MALAYSIA needs to embark on an even recovery process to build back stronger, says National Recovery Council (NRC) chairman Tan Sri Muhyiddin Yassin (pic, left) as he warns that the two Covid-19 pandemic years could lead to a lost decade for development if the recovery process is not managed well.

The former Prime Minister also wants the government to intervene as he says that the pace of recovery has been uneven with some sectors recovering slower than the others.

Closing the wage gap is also important for the economic prospects of the country, which, he adds, is seeing a shrinking middle class as more Malaysians are plunged into lower income brackets due to the pandemic.

Q: What is the role of the NRC and why was it formed?

A: The NRC was formed when I was the Prime Minister, and it was initially aimed at devising and executing the exit strategy for us to transition out of the pandemic. We had formulated the National Recovery Plan (NRP), which had allowed the systematic and safe transition out of the pandemic in four phases. There were three thresholds that needed to be met from one phase to the other, namely the daily number of cases, vaccination rate and hospital capacity available.

Alhamdulillah, this exit strategy enabled us to ramp up vaccination, bring the number of infections down and ensure the safe reopening of Malaysia’s economy in stages.

However, we acknowledged that the impact of the pandemic was severe. The lockdowns had taken a toll on our economy and the well-being of our people. The last of the eight stimulus packages worth RM530bil, called Pemulih (National People’s Well-Being and Economic Recovery Package), was announced in June 2021 and implemented until the end of 2021.

Pemulih itself was worth more than RM150bil, with a focus on continuing the people’s welfare agenda, supporting businesses and increasing vaccinations. When I stepped down as Prime Minister, I stayed on as the chairman of the NRC, which became an advisory body to the Cabinet on national recovery matters. It must be stressed that the council comprises senior Cabinet members including the four Senior Ministers, Finance Minister, Health Minister and Minister in the Prime Minister’s Department in charge of the economy, opposition leaders, business leaders, experts in health, education and social services as well as senior civil servants.

The council has esteemed memberships and our deliberations were robust on a host of matters affecting recovery, not just on the economy. Proposals were tabled and deliberated by government ministries, business associations and experts.

Recommendations were made to the Cabinet, in fact, more than 90 recommendations were made. However, as I have stressed earlier, the council is an advisory body, it has no executive powers, and while some of the recommendations were acted upon, such as the reopening of borders, many others were not implemented despite them being endorsed by the Cabinet.

Q: The NRC had done a series of engagement sessions with the business community, what were the main issues highlighted?

A: Yes, we organised a series of engagement sessions not just in the Klang Valley but across the country. I went to Langkawi, Melaka, Johor, Kelantan and Terengganu, met with youth groups, academicians, non-governmental organisations (NGOs), business associations, chambers of commerce, together with their input, we had a frank dialogue on the issues and challenges confronting these different groups.

In these discussions one of the main feedback that touched me was the impact of our systematic implementation of the NRP and vaccination programme. Businesses – both foreign and domestic – praised our transparent and orderly plan as well as the speed of our vaccination programme which enabled these businesses to reopen safely. Foreign-owned businesses were particularly thankful as they could see and compare our policies to those of other countries and thanked us for how we implemented our exit strategy. Local businesses were appreciative too as it enabled them to plan more effectively their stock, manpower, when they knew we were moving progressively out in stages.But what is more rewarding is when I have people coming up to me during my engagement sessions to say: “Tan Sri, thank you, I didn’t have to close my business or retrench my workers because I took the wage subsidy during Covid-19 for my business.” That is correct, we spent more than RM15bil on wage subsidies to help more than 300,000 businesses, mostly small and medium enterprises (SMEs), to save more than three million jobs.

I have also heard them say: “Tan Sri, thank you, the food basket that you gave me provided my family with meals every night.” That is correct, we gave more than RM50mil for food baskets when we did the targeted lockdowns, and after. We gave individual MPs RM500,000 each for food baskets.

“Tan Sri, thank you for the Bantuan Prihatin. I could buy diapers and milk for my baby.” That is correct, we gave more than RM22bil in direct cash assistance during the pandemic, more than 10.1 million recipients of direct cash handout.

“Tan Sri, I got the vaccine and I’m alive. My neighbour didn’t get the vaccine and has passed away.” We spent more than RM5bil procuring vaccine for 140% of the population from the start, because we knew we were racing against time, the extra purchase meant we could do booster shots faster than any other country.

The policies that the government took when I was Prime Minister are all validated now. The three consecutive quarters of economic growth we have enjoyed today are all due to the bold policies we took to safeguard the economy and systematically reopen it through the NRP.

Also in these engagement sessions with the businesses, the recurring themes were of the difficulties of getting foreign workers to work in sectors like food and beverage, plantation, the lack of coordinated push for tourism sector recovery and the financing difficulties of MSMEs. Close to 98% of registered business entities in Malaysia are MSMEs and they contribute close to 40% of Malaysia’s gross domestic product (GDP). Keeping them afloat will not only protect jobs but ensure the country’s economic engine continues running. That was why, as Prime Minister, in many of our packages, we included assistance for the MSMEs. We even disbursed RM6.08bil directly to MSMEs under the Geran Khas Prihatin programme.

Q: Generally, are you satisfied with the pace of the recovery? Why?

A: I wish it could be better. The pace of recovery is uneven. Some sectors are recovering better than others. That’s why I have always said that the government must be hands-on and intervene where necessary.

