Malaysia has been relatively successful in managing the COVID-19 pandemic, with the number of deaths and infections lower than neighboring countries and many developed economies. This paper will share Malaysia's experience in fighting the pandemic, particularly the key success factors in managing the health impact during the period of January to August 2020. The speedy preparation and planning by the Health Ministry even before the country registered its first case was instrumental in ensuring that the country was ready to face the pandemic. Lessons learned from previous experience with epidemics such as Nipah, SARS, MERS, and H1N1 were also key to the speedy responses. Effective communication helped to ensure the public's support of measures imposed by the government to reduce the spread of the virus. However, while the country managed the health crisis relatively well, the handling of the economy is rather poor, with the economic impact being much worse than what was experienced during the 1997–98 Asian financial crisis, and the 2008–09 global financial crisis. This paper will end with suggestions of several policy interventions to mitigate the economic impact of COVID-19, particularly for vulnerable groups.
Malaysia managed the COVID-19 pandemic speedily and effectively, compared with many other countries, especially developed economies, during the first half of 2020. As of 31 August 2020, the country had recorded 9,340 confirmed cases of COVID-19, with 159 active cases, 9,054 patients recovered and discharged (97 percent of total cases), and 127 number of deaths (1.36 percent of total cases) (MOH 2020a). The number of new cases on average was 53 per day between March and August, or about 11 daily cases on average for the past 60 days, which is low compared with other countries.
In fact, as of 31 August 2020, Malaysia has one of the lowest deaths per million (4 deaths per 1 million population), on par with New Zealand, which is also among the lowest in the region compared with Singapore (5), Korea (6), Indonesia (23), and the Philippines (24). Even among rich countries, Malaysia's performance is remarkable, only Taiwan (0.3) has a better track record, whereas other countries with higher GDP per capita are performing much more poorly in comparison—France (466), Germany (111), the UK (100.6), and the United States (529) (Worldometer 2020).
Malaysia prepared well ahead when the outbreak was ravaging China, with the Ministry of Health (MoH) of Malaysia on standby even before any cases were reported in the country. After the outbreak in Wuhan, China, in December 2019, the MoH activated the Crisis Preparedness and Response Center, which coordinates and integrates all preparedness response across multiple agencies and ministries (Rahman 2020). The past experience of handling several outbreaks such as Nipah, SARS, MERS and H1N1 was valuable, allowing the MoH to prepare adequately, in anticipation that the epidemic in China would have a high probability of turning into a pandemic and affect Malaysia (Rahman 2020). Preparations started in December 2019, almost one month before the first confirmed case occurred within Malaysia. Among the preparations included coordination with public health teams, plans for hospital renovations in the event of surge capacity, and plans for the procurement of reagents (Rahman 2020).
The first cases were detected on 25 January 2020 from three Chinese tourists who had entered Malaysia from Singapore, with the first death reported on 17 March 2020 (Bernama 2020a; Berita Harian 2020).The total number of cases in January was 22—all imported from Singapore.
The government swiftly took several steps to mitigate the spread of the virus. In late January, the government issued a travel advisory, alerting Malaysians to avoid crowded places in China. Borders then remained open with no restrictions yet in place, but the government started to undertake health screenings at all points of entry with thermal scanners installed at all entry points in airports and ports (Bernama 2020a). Those who traveled from Wuhan were monitored and isolated. Subsequently, contact tracing measures were deployed to identify anyone who was in contact with a COVID-19 patient. Those who were identified as having close contact with the patient were put under surveillance and monitoring (Bernama 2020a). By the end of February, borders were immediately closed to foreign visitors—only Malaysians were allowed to enter the country. All incoming passengers were screened at the entry points.
The government ramped up its response as the number of cases increased. By mid March, an outbreak occurred. When the World Health Organization (WHO) declared the COVID-19 outbreak as a pandemic on 11 March 2020, the Government of Malaysia made the decision to implement a lockdown via a nationwide Movement Control Order (MCO) beginning 18 March to break the transmission chain. The decision to impose the MCO was due to an outbreak of mass infections that occurred during a religious gathering in Sri Petaling at the end of February that involved 16,000 participants from throughout the country. At its peak, this cluster infected 3,375 people including their family members. With 34 recorded deaths that accounted for 3 in 10 of total deaths, this is the largest and deadliest cluster ever recorded in the country to date (Muhammad Radhi 2020).
