THE World Bank last week lowered its Malaysia gross domestic product (GDP) growth forecast for 2022 to 5.5%, from 5.8% previously.
This is the lower end of the Government’s forecast GDP of between 5.5% to 6.5%. Despite the reopening of Malaysia’s borders on April 1, Malaysia’s growth prospect is expected to soften due to uncertainties and economic implications from the Russia-Ukraine war.
These economic implications revolve around lower employment prospects with better pay and higher cost of living. The higher cost of living extends to the rising cost of input materials for businesses and has imposed intolerable pressure on their cash position that will only be exacerbated from the shortages and disruption in supply with the continued war in Ukraine.
For this reason, the Government should heed the requests from individuals and business community for an extension of the interest rate waiver and bank loan moratorium that ended on March 31.
Industry, especially small and medium enterprises (SME) are still trying to recover from the failed economic policies and disastrous serial total lockdowns, as well as the COVID-19 pandemic management that has, to date, caused 4.3 million infections and more than 35,300 deaths.
Basically, lower economic growth means lower revenue and reduced ability of both individuals and businesses to service their loans.
Therefore, the Government should help the business community to weather rising costs, coupled with lower-than-expected economic growth, by extending the bank loan moratorium and interest rate waiver for another six months. The benefit of the loan moratorium has provided relief to the value of at least RM80 bil that has benefited eight million individuals and companies.
Banks’ profits unaffected
As for the costs involved, the banking industry can afford to do so after recording healthy pre-tax profits of RM41.5 bil in 2019, RM28.5 bil in 2020 and RM33.7 bil in last year.
Despite bearing the costs of the loan moratorium during the first series of total lockdowns that cost RM6.4 bil in 2020, the banking industry still recorded healthy pre-tax profits of RM28.5 bil. For 2021, not only was there a six-month loan moratorium costing RM6.4 bil coupled with an interest rate waiver for the poorest 50% of the population that cost banks more than RM1 bil, pre-tax profits of the banking industry still increased to RM33.7 bil.
Clearly, bearing the costs of the loan moratorium and interest cost waiver has not affected the profitability of banks, However, much needed assistance and relief from the loan moratorium and interest rate waiver will help individuals and businesses, especially SMEs, to allow them to recover from COVID-19 and overcome the current economic recession. – April 12, 2022.
Lim Guan Eng is a former Finance Minister and the MP for Bagan.
The views expressed are solely of the author and do not necessarily reflect those of Focus Malaysia.