We need an even recovery process to close the disparity gap of wages of Malaysians. Certain states are dependent more on certain sectors, for example, tourism and manufacturing; tourism recovery is slower than manufacturing, states that are dependent on tourism will recover slower than those that are big on manufacturing. The uneven pace of recovery between states will widen income and development gaps between states. That is why I emphasised on the setting up of a state-level NRC earlier.

If Malaysia is to build its economy back better, we must allow even recovery, so that development gaps can also be closed. Recovery is not just for the short term, but must also be aligned to the longer development goals if this nation, as highlighted by the 12th Malaysia Plan, is to build a more inclusive and a resilient economy.

I wish there was more sense of urgency within the government in managing the recovery process. It cannot be business as usual. If we don’t manage the recovery process well, the impact of pandemic will linger longer. There will be permanent scarring in some of the economic sectors. When the recovery is not given due priority, I am afraid that the two pandemic years will lead to a lost decade for Malaysia.

Q: Do you see the high inflation and weak ringgit affecting the momentum of economic recovery?

A: When we entered 2022, we were confident that it will be the year of recovery. Yes, in a way we have achieved that, the first-half growth is 6.9%, and our second quarter growth is 8.9%, the highest in South-East Asia. While again these numbers are a validation of the economic policies we have taken since March 2020, we are affected by global issues, especially the war in Ukraine, which have disrupted global supply chain and led to the tightening of monetary policies in developed economies. This also caused the decline of the ringgit and alsosuccessive hikes of our interest rate, the overnight policy rate (OPR), by Bank Negara Malaysia.

The inflationary pressure and increase in interest rates will affect the momentum of economic recovery. We must remember that inflation is said to be an extra tax on the poor, this in turn affects spending power, given our wage growth will be affected hence having the potential of slowing down consumption, while higher interest rates will impact borrowing costs and deter investments.

The weaker ringgit also means that our import bill, particularly food, becomes higher, and price hikes will be passed on to consumers. Those in manufacturing who import raw materials from abroad also felt the pinch, what more those who have sons or daughters studying abroad. While the current economic situation and the resilience of our businesses may withstand this impact of high inflation and weak ringgit, but for how long? The inflationary pressure and weak ringgit combined can wipe out the gains we have made in the recovery year.

Q: You have been speaking about the B40 group becoming B61, how can the incomes of this group recover? What are the steps that can be taken?

A: Yes, the pandemic has had severe impact on household income in Malaysia. According to a report by a media research company, Mindshare, household income until June 2022 has shown a decrease by 26% from 2018, with average monthly household income being RM2,965.

As we are all aware, B40, M40 and T20 are classified by the income range of households. In short, B40 are those with household income below RM5,000, M40 is between RM5,001 and RM10,000 and T20 have household income above RM10,000. If we look at this range and classification today, the situation has changed. More than half of those who were classified in the M category have fallen to the B category. If we were to follow the same income range as previously according to the report, the B income group will now be 61%, while M is 14% and T at 18%, while 7% could not be identified.

This shows that the middle class is shrinking. It is consistent with reports from other institutions and research houses such as Khazanah Research Institute which said 70% of Malaysians are in the “vulnerable” group due to the pandemic. In the Mindshare report, what is more troubling is that 76% of this B61 group has an average household income of below RM2,965. These are the ones who are able to buy food for the family, but would have to eat once a day, compromise on choice of protein, etc. This is alarming and has dire consequences not just for recovery momentum but the nation’s development agenda as a whole.

A shrinking middle class is not a good prospect for any economy because we know that the middle class drives consumption with their spending power. When their incomes are reduced, they will be unable to spend, what more save, and this will reinforce our economic predicament where we will be stuck in the middle-income trap and unable to make the leap to a higher-income nation.

What are the steps that can be taken? First, we must ensure that our social safety nets are strengthened. Welfare systems like e-Kasih need a total revamp. It needs to be consolidated and integrated to better channel assistance when necessary. We must enhance social safety nets for the informal sector, gig economy workers. Those who need help must be able to get help immediately without too much bureaucracy.

At the same time, we must create an economy that focuses on creating jobs with decent wages. Focus on moving up value chain through technology that will create higher-paying jobs. Use digital solutions like artificial intelligence (AI) and robotics to increase productivity as this will enable sustained wage growth. Separately, we must make sure that the Poverty Line Index, which I had revised as Prime Minister in 2020 from RM980 to RM2,208, continues to be adjusted. This will enable us to target our assistance to the poor better, and seriously reduce poverty including urban poverty.

Q: It is predicted that the 2023 Global Economic Growth will be weaker, the International Monetary Fund cut its projection for global growth in October for 2023 to 2.7%. How will this impact the recovery momentum?

A slowdown in global economy, at a time when our post-pandemic growth is fragile, will have severe repercussions. We are an open, trading economy, a slowdown in global growth will lead to a weaker demand for our exports. There will be flight to safety from investors back into safer, mature bets like developed markets. This may further weaken our ringgit. While a weaker ringgit may mean our exports are cheaper, demand in a global slowdown may be affected. This may lead companies to scale down, cut jobs. For sectors like tourism, global travels for leisure may also be impacted if recessions happen in many markets, technical or not. So yes, 2023 will be a very challenging year for our recovery momentum if the bleak outlook persists.

Source: https://www.thestar.com.my/news/nation/2022/11/04/recover-faster-recover-stronger