On 3 April 2020, with the MCO still in place, a 14-day mandatory quarantine was imposed on every person arriving in the country. At the same time, the MoH ramped up tests by increasing its daily testing capacity from 11,546 tests per day (as of 6 April) to 38,600 tests per day (as of 14 August 2020) (CodeBlue 2020). The number of tests performed in the country is one of the highest in the world at 36,479 per one million population, even higher than South Korea (35,191) (Worldometer 2020).
The MCO was extended five times and eventually lifted on 4 May when the number of cases dropped. It was replaced with a Conditional Movement Control Order (CMCO). The CMCO was in place until 9 June, and as the number of cases continued to fall, it was replaced with the Recovery Movement Control Order (RMCO). The RMCO, which was scheduled to be lifted on 31 August, has now been extended to 31 December 2020.
During phases 1-4 of the MCO, interstate travel, social gatherings, and outdoor activities were banned in a move to curtail the risk of further outbreaks and avoid new clusters of infection. Businesses—with the exception of essential services such as petrol stations, supermarkets, and pharmacies—were shut down. Over 800 roadblocks were set-up nationwide, manned by the army and police, to ensure that commuters (restricted to one person per car) had reasonable grounds to travel. This was the status quo until 4 May when MCO regulations were loosened (Hussain and Muhammad Amin 2020).
During the CMCO, businesses were allowed to open, but social distancing and mask-wearing rules remained in place, and interstate travel was only possible for work purposes. Gatherings of more than 20 people were not allowed. Certain activities were prohibited, such as religious, social, recreational, and business activities that have high number of congregations, and “close-contact” businesses such as hair salons and spas (Lim 2020).
During the MCO, the average number of cases was 120 a day (Lim 2020). The figures dropped slightly during the CMCO, with a total of 109 cases during the CMCO (4 May–9 June), or an average of 55 per day. Cases continued to decline during RMCO whereby the total number of cases (10 June–25 August) was 226, or an average of 12 per day.1
As of 31 August, the number of total cases reported in Malaysia was 9,340, with 127 deaths (1.36 percent of total cases). On a per capita basis, it is about 0.03 percent of the population, lower than Singapore (0.97 percent) and Korea (0.04 percent), and many of the developed countries (Worldometer 2020). Foreigners accounted for 29 percent of all positive cases, and about 5 percent of all deaths. About 70 percent of deaths occurred for those aged 60 and above, and an additional 15 percent for those aged between 50 to 59 years old.
The outline of this paper is as follows. Section 2 will explain key success factors in controlling the spread of the virus, followed by Section 3 where it will discuss the economic and financial initiatives introduced to dampen the economic impact of the pandemic. Section 4 provides several fiscal policy recommendations to ensure that both health and economic measures are effective and impactful. Section 5 concludes.
2. Key success factors
How did the government manage to control the pandemic, and register one of the lowest death rates in the world? Malaysia's success in managing the pandemic can be attributed to several key factors, in particular by preparing early, undertaking robust contact tracing, optimizing diagnostics capacity and efficiency, regular communication, and a high level of citizen compliance by executing strict lockdown measures with punitive punishments for disobeying the law (Rahman 2020).
The MoH prepared immediately when news broke out that an epidemic was ravaging certain parts of China. They started their initial planning in December, the same month the first case was reported in China. MoH initiatives started speedily, and in January they started to procure diagnostic reagents, and testing capabilities were intensified. The country's main laboratory—the Institute for Medical Research (IMR), which is the biomedical research arm of the Ministry of Health—started to provide training to about 12 government hospital labs (Rahman 2020). In fact, knowledge about the virus was and is widely shared among the related agencies—front liners around the country would hold meetings online about twice a week.
The MoH also designated Sungai Buloh Hospital, a public hospital on the outskirts of the capital Kuala Lumpur, as the country's main COVID-19 hospital. In ensuring that hospitals could accommodate the possible surge in COVID-19 related patients, the MoH instructed hospitals to empty the ICUs and transfer patients to other hospitals. The main hospital complex was quickly renovated to increase its capacity from a 900-bedded hospital to over 2,000 beds. The hospital also converted certain segments of the hospital into ICUs, including converting daycare centers and operating theaters to include ICU beds (Rahman 2020). By the end of January, about 26 hospitals were on standby to receive and treat COVID-19 patients. This strategy was learned from the experience in Wuhan, where the surge in mortality was due to the hospitals’ inability to treat patients. All the above measures were done prior to any case being reported locally (Rahman 2020). In contrast, EU countries only managed to procure protective and medical gear in April 2020 (Rahman 2020).
