SINGAPORE – Malaysia and Singapore, two of Southeast Asia’s worst virus-hit economies, are reaching for policy levers to mitigate the economic impact of their respective Covid-19 outbreaks.
Both are projected to slip into recession this year, despite the recent announcement of multi-billion-dollar stimulus packages, with no sign yet that Covid-19 cases have plateaued or that business is set to return to normal in either trade-geared nation.
The stimulus packages rolled out on both sides of the causeway late last week follow earlier spending plans announced in February, largely in response to an initial loss of tourism due to the sudden departure of Chinese travellers after the pneumonia-like disease first erupted in Wuhan, China.
The health emergency has since swept the globe, with coronavirus cases paralyzing Europe and the United States now seen as the epicenter of the World Health Organization (WHO)-declared pandemic.
Coronavirus infections have surged in recent weeks across Southeast Asia, not to the extent in Europe and the US, but nonetheless spurring unparalleled measures to close borders, restrict travel and enforce social distancing.
Malaysia, now with the region’s highest tally of Covid-19 cases, has shut schools and non-essential businesses and deployed the army to oversee a nationwide curb on public movement that will remain in effect until at least April 14. The country has recorded 2,470 total coronavirus cases, including 35 deaths.
Prime Minister Muhyiddin Yassin’s weeks-old government, in a bid to soften the economic blow of the four-week partial lockdown and burnish his leadership credentials with a polarized electorate, announced a 250 billion ringgit (US$58.3 billion) stimulus on March 27.
“We are a nation at war with invisible forces. This unprecedented situation, of course, requires unprecedented measures,” he said in a televised address that included an olive branch to politically disaffected segments of society. “This government may not be the government that you voted for, but I want you to know that this government cares for you.”
Muhyiddin was sworn-in on March 1 in the aftermath of a destabilizing tussle for power that saw the country’s previously elected ruling coalition collapse. As he unveiled the country’s latest stimulus measures, which rivals the most recent annual government budget in size, the new premier appealed to Malaysians from all racial communities to support the emergency effort.
Malaysia’s People-Centric Economic Stimulus Package, or Prihatin, “care” in English, provides one-off cash transfers for lower-income households and middle-income earners, in addition to soft loans for small and medium enterprises (SMEs) that employ around 66% of the country’s 15.8 million workforce, according to official data.
The scheme includes a Wage Subsidy Program that will see the government subsidize wages of RM600 ($138) per month per employee for 3 months for workers whose monthly earnings are less than RM4,000 ($923), measures designed to ease retrenchment for labor-intensive industries such as tourism, hospitality, food and beverage, and events.
The package targets SMEs that have faced a reduction in income of more than 50% since January 2020, though it has been criticized by some industry representatives as being inadequate. The program purportedly covers 3.3 million workers, though SMEs themselves employ an estimated 9 to 10 million workers.
“Signing up to the program prevents employers from resorting to other labor-cost saving measures such as imposing wage cuts or unpaid leave on wage-subsidized employees,” Nadia Jalil, a Malaysian public policy economist, told Asia Times.
“A large percentage of these businesses might find that, despite recourse to a loan moratorium and soft loans, it would be impossible to sustain themselves for the remainder of the year, during which economic conditions are expected to remain muted. The result would be large-scale retrenchment, with perhaps 25% of these SMEs choosing to close,” she said.
While the package is unlikely to avert a 2020 recession, according to Socio-Economic Research Centre (SERC) executive director Lee Heng Guie, “it is expected to ease the magnitude of economic contraction.”
“SMEs will run out of cash within two to three months [and] will not be in financial good shape for the next six months to a year if the crisis does not abate,” he said.
Malaysia’s stimulus plan will controversially be implemented without parliamentary oversight, a fact noted by opposition leader Anwar Ibrahim, who raised concerns that the allocation could be subject to leakages and embezzlement.
“If history is anything to go by, the devil is in the details,” he said in a Facebook Live broadcast after the package was announced.
Research unit Fitch Solutions has revised its 2020 real gross domestic product growth (GDP) forecast for Malaysia down to 1.2%, from 3.7% previously, and down from 4.5% at the start of 2020.
It expects the government to implement further stimulus measures and forecasted an extension of the country’s partial lockdown beyond April 14 if the outbreak worsens.
