival to restart the economy. This will determine whether our economy will continue to rise after its survival.
During this stage, the resiliency of the economy must be strengthened through government lending its hand to assist companies hit hard by the Covid-19 pandemic to survive for the long haul.
New normal for economic and industry behaviours must also be anticipated or re-imagined at this stage to give companies a glimpse of the future economic and business landscape for them to survive and thrive . And the key to all these is the introduction and assimilation of the concept of survive-to-restart from now on.
Dr Rais Hussin is a serial entrepreneur and CEO of Emir Research