At the same time, the inter-ministerial joint effort was activated between the Ministry of Higher Education (MOHE) and the Ministry of Science, Technology, and Innovation (MOSTI) to mobilize ten university labs as well as an additional lab at the Malaysian Genome Institute, which means that the diagnostics capacity for COVID-19 increased from an initial 6 laboratories to about 43 laboratories, covering those in public hospitals, public health laboratories, IMR, university laboratories, laboratories within the Malaysian Armed Forces, the Malaysian Genome Institute, and private laboratories (Rahman 2020).
The early planning and scaling up of diagnostic capacity were attributed to the country's past experience in handling previous infectious diseases. According to the Director-General of Health, “(Malaysia) acted promptly in responding to the COVID-19 pandemic. Partly this is due to our experience in containing past infections such as SARS (Severe Acute Respiratory Syndrome), Nipah virus encephalitis and MERS (Middle East Respiratory Syndrome). These outbreaks had made Malaysia more prepared to deal with such situations, including having more thermal scanners which have been placed at all entry points into the country, as well as its actions in isolating COVID-19 cases and placement of suspected cases under quarantine. The ability to keep deaths low is also partly attributed to the early planning and preparedness of our public health and hospital facilities and services. From December 2019 to April 2020, in addition to increasing capacity and the number of diagnostics laboratories, we increased the number of hospitals treating COVID-19 patients from 26 hospitals to 40 hospitals, including 7 which function as full COVID-19 hospitals; we increased the number of screening hospitals from 56 to 120 which is a 53 percent increment; and we also increased ventilator numbers from 526 units to 1034 units, which is a 49 percent increment” (Rahman 2020).
Containment and contract tracing
In contrast to countries in the West, Malaysia hospitalized all individuals diagnosed as COVID-19 positive including asymptomatic patients and individuals who reported close contacts with confirmed COVID-19 cases, or with a travel history to high-burden areas. The strategy was to contain possible cases from spreading to the public. Those hospitalized were treated free of cost, including foreign patients. Testing at government facilities was also free, fully borne by the government. These measures encouraged potential patients, particularly low-wage foreign workers, to come forward and get tested.
Contact tracing was done extensively. A contact tracing measure was deployed to identify anyone who was in close contact with the patient. Those identified were put under surveillance and monitoring (Rahman 2020). To ensure effective contact tracing, all public places and offices must display a QR code at the entrance, and the government built an app that enables everyone to register prior to entering any premise. This way, if cases were detected at a particular place, contact tracing could be done immediately.
In containing the spread of the virus, the government imposed several measures, from selective preventive measures to both partial and full lockdowns. Only when the number of cases reduced was a lockdown lifted. The selective measures started in January. One of the first strategies was an enforcement of health screening with thermal scanners at all points of entry: air, sea, and land borders around the country. Initially, only those who travelled from Wuhan were monitored and isolated, but later anyone who entered the country was required to be quarantined. A travel ban was initially imposed on those coming from Wuhan and the Hubei province but this expanded to include Zhejiang and Jiangsu on 9 February (Reuters 2020; Rahim 2020). The number of cases in February increased compared to January, with more countries and regions being added to the travel ban. Lombardy, Veneto and Emilia-Romagna in Italy, Hokkaido in Japan, as well as in Tehran, Qom and Gilan Province in Iran, were added to the travel ban list on the 5 March. On 12 March, a blanket travel ban was imposed for Italy, Iran and South Korea (News Straits Times 2020a). A day later, after WHO declared COVID-19 a pandemic, the government restricted all public gatherings and meetings (The Edge 2020).
A few days later, the government announced the Movement Control Order (MCO) with the objective to flatten the curve and break the chain of transmission. Additional measures were immediately executed. All non-essential businesses were to stop operations, and the public was ordered to stay at home to curb the outbreak. No travel (inbound or outbound, domestic or international) was allowed, and the border was immediately sealed.
There were six stages of the MCO (starting from 18 March and ending on 31 August) and the measures imposed were adapted according to the success of containing the transmission rates.
