Nationwide Lockdown Torments Malaysia’s Economy

As of Tuesday (6/1), Malaysia locks down again for the second time. The lockdown will last for about two weeks until Monday (6/14). On Thursday (5/27), Malaysia reached its highest recorded daily transmission of COVID-19 with 7,857 cases and 59 deaths, making Malaysia the country with the highest daily COVID-19 infection cases in Southeast Asia. It is suspected that the spike in cases occurred because of the emergence of new variants of COVID-19 and the large number of residents who gathered during the holy month of Ramadan and the Eid al-Fitr holiday last May in which many violations of the COVID-19 protocol were not carefully monitored. In response to the emergency, Prime Minister of Malaysia, Muhyiddin Yassin said on Tuesday (6/1), "With the development of the daily spike in infection cases, the ability of hospitals across the country to accommodate COVID-19 patients is becoming increasingly limited". A strict lockdown that applies to all social and economic sectors will be enforced so that all public spaces and non-essential commercial areas must be closed during the period of lockdown. The Malaysian government only allowed 17 essential service sectors, including health care, telecommunications and media, food and beverage, utilities, and banking to operate, and closed all malls. However this time, there is a bit of leeway in the lockdown. In each house, only two people are allowed out to do essential things and they are only allowed to travel within a radius of 10 kilometers from their respective residences. Yassin stated that, with this policy, the government through the Ministry of Finance would provide subsidies or social assistance for residents and small merchants as soon as possible.

Meanwhile, Malaysia's Finance Minister, Tengku Zafrul Abdul Aziz, has declared that the country's economic growth projections for 2021 may be lowered as a result of the lockdown policy, which prohibits non-essential companies from operating. Due to the lockdown, the Malaysian government changed its economic growth and fiscal predictions and announced a fresh economic stimulus program worth RM 40 billion (Rp138 trillion) to mitigate the damage. According to Zafrul, the government might have to borrow more cash to cover Prime Minister Muhyiddin Yassin's US$9.7 billion plan. Other possibilities, he said, including cutting spending and relying on dividends or income from the government ecosystem, which comprises statutory entities and state-linked businesses. Malaysia's finance minister also indicated that the country's deficit could expand by more than 6%, exceeding the previously set ceiling. Furthermore, the wages of cabinet ministers will not be paid and would instead be distributed to the state catastrophe account to cover expenses associated with COVID-19. Associating with Indonesia, according to CORE (Center of Reform on Economics) economist Piter Abdullah, the implementation of this total lockdown regulation will not have much impact on Indonesia. As he mentioned on Tuesday (6/1), “I think it's very limited. Indonesia-Malaysia's economic relationship is not big enough. Malaysia is not our main export destination either.”

This late circumstances has affected the capital market situation in Malaysia. Stocks have plumped and the Ringgit exchange rate has also weakened. On Monday (5/31), a 1.6% fall has hit The FTSE Bursa Malaysia KLCI Index before paring losses to 0.7% at the closing time. On the other hand, the Ringgit slid 0.4% to US$414.90/USD, while a 10-year bond yield rose three points to 3.25%. According to Refinitiv (5/31), Ringgit has weakened 0.1% to Rp3,449.89/RM. However, a mandatory act of lockdown to protect the city certainly has its risks. Malaysia’s lockdown will “drag on the country’s recovery, with a good chance that Q2 GDP growth will contract on a sequential basis,” said Khoon Goh, head of Asia research at Australia and New Zealand Banking Group Ltd. “We will likely see the ringgit continuing to underperform in the region, but its weakness is being put in check by a soft US Dollar,” Khoon Goh added to Bloomberg Monday (5/31). Signs of recovery are starting to appear since the Malaysian government has already conducted a rollout with the economic stimulation. Hence the cyclical sector still needs help from investors. It is undeniable that we are still living in the shadow of COVID-19, we cannot divide one’s attention to people’s lives or the country’s economy, both are equally important. Governments have to be balanced in solving these problems so that the economy and people’s welfare won't overlap each other.

Sources

BBC

Bloomberg

CNBC Indonesia

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