Covid-19: Flattening the curve without killing the economy ― Nadia Jalil

MARCH 16 ― Social distancing in these pandemic times gives an economic and policy analyst plenty of time to think and play around with data, especially about the pandemic itself.

The number of positive Covid-19 cases surged by nearly double on Sunday, March 15, from 190 to 428 patients. A back of the envelope calculation means that, if we do nothing to “flatten the curve”, Malaysia could be looking at a contagion trajectory resembling that of Italy’s. Here are the numbers:

1. The number of Covid-19 patients could surge to about 9,000 in another month

2. An estimated 10 per cent of Covid-19 patients need ICU treatment. If there are 9,000 Covid-19 patients, 900 will likely need ICU treatment

3. We have fewer than 1,000 ICU beds in public hospitals throughout the country

Unless steps are taken to “flatten the curve”, ie. slowdown the rate of Covid-19’s contagion drastically, this seems like the recipe for a storm made of faeces (incidentally, another possible vector for the virus). These steps however, will inevitably incur an economic cost.

Social distancing, or even more drastically, a lockdown, means fewer people eating in restaurants, watching movies, attending events, and buying things in person.

The tourism sector is already suffering the first-round economic impact of the virus — hotels are at minimal occupancy, MAS is putting its staff on three months unpaid leave, and Malindo Air is imposing a 50 per cent pay cut.

If we are going to have a fighting chance of mitigating the spread of Covid-19, unfortunately, this won’t be the last evidence of the price our economy will need to pay.

Make no mistake the Malaysian economy, which grew at its slowest pace in more than 10 years in the fourth quarter of 2019, was already in the doldrums before Covid-19 hit our shores.

As if that wasn’t enough, we became collateral damage in the oil price war, leading to a collapse in oil prices to around US$30 (RM128.34) per barrel.  

The latter, while generally good for the consumer, also means that the government, which had assumed an oil price of US$62 per barrel when the previous administration drew up the 2020 Budget, is looking at losing around half of the revenues it obtains from oil and gas in the form of taxes as well as the dividend from Petronas.

It is in the position of fighting a public health and economic crisis with both hands tied behind its back.

All is not lost, however.

The prime minister is said to be chairing a special meeting on Covid-19 today. I would like to humbly submit a wish list of economic measures for his government’s consideration.

1. Forget fiscal consolidation, for now. Even when the previous administration released its Covid-19 economic stimulus package, it committed to a budget deficit of 3.4 per cent. Given that this was before WHO declared Covid-19 a pandemic and the oil price crash, a deficit of 6-7 per cent seems the more reasonable target. This deficit will need to be financed by domestic, rather than foreign debt, given our constraints. On the bright side, we have sufficient space for a more expansionary monetary policy, with Bank Negara Malaysia perhaps potentially considering a liquidity injection, similar to its undertaking in the aftermath of the Asian Financial Crisis.

2. Help our medical front-liners save more lives. This means not only implementing the measures to help them contained in the economic stimulus package released last month, eg. special allowances, but also pumping in more resources to increase the capacity of our public health system to cope with the potential surge in patients. While the package promised RM150 million for the Ministry of Health to purchase thermal scanners, this amount needs to be boosted at least ten-fold for an extensive public health spending programme — now is the time to spend on much needed infrastructure and medical equipment, and ramping up the purchase of test kits, protective gear, and medications. The MOH could even provide free sanitisers and masks to the public.

3. Give the rakyat more cash. Economic evidence indicates that the most optimal method to make sure people spend, as well as safeguard their welfare, is to simply put more cash in their hands. While the existing stimulus package contains these measures, they should be built upon and expanded beyond the Bantuan Sara Hidup (BSH) scheme. Japan is already paying all parents a subsidy to stay home to take care of their children, and a stipend to people taking care of suspected Covid-19 patients. Hong Kong residents are receiving HK$10,000 each. Employees, such as Malaysia Airlines’, who are forced to go on unpaid leave, as well as those, like Malindo’s, whose pay have been cut, will need recourse to such funds. In all likelihood, these funds will be circulated into the economy, alleviating any foreseeable drop in consumption.

4. Give businesses breathing space, and a fighting chance. Businesses are already reeling from the first-round impact of Covid-19 in terms of drops in sales and supply-chain disruptions. While the latter seems on the way to being resolved, with China said to restarting production last week, it will take some time for demand to recover. In the meantime, businesses will still need to meet commitments to their creditors and suppliers. If they are unable to, they will, in all likelihood, shed workers and, in the worst case scenario, shut down. While the initial Covid-19 stimulus package recognised the need to assist businesses so that their cash flow issues do not lead to wider economic problems, again, these measures need to be extended throughout the whole economy, and not just sectors thought to be directly impacted by the virus such as tourism and hospitality. Along with subsidies for the cost of credit, especially to SMEs, the Ministry of Finance might want to consider an SST exemption at least until September 2020. Preserving cash flow, and therefore employment, is key.

Such measures of course, cannot be permanent. Otherwise, the medicine will be more harmful than the disease itself.

As always, the biggest risk to success is execution: unless these measures are accompanied by institutional reforms such as tighter procurement policies and procedures a strong commitment to return to fiscal consolidation once the worst of the crisis is over, we may be in a worse position than before.

One key element for effective execution would be the establishment of a Covid-19 Task Force, which can coordinate efforts between the Ministry of Health, and other ministries and agencies such as the Ministry of Finance, Bank Negara Malaysia, Ministry of Domestic Trade, and others.

The spread of the virus is exponential, but thankfully enough progress has been made in terms of a vaccine and a cure to ensure that an end is in sight to its trajectory.

Hopefully, with urgent and concerted action, both in terms of public health and the economy, Malaysia too will achieve its recovery.

* This is the personal opinion of the writer or publication and does not necessarily represent the views of Malay Mail.

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