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Malaysia en route to win economic war against Covid-19 pandemic

Malaysia en route to win economic war against Covid-19 pandemic

28 Apr 2020

Malaysia did well in the way it handled Covid-19 from spreading and the sheer size of its fiscal stimulus as well as its aggressive monetary policy, but analysts also note that the country will be negatively impacted by its overdependence on external demand, supply chain disruption, a diminishing resource balance and high debt.

To recap, the movement control order (MCO) has been extended for another two weeks, until May 12, to fully contain the spread of the coronavirus.

Prime Minister Tan Sri Muhyiddin Yassin did not rule out the possibility of the MCO being extended again after this.

“Malaysia is on its way of winning the war against Covid-19 as the recovery rate jumped to more than 65 per cent due to its stringent rule of social distancing and effective healthcare policy,” the research arm of Kenanga Investment Bank Bhd (Kenanga Research) observed in a report yesterday.

The report highlighted how Asean-6 economies were faring since the onset of the virus at the end of January.

“In addition, the number of daily cases has fallen below 100 for the past few days, and the mortality rate is still relatively low at 1.7 per cent.”

However, Kenanga Research highlighted that over dependence on external demand, supply chain disruption, a diminishing resource balance and high debt were the main drag for Malaysia.

According to Kenanga Research, data on exports as a share of gross domestic product (GDP) indicated that amongst the six Asean economies, Singapore is the most vulnerable to a damage in external demand (172 per cent of GDP), while Indonesia is the least exposed (21 per cent of GDP).

“Malaysia is leaning towards the upper end (64 per cent), albeit registering the steepest reduction in dependency on exports since the Global Financial Crisis thanks partly to its planned efforts to shift its policy focus towards domestic demand, but also partly due to loss of market share to its regional

On supply chain disruption due to massive movement restrictions adopted across the globe, the research arm noted that this will likely affect Vietnam the most, followed by Malaysia, as both countries have a relatively high dependency on intermediate goods from countries with top-10 highest Covid-19 cases globally.

“This is reflected in the value-added (VA) content of total gross exports of which Vietnam is the highest accounting for 19.8 per cent followed by Malaysia (15.4 per cent).

“Of note, the two countries were beneficiaries amidst the impact of the US-China trade war over a year ago.”

As for fiscal stimulus, Kenanga Research highlighted said taking into account direct fund injection, loan guarantees, tax incentives and other indirect fund transfers and combined together as a share to GDP, Malaysia’s stimulus package is the largest (17.6 per cent), followed by Singapore (12.5 per cent) and Thailand (10.8 per cent).

“Meanwhile, Vietnam, Indonesia, and Philippines spent less than three per cent of their respective countries’ GDP.

“As a result, the fiscal deficit and government debt of Asean-6 would widen by a considerable margin in 2020.”

Source:The Borneo Post

Posted on : 28 April 2020