Recession, bankruptcy, joblessness: A vicious circle looms

PETALING JAYA: The country is expected to experience recession until the second quarter of this year due to the movement control order (MCO), said an economist, who believes the government has to re-implement the loan moratorium to prevent bankruptcies.

Yeah Kim Leng said the latest MCO is expected to slow down consumer spending, with wholesale, retail, tourism, production and export being hit the most since last year.

“Based on the previous experience of last year’s MCO, 14 days is not going to be enough to bring down Covid-19 cases. It may need at least one to two months.

“We are in recession as of the last two consecutive quarters of 2020. It has been negative and likely to continue in the first quarter of this year,” he told FMT.

Malaysia is weathering its worst economic recession in history just as other developed nations are facing deep downturns because of the Covid-19 pandemic and MCO.

Malaysia’s gross domestic product (GDP) contracted 17.1% in the second quarter of 2020, the steepest quarterly decline on record, which showed the severe impact of an MCO on the economy.

Yeah, a professor at Sunway University, said the emergency declaraton may also further dampen investor confidence.

Yeah Kim Leng.

“Investors may be concerned about political uncertainty and policies. An unstable government will only lead to more uncertainties,” he said.

He urged Putrajaya to help SMEs to avoid bankruptcies due to weak consumer spending, saying they would need aid if the MCO extends beyond two weeks.

“Jobless Malaysians will need a loan moratorium until at least the second half of this year as more people are likely to be jobless if no assistance is provided,” he said.

Malaysia’s unemployment rate rose to its highest point at 5.3% in May 2020 after two months of MCO, with the number of jobless Malaysians also reaching a high of 826,100 that month.

With the government announcing another round of MCO to Jan 26, things could get worse, so Yeah hoped the Covid-19 vaccines will be rolled out as soon as possible to curb the number of infections.

Change in political culture needed

Another economist voiced concerns over Malaysian politics, saying support should not be bought with money and positions as it would further weaken the economy.

His advice comes after several key portfolios in GLCs were filled by politicians when the Perikatan Nasional coalition took over Putrajaya in March 2020.

Universiti Malaya professor Nazari Ismail said this would cost money and increase the country’s debts.

“This is the reason why our government is in debt to the tune of more than RM1 trillion, including government guarantees.

Nazari Ismail.

“We are paying around RM40 billion a year to service debts, and it is growing. The only way we can afford these payments is to impose the goods and services tax (GST) on the people, which will only create more hardship, especially for the B40 group,” he told FMT.

However, if the government does not impose GST, financial institutions that lend money to the government may downgrade the country’s credit rating which, in turn, will increase borrowing costs.

“This may cause the ringgit to depreciate and bring about an increase in import costs, including food,” he said.

Nazari cited the case of Lebanon, which had its rating cut to the lowest grade by Moody’s Investors Service, after suffering major losses on its holdings as its government struggled to secure aid to ease a crippling financial crisis.

In July 2020, Moody lowered Lebanon’s issuer rating to a ‘C’, the lowest rating possible, on par with Venezuela

Nazari said these prospects were “certainly very worrying”.

“We need to change the culture of our politics. Society must be less materialistic.

“Leaders should be elected not because they can give us money and position but because they are ethical and can formulate good policies for the country.”

The people, he said, should also be educated to realise the dangers of reliance on debts, whether by government, corporations or households.