During the first MCO (18–31 March): Borders were closed, except to Malaysians who had to undergo 14 days compulsory quarantine; most businesses were required to stop operating except essential services such as petrol stations, supermarkets, and pharmacies. All social gatherings including religious activities were banned. Interstate travel was also barred with nationwide roadblocks manned by the police and the army (PMO 2020). The first stage of MCO registered two deaths and 728 active cases.
As the number of cases did not change significantly during the first MCO, the government imposed stricter measures. During the second MCO (1–14 April), the opening hours of essential shops were reduced, as well as the definition of essential services (from 22 to just 10). There was also a single person rule in a vehicle, and a higher mobilization of the army and reserve forces to enforce the MCO (News Straits Times 2020b). To curb the high number of cases in specific geographic regions, a total lockdown was imposed by the government, dubbed the Enhanced MCO (EMCO) where no one was allowed to leave their house. During this period, the curve was yet to be flattened, with the number of cases actually increasing while fatalities jumped from 28 to 82 deaths.
As the MCO during that period was not successful in containing the transmission, the government immediately imposed stricter measures. During the third MCO (15–28 April), existing measures remained, but the punishment for violations changed. Instead of just a fine, anyone who trespassed the order was be summarily detained. The curve finally started to flatten during this period—the number of new cases dropped to double digits on average and the amount of active cases decreased from 2,427 patients on the 15 April to 1,719 patients on 28 April. Although the total number of deaths increased from 82 to 100, the fatality rate decreased. The number of deaths increased at a smaller rate, at 22 percent, compared to 77 percent during the second stage of MCO.
As the number of cases dropped, the government relaxed some measures. During the fourth MCO (29 April–3 May), while the lockdown remained, university students were allowed to return to their homes. The number of passengers allowed per vehicle increased to two (Bernama 2020b). This stage was the shortest, with the number of transmissions reduced. This iteration of the MCO ended on 4 May 2020, with the total duration of the lockdown at 47 days.
However, despite the reduction of cases, the government did not lift the lockdown entirely.
On 4 May 2020, the Senior Minister of Defense announced on national television that the MCO would end immediately and would be replaced with the Conditional Movement Control Order (CMCO). The CMCO was in place until 9 June. During the CMCO, many businesses were allowed to reopen and the interstate travel ban was lifted partially for work purposes and family reunions. Gatherings of not more than 20 people were allowed. During the CMCO period, the curve continued to flatten. The number of active cases dropped by 29 percent from 1,764 cases to 1,244 cases, and there were only 12 deaths during this period.
As the situation continued to improve, the government further relaxed some of the restrictions. On 7 June, the Prime Minister announced that the CMCO that was scheduled to expire on 9 June would be replaced with the Recovery Movement Control Order (RMCO) beginning 10 June until 31 Aug (on 28 August, it was announced that the RMCO will continue until 31 December 2020). During the RMCO, businesses are allowed to operate as usual, but have to adhere to a strict standard operating procedure. The interstate travel ban has been lifted, although borders remain closed to foreigners and the 14-day compulsory quarantine remains in place. The wearing of face masks in public and in confined spaces is mandatory, with disobedience punishable by law. During this period, the number of cases was mostly in the single digits. The number of active cases significantly dropped from 1,244 to only 66 cases, and the number of deaths also declined, with only 7 deaths in two months.
Since March, the government updates the public twice a day on national television—once at 3pm, which is a press briefing done by the Ministry of Defense, and a second press briefing is done at 5pm by the Director General of the MoH. The aim of these daily press briefings is to keep the public updated on the status of new cases and progress in the spread of the virus, as well as to share guidelines and updates about the government's COVID-19 response.
Communication of government measures started early and regularly. When the initial cases were detected, the public was asked to practice better hygiene practices, wear face masks, use hand sanitizer, and avoid close contact with others (Chan and Bharat 2020). Mass media, both print and online, was used extensively to inform the public of the do's and don'ts. The MoH has been aggressively promoting better hygiene practices, the wearing of face masks, and social distancing to combat the virus. The MoH has also launched several campaigns such as the “Avoid the 3Cs” (crowded space, confined space, and closed conversations) and “3Ws” (wash hands, wear a face masks, and warn others to comply) to keep the virus at bay (MOH 2020b).