Singapore, while not shuttering its economy as extensively as Malaysia, has shut all entertainment venues until the end of April, while gatherings outside of workplaces and schools must be limited to 10 people.
The wealthy island nation is widely forecasted to be headed towards the worst recession in its 55-year history, with its economy shrinking 2.2% in the first quarter from a year earlier, according to advance official estimates. A severe contraction in Singapore’s economy is seen as a bellwether for the wider region.
“The Covid-19 pandemic is the most serious crisis we have faced in a generation,” Deputy Prime Minister and Finance Minister Heng Swee Keat said as he announced a S$48 billion ($33.6 billion) “Resilience Budget” on March 26. The measures include wage support, loan schemes and tax breaks, as well as support for the city-state’s adversely affected aviation and tourism sectors.
To fund the hefty stimulus, equivalent to 7.9% of GDP, the government will draw up to S$17 billion ($11.9 billion) from the national reserves, a measure that by law requires the consent of Singapore’s president. Together with an earlier budgetary outlay of S$6.4 billion ($4.4 billion), around 11% of GDP has been used to shore up the economy against Covid-19 contagion.
Funds from the national reserves were last withdrawn in 2009, when S$4.9 billion ($3.4 billion) was deployed to buffer against the global financial crisis amid Singapore’s worst ever recession. Singapore’s financial reserves are not publicly disclosed for strategic reasons, though estimates place the figure at anywhere between S$500 billion (350.8 billion) to upwards of S$1 trillion ($701.6 billion).
“The Resilience Package will help cushion the pain and extend a lifeline to the worst-hit sectors, but will not prevent a recession,” said Maybank Kim Eng economists Chua Hak Bin and Lee Ju Ye. “The fiscal support will reduce job losses and the extent of unemployment, but will not be able to lift GDP growth or the corporate revenue line.”
Following advance estimates of a steep first-quarter decline, Singapore’s Ministry of Trade and Industry (MIT) downgraded the city-state’s economic growth outlook to between -1% and -4%, down from an earlier -0.5% to 1.5% forecast.
DBS Bank, Singapore’s largest bank, predicts the economy will contract -2.8% this year.
“The economy is entering uncharted waters, and this could well become the worst recession ever for Singapore. The threats to the underlying fundamentals of the economy is unparalleled,” said DBS senior economist Irvin Seah, who estimates that total retrenchments this year will top 24,500, up from an annual average of around 14,500.
In a widely expected move, the Monetary Authority of Singapore (MAS) today (March 30) announced easing measures to stimulate the economy, which will see the slope of the Singapore dollar’s policy band reduced to a zero rate of appreciation, a loosening not seen since 2009 during the global financial crisis.
Lee Hsien Loong, Singapore’s long-serving premier, has said it could take “several years” for Covid-19 to run its course, and that it is “quite possible” the government could withdraw from its reserves again later this year if the outbreak worsens. The city-state has 844 total coronavirus cases, with only three deaths.
Fitch Solutions said in a research note that it expects Singapore to record its largest-ever primary fiscal deficit of 11.4% of GDP in 2020, from 1.6% previously. The research unit noted that more stimulus measures are likely to be rolled out later this year, though additional spending is likely to be on a smaller scale.
While opinion is divided as to whether Malaysia and Singapore’s stimulus measures can buoy their economies for a subsequent recovery once the pandemic threat has eased, Asia’s stockbrokers have reported a surge in investor interest despite the recent onslaught on most global stock markets since the Covid-19 crisis began.
“This is by far the busiest time we’ve had in years,” said Frank Troise, Singapore-based regional chief executive officer of merchant bank Senahill Partners, who cited a rise in Western technology and financial services firms betting on Asian economies leading a post-virus bounce.
“Southeast Asia and China will come roaring out of this,” the veteran investment banker predicts. “The expectation is that they would be in the best position to grow. Singapore is seen as the frontline of this globally, in terms of not only how they responded to the virus, but also with the stimulus packages they’ve implemented,” he said.
“The majority of Asia has dealt with this pragmatically and they’ve dealt with it correctly. The safe money, and candidly, the real money is on Singapore coming out of this quite well. They’re addressing the problem, they’ve injected the stimulus. And there’s no political upheaval, unlike in Malaysia.”