COVID-19: Another total lockdown would be ‘very detrimental’ to Malaysia’s economy, says finance minister
KUALA LUMPUR: Malaysia cannot afford another total lockdown as it will be “very detrimental” to the country’s economy, said finance minister Tengku Zafrul Tengku Abdul Aziz.
Speaking to CNA in an exclusive interview, he said the current nationwide Movement Control Order (MCO) that has been enforced in all states except Sarawak until Feb 4 has made it harder to achieve the targeted growth forecast of between 6.5 per cent and 7.5 per cent this year.
“The (growth) projection we made was based on assumption that there is no MCO,” he said on Wednesday (Jan 27).
“I must admit it is going to be a challenge now (to meet the forecast). Probably in the lower range of 6.5 per cent to 7.5 per cent, depending on how long the MCO will be and how long it takes for us to win against COVID-19.”
The 47-year-old minister added: “I believe we as a country cannot afford a total lockdown of economic sectors. The long term impact, the economic scarring will be very detrimental.”
He prefers a more targeted approach, with the authorities tightening the screw on labour-intensive sectors that have contributed to the rise in cases.
The more automated sectors such as pharmaceutical, aeronautical and automotive should be allowed to operate as per normal, subject to standard operating procedures, he said.
When Malaysia was first placed under the MCO last year, almost all economic activities ceased, except for essential services such as food and beverage outlets and pharmacies.
The lockdown saw the country reduce its COVID-19 cases to single digits in the first half of 2020.
In contrast, this current MCO, dubbed "MCO 2.0", has allowed more economic sectors to continue functioning, such as the automotive sector and retailers like gold and jewellery shops.
With Malaysia recording a four-digit spike in daily cases despite the current MCO, talk of a return to a strict lockdown was rife.
The speculation was fuelled by a leaked letter from the EU-Malaysia Chambers of Commerce and Industry (EUROCHAM) to its members, stating that the Perikatan Nasional government was set to announce a total economic shutdown after Feb 4, if the number of COVID-19 cases did not show any improvement.
EUROCHAM immediately clarified in a press statement last Sunday that there was no mention of an immediate lockdown after the stated date during its discussion with the International Trade and Industry Ministry on Jan 22.
READ: Commentary - Frustrated with tightened COVID-19 restrictions, Johor residents hope this MCO is the last
IMPACT OF MCO 2.0 LESS SEVERE COMPARED TO LAST YEAR’S LOCKDOWN
Mr Tengku Zafrul, who is the former CEO of Malaysia’s second-largest banking group CIMB, was quick to point out that the impact of MCO 2.0 on the economy is less severe compared to the stricter MCO imposed back in March last year.
“Probably half of the workforce is working now but 90 per cent of the economy is still moving. In terms of losses, the first MCO cost RM2.4 billion (US$592 million) a day, the loss now is about RM700 million a day so the impact is less,” he said.
Higher commodity prices now have also given the government a bit more fiscal space to tinker with the budget 2021 projection, he added.
“The projection was based on several assumptions. It assumed oil price at US$42 a barrel. As you know, it is now higher.”
He explained that every US$1 increase in crude oil price per barrel will add RM300 million to the country’s revenue.
The minister unveiled the country’s largest national budget in October worth around RM325 billion. With a fiscal deficit target capped at 5.4 per cent of GDP, and the growth forecast of between 6.5 per cent and 7.5 per cent for 2021, some economists had labelled projections as being overly optimistic.
But he said it is still early days to revise the numbers, given the uncertainty over how long it will take to rein in COVID-19 that has infected around 200,000 in Malaysia and killed more than 700 so far.
He was sceptical when asked if the government is willing to consider widening the fiscal deficit beyond the targeted 5.4 per cent to between 8 per cent and 9 per cent, as suggested by some opposition figures.
“We have a debt ceiling, debt to GDP ratio at 60 per cent. If you go above 60 per cent, you need approval from parliament. Our debt service ratio is now more than 30 per cent.”
“The good thing is we have enough liquidity in Malaysia. In fact, the government borrowings are mostly in ringgit and with regard to stimulus packages, we feel it is enough. But come April and May, if we need more, we may spend more to revive the economy and protect our people.”
READ: Malaysia's traders anticipated a sales boom before Chinese New Year, but the MCO has dented their hopes
REINTRODUCTION OF GST SHOULD NOT BE DISCOUNTED
Prime Minister Muhyiddin Yassin, after coming to power last year, indicated that he wants to look into the proposal to reintroduce the Goods and Services Tax (GST).
Mr Tengku Zafrul said a committee was set up a couple of months ago to look into improving the government revenue stream.
“We need to learn from the past as well about how it was implemented but at the same time understand the challenges we face today on the SST (Sales and Services Tax) … The timing will be key because we are in this pandemic and the economy being where it is today, I think to impose any new form of taxation is not the right time,” he said.
"But over the longer term, I think we cannot discount that possibility of reintroducing GST."
The GST was first introduced in 2015 during the Najib Razak administration.
The 6 per cent GST was zero-rated during Pakatan Harapan government as part of electoral promises to the people in 2018. It has since been replaced with SST.