NOVEMBER 18 — Extending the blanket moratorium is not fair. There is no doubt that many still require assistance in the form of extended moratorium, incentives, or cash aid due to the Covid-19 pandemic. However, such assistance should not be channelled through a blanket measure, but rather it should be targeted.
Similar to the movement control order (MCO), the first MCO was a blanket measure, which was implemented at a time where we’re still unsure about the risks and we’re still working out the standard operating procedures (SOPs), so a blanket lockdown was a rational choice at that time.
We’re currently seeing a rise in Covid-19 cases higher than what we’ve seen back in March/April, but imposing a “blanket” MCO at this point would be unthinkable, thus it became a very delicate balance between sustaining lives and livelihood. Similarly, a blanket moratorium shouldn’t be re-implemented when we’re able to implement targeted measure which will be much more efficient — which I will explain further below.
If the government implements a blanket measure, there’ll be leakages.
Say for instance the petrol subsidy, it should be targeted to the B40 and a portion of M40 for the use of commuting. As these group of households typically consume RON95, it is thus quite effective to subsidise the product itself.
However, there will be leakages when such a measure is implemented.
* First, there may be wastage of resources if households increase the consumption of RON95, but not for the intended purpose (Example of intended purpose includes activities that could improve their wellbeing).
* And second, there may be leakages when those who aren’t the intended recipients benefit from the measures (Such as T20 consuming RON95).
Similarly, when we introduce blanket moratorium, there will be households that do not require the moratorium, and it will be a waste of resources if the moratorium is extended to them.
Building on to what I’ve elaborated above, a blanket moratorium is simply not fair.
If we look the statistics on household sector debt, the B40, who should make up 40 per cent of the population, (Household income less than RM3k) only hold around 17 per cent of the total household debt. While the T20 (Household income more than RM10k) who make up 20 per cent of the population, holds disproportionately more debt at 33 per cent of total household debt.
Thus, if the moratorium is implemented as a blanket measure, those that are better-off will benefit more than the B40 who only hold marginal amount of household debt.
It is thus, a no-brainer to think that we could solve the problem by only implementing blanket moratorium for the B40.
Solution: Blanket moratorium for B40?
However, there is not a clear black and white delineation of households into income groups (B40, M40, T20) — What this means is that there may be households that are classified as M40, but they should be classified as B40 (perhaps due to a large household).
Other than that, even within these groups, there may be pockets of households that are more adversely affected by the Covid-19 pandemic, which could be due to the households income derived from the more adversely affected sectors (like the tourism sector). Such a household could be from the B40 or even the T20, what we will need to ensure then is that there is assistance for all that truly needed it.
As outlined above, having only a blanket measure may not be enough to help all the households that need assistance.
In the current RMCO/CMCO, most businesses are operating but some are not, there are also some that are operating below capacity or experienced reduction in income. Similarly, we will see similar patterns in household income.
As such, measures to assist households should be targeted, where those households that face a reduction in income should receive assistance to help them get back on their feet; while those not affected shouldn’t receive the same quantum of assistance.
Automatic or manual
Another aspect of the moratorium is that there are questions on whether it should be automatic or manual. While both have their own merits, I find that a manual opt-in should, on paper, be better in terms of being more targeted.
The best kind of medicine is those that target a specific disease, we wouldn’t apply chemotherapy to a patient having a mild flu just because they’re sick. Similarly, the degree of income reduction across affected households isn’t uniform, not all households require moratorium. Those who face a slight reduction in income could benefit more from a reduction in monthly repayments rather than moratorium.
Thus, we will need to tailor-make the cure to suit the disease. A blanket measure simply doesn’t work (efficiently).
A lot about assistance for survival and the need for targeted measures had been talked about here. Before ending this article, I would also like to talk about “transition assistance”.
Measures such as the moratorium, and the Wage Subsidy Programme (WSP) are measures that help households/businesses survive the temporary income shocks caused by the Covid-19 pandemic, these households/businesses are those that could be considered “viable borrowers”, where their income levels will recover once the Covid-19 pandemic abates.
However, there are another group of households/businesses that suffered permanent income shocks, causing them to become “non-viable”. Providing further survival assistance to this group creates what is called “Zombie Firms” (“Zombie Households” for households?).
What this group needs instead is assistance for them to transition to other income-generating activities. This includes grants or incentives for businesses to digitalise or shift their business model; incentives and training programmes for households to reskill or upskill. These measures ensure that households/businesses stay relevant as our economy moves towards a post-Covid world (AKA the New Normal).
And we already have that here, but yet we rarely see these measures making headlines. We need to shift the narrative in our country, we need to move away from keeping the economy on “life-support” and instead we need to ensure that the economy recovers stronger from the Covid-19 pandemic.
* This is the personal opinion of the writer or publication and does not necessarily represent the views of Malay Mail.