Putting the economy on a strong footing

By EMIR Research

The RM35 bil short-term economic recovery plan (Penjana) announced by Prime Minister Muhyiddin Yassin is timely and right on five counts – arresting the increase in unemployment and business closures, easing the cash flow of businesses, driving consumption which is an engine of growth and a relevant focus on digitalisation.

Coming at the end of the conditional movement control order (CMCO) and coinciding with the next phase of the MCO – the recovery MCO (RMCO) – Penjana epitomises the next concrete step the Muhyiddin administration is taking as part of the overall strategy in the recovery phase of the economy.

It pursues the approach of gradually reopening the economy in a careful, coordinated and orderly manner alongside the sense of urgency to push through the changes needed as we navigate our way towards a post-Covid-19 world.

Let’s walk through the five main themes addressed in the Penjana package.

1. Addressing unemployment

It tackles the rising concern of unemployment by announcing measures to save livelihoods. This resulted from the Department of Statistics’ projection that unemployment could reach up to 5.5% this year and also the Social Security Organisation (Socso) estimated job losses to soar by 50% to 200% beginning the second quarter.

Hence, this leads to the three-month extension and coverage expansion of the Wage Subsidy Programme (WSP) under Penjana. Furthermore, it can also be utilised to cover unpaid leave in the tourism businesses which have been badly affected by the crisis.

Looking forward, perhaps the WSP could be extended further as part of the medium-term recovery plan. This would accompany the gradual reopening of the economy.

Penjana also reflects the government’s proactive measures at pre-empting unemployment levels with the upgrading of the National Employment Services Job Portal, hiring and training incentives to help the unemployed and youth as well as the programmes for reskilling and upskilling of workers.

Another positive signal is the government’s serious attention to support the growth of the gig economy which already makes up 25.3% of the total employment in Malaysia, based on the World Bank data. This is through the matching grant allocation and an allocation to MDEC for the Global Online Workforce programme.

2. Preventing further business closures

With unemployment being taken care of, business closures can be minimised especially for the tourism sector where the combined lifting of the ban on interstate travel and the Penjana Tourism Financing (PTF) would go a long way to boost domestic tourism via domestic travel.

Perhaps the next crucial step is to encourage companies to earn health accreditation as an insurance of “safe travel” for travellers to regain consumer confidence.

The Penjana Microfinancing will spur the creation of more micro-enterprises in the country – crucial towards the promotion of entrepreneurship, as part and parcel of the Ministry of Entrepreneur and Cooperative Development’s vision of producing more job creators which in turn will definitely boost employment in the country.

The Bumiputera Relief Financing is also consistent with the reality that, overall, the SMEs are leading employers in the country.

3. Easing cash flows for businesses

Measures like the Accelerated Payment Terms for GLCs and Large Corporates’ Supply Chain will contribute towards easing cash flow woes among the SMEs as the government encourages the GLCs and large corporates to accelerate their vendors’ payment terms.

In addition, supportive measures to soothe financial stress like 50% remission of penalty for late payment of SST and an extension of special tax deduction for renovation and refurbishment are much welcomed.

However, there is still a need for the government to increase the participation of SMEs in the Vendor Development Programme (VDP) through the GLCs. This could be done in collaboration with SME Corp Malaysia.

In extending their supply chain by including more SMEs in procurement and domestic or local outsourcing contracts, the tenure could be between six months and one year.

The respective GLCs would target the SMEs in the same or related fields of business and industrial activities. Perhaps 50% of the payment could be advanced to the newly participating SMEs to help ease their cash flow with the other half to be settled by the end of the six-month or one-year tenure.

4. Propping up consumption

The Penjana e-wallet credits worth RM50 and “Shop Malaysia Online” are expected to spur online consumption while providing convenience for the consumers.

The reintroduction of the Home Ownership Campaign (HOC) will also promote more affordable homeownership and to help ease the housing glut on the back of weaker demand.

Tax incentives for the purchase of private vehicles will also play a similar role in which to ensure the volume of sales is not dampened, as well as to promote consumer loans.

Missing from the Penjana package is perhaps the government’s direct cash assistance Bantuan Prihatin Nasional could be extended beyond June to continue supporting the middle- to low-income households in driving consumption.

5. Promoting digitalisation

Finally, the micros and SMEs e-commerce campaign will provide additional incentives for the digitalisation of micro-enterprises and SMEs. This together with the Technical and Digital Adoption for SMEs and Mid-Tier Companies (MTCs) will complement and supplement existing efforts aimed at the digitalisation of SME operations, trade channels and supply chain.

This brief post-stimulus package analysis is of the view that all in all, Penjana will play a constructive and crucial role in the recovery of the economy which will put it in good stead as far as putting the economy on a strong footing is concerned. What is required is timely execution with no red tape and government transparency as the keys to policy effectiveness.

Therefore, it is expected that the Economic Stimulus Implementation & Coordination Unit Between National Agencies (Laksana), as the body established to monitor the implementation of the economic stimulus packages, will continue to regularly update the progress of execution to the public. – June 10, 2020

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