MALAYSIA saw yet another record-high number of new Covid-19 cases on Jan 14, the second day of the country’s reinstated targeted Movement Control Order (MCO) on five states and three federal territories, which made up two-thirds of the local economy.

As had been largely expected when Health Director-General Tan Sri Dr Noor Hisham Abdullah said on Jan 6 that the country’s heathcare system was at a breaking point and needed a “circuit breaker” to bring down the number of Covid-19 cases, states and zones with a lower number of positive cases continue to have more freedom. Interstate movements are again disallowed, a blow to domestic tourism. He also said the tougher restrictions would not last more than “four to five weeks”.

Except for the varying levels of movement restrictions (currently imposed from Jan 13 to 26), Malaysia remains open for business, even though a state of emergency — which suspends parliament and eliminates the chances of a general election through (at least) Aug 1 — has also been declared in the country for the first time since 1969. There is no military coup or hard curfew, and essential economic sectors — including manufacturing, construction, services, trade and distribution as well as plantations and commodities — continue to operate.

The targeted approach to movement restrictions — and the fact that the first batch of Covid-19 vaccines is set to reach Malaysia in February — are among key reasons some economists seem to be downplaying the impact of the targeted MCO on the country’s economic growth this year, even though the MCO could well be extended for at least two to four weeks. The second payment of the Bantuan Prihatin Nasional (BPN 2.0) cash transfers totalling RM2.38 billion, for instance, would be credited to 11.06 million recipients’ bank accounts on Jan 21 (B40) and Jan 25 (M40) respectively, the Ministry of Finance said on Jan 13 — which some observers reckon could soften the blow of the news of an extension to the MCO, should it be deemed necessary.

While some are more optimistic than others, economists generally believe the movement restrictions announced so far will nudge GDP growth for 2021 down 0.8 to 1.5 percentage points to be closer to 5% or 6% rather than 7% — still not too shabby compared with the official projection of 6.5% to 7.5% growth.

Every two weeks of MCO could shave 0.4 percentage points off GDP growth, with an estimated loss of RM5 billion to the economy, UOB Bank Malaysia senior economist Julia Goh says, citing the projected daily losses of RM900 million to RM1.4 billion during the MCO from March to April 2020 and RM200 million to RM300 million during the implementation of the CMCO from October to November 2020.

Cushioning the headline GDP impact is the fact that growth this year will be measured from a low base of what has been projected to be -4.5% for 2020 — down from 4.3% in 2019, 4.8% in 2018 and 5.8% in 2017. The GDP reading for the fourth quarter of 2020 (4Q2020) will be released on Feb 11, the day before Chinese New Year, whereas the reading for 1Q2021 is slated for release on May 11, two days before Hari Raya Puasa.

Also helping shore up optimism is the fact that Brent crude oil prices were hovering around US$55 a barrel at the time of writing, some 30% above the US$42 a barrel assumed when planning Budget 2021 last November. Every US$1 rise was guided to bring in RM300 million more in revenue for the federal government.

Economists also note the boost to the economy as money is released into the economy from the Employees Provident Fund (EPF) i-Sinar Account 1 withdrawals, where the withdrawal of RM19.62 billion by 2.5 million members had been approved as at Jan 4, with another 1.4 million applications still pending evaluation. The first month’s payout, totalling RM10.07 billion for the applications approved so far, is being made in stages from Jan 5. This would add to the consumption boost from the RM14.77 billion withdrawn by 4.93 million members from i-Lestari Account 2 between April 2020 and Jan 1 this year.

That is not to say there is no cause for concern. Some investors were selling down banking stocks last week on expectations that Bank Negara Malaysia might reduce the overnight policy rate (OPR) — from the current record low of 1.75% — to prop up economic growth when its Monetary Policy Committee (MPC) meets on Jan 20. Others think, however, that the MPC is more likely to choose to keep its bullets for now to allow the banking sector to rebuild its buffers, given that a moratorium on loans is still being extended on a targeted basis. The MPC is scheduled to meet on March 4, May 6, July 8, Sept 9 and Nov 3 thereafter and is free to have unscheduled meetings, should it be deemed necessary (see “MCO 2.0 could hasten OPR cut, stronger ringgit seen” on Page 10).

More targeted fiscal spending is deemed necessary to shore up growth, economists say, especially those in aid of businesses and jobs harder hit by MCO 2.0. Most of them, however, do not expect sizeable spending increases, citing fiscal constraints, even though oil prices are expected to regain strength as more economies reopen, with the aid of vaccines.

“Even though the emergency powers allow the government to potentially issue ordinances to temporarily supplant existing laws, including the ones concerning the recently approved Budget 2021, the government may remain reluctant to undertake a ‘bazooka’-type fiscal largesse, given the external constraints imposed by market. Already, the Dec 4 downgrade by Fitch Ratings serves as a reminder of the limits of fiscal space that Malaysia may run into, especially given its relatively high stock of government debt,” OCBC Bank economist Wellian Wiranto writes in a note dated Jan 12. He now expects GDP at 5.7% for 2021.

To be sure, a circuit breaker was necessary, given that the number of active cases (33,989 as at Jan 14, 2021) exceeds the number of available beds (28,674 as at Dec 28, 2020). Between 63% and 80% of new local cases daily from Jan 9 to 14 comprised locals, official data shows. The number of cases involving prisons and detention centres in the past month was also largely below 10% of the total number of new cases, according to official data. As daily new cases have been at four digits in all but two of the past 48 days — reaching a new record high of 3,337 on Jan 14 — much higher than the three-digit figures seen during the MCO and CMCO, much is riding on Malaysia’s success in bringing the number of cases down in the coming weeks.

“Critical for recovery outlook is the speed and success of Covid-19 vaccinations to be rolled out starting next month (February),” Maybank Investment Bank chief economist Suhaimi Ilias writes in a note dated Jan 12, telling clients that Malaysia has so far secured vaccines from Pfizer, AstraZeneca and the World Health Organization’s COVAX programme to cover 40% of the population and is in final negotiations to secure Covid-19 vaccines from Sinovac, CanSino and Gamaleya, to raise the vaccine’s population coverage to 83%, or 26.5 million people, to achieve herd immunity.

While the first batch of vaccines (one million doses) from Pfizer is scheduled to arrive in February, Science, Technology and Innovation Minister Khairy Jamaludin, who is also co-chair of the Special Committee on Ensuring Access to Covid-19 Vaccine Supply, says Malaysia’s vaccination programme will span 18 months. According to Khairy, Malaysia will receive 1.7 million doses in 2Q2021, 5.8 million doses in 3Q2021 and 4.3 million doses in 4Q2021 from Pfizer. He says: “The delivery of our orders with other manufacturers will also be staggered. This is the reality of global manufacturing capacity for Covid-19 vaccines and demand outstripping supply.

“Singapore was able to ‘place bets’ on vaccine candidates earlier because of greater resources,” says Khairy in a Facebook post on Jan 14, noting that the city state’s S$1 billion (RM3 billion) budget is “about the same as Malaysia”, but it has only roughly one-fifth the population size.

The lack of resources, relative or otherwise, means that every ringgit needs to get the maximum bang for the buck in aid of the people and businesses so that the country’s economy can emerge stronger once the pandemic is over. Policymakers would also need to be smart about getting the right information about Covid-19 vaccination disseminated to the people as soon as possible to ensure that the desired herd immunity can be achieved.