Strict enforcement by the authorities and a high level of compliance by the public also play a major role in containing the spread of the virus. Almost all Malaysians complied with the standard operating procedures and guidelines imposed by the authorities; one study reported 97 percent compliance by the public during the MCO period (Zolkepli and Sivanandam 2020). In fact, the level of compliance in Malaysia with regard to following the rules and regulations related to the pandemic is much higher than many ASEAN countries. A YouGov survey from 30 March to 27 April ranked Malaysia (89 percent) above the ASEAN-6 average in wearing masks, which is also much higher than developed countries such as the UK (15 percent), France (44 percent), and the United States (48 percent) (YouGov 2020).
Strict enforcement of the rules includes jail terms and severe fines for those who break the guidelines, under the authority of the Prevention and Control of Infectious Diseases Act 1988. The wearing of face masks is compulsory, failure of which will result in a fine up to RM 1,000. Those who fail to quarantine after returning from abroad risk to be fined or imprisoned up to two years, or both (Chin 2020).
These strategies—early planning, containment and contact tracing, regular communications, and effective law and compliance—helped Malaysia in combating the pandemic. From low cost but highly effective methods such as hygienic behavior and compulsory wearing of face masks, to a temporary lockdown of the entire country and border closures to flatten the curve and break the chain of transmission, these strategies managed to reduce the number of cases in the country. The combination of these strategies was a game changer that made Malaysia remarkably successful in combatting the pandemic in comparison with many other countries.
3. Economic impact and countermeasures
While the government's handling of the health crisis was rather impressive when compared with that of other countries, the economic response was quite weak in comparison. The government spent too little too late, and the impact of this was a severe contraction in the economy and a high unemployment rate—worse than the height of the 1997–98 Asian financial and the 2008–09 global financial crisis. Despite spending nearly RM 45 billion in direct fiscal stimulus, the unemployment rate jumped from 3.3 percent in 2019 to 5.5 percent in May and further increased to 4.9 percent in June 2020, which is the worst in 30 years. The economic contraction of 17 percent in 2020:Q2 was the steepest the country has ever experienced.
The lockdown and the accompanying economic shock were estimated to cost the country RM 2.4 billion a day, with the cumulative loss of RM 63 billion as of 1 May 2020. The pandemic hit the Malaysian economy quite badly, even in Q1 where GDP growth in Q1 grew marginally at 0.7 percent. Although the lockdown only started in the last two weeks of March, all sectors registered contractions, except services (+3.1 percent) and manufacturing (+1.5 percent). The severe impact of the crisis was visible in the second quarter, when the economy contracted at a record −17.1 percent, with all sectors shrinking with the exception of plantations, due to the higher volume of palm oil exports.
The tourism sector, which contributed about 15.2 percent to GDP in 2018, was the biggest loser (DOSM 2019), with a total loss of around RM 45 billion in the first half of 2020 (Bernama 2020c). Construction sectors also got hit badly, with the biggest contraction in output as construction sites nationwide were forced to close. This sector contracted by 7.9 percent in 2020:Q1 and −44.5 percent in 2020:Q2 (DOSM 2020a).
The closure of businesses as well as the economic uncertainty have resulted in the sharp decline of consumer spending as well as net investments. Malaysia's economy, driven by private consumption, contracted. Because of the fall in spending—mainly in restaurants and hotels, recreational services and culture, and transport—private consumption declined by 18.5 percent in Q2, from a growth of 6.7 percent in Q1 (DOSM 2020a). The net investment or gross fixed capital formation also declined by −28.9 percent (Q2) from −4.6 percent (Q1).
Firms faced challenging times. In March, the Small and Medium Enterprises (SME) Association reported that about 82 percent of SMEs predicted a deficit for 2020 (Annuar 2020). A survey by the Department of Statistics Malaysia in April revealed that more than two in three companies in Malaysia reported having zero revenue during the MCO period and many firms will have to retrench or give unpaid leave to their employees as more than one in two (54.3 percent) companies can survive for only one to two months if they provide full/half paid leave to their staff (DOSM 2020b).
The loss of income by businesses, especially the SMEs, translated to higher unemployment rates. Data from the Department of Statistics Malaysia revealed the severity of the MCO on jobs, whereby the unemployment rate in March jumped to 3.9 percent, which is the highest recorded in ten years (Chung 2020). The unemployment rate jumped again in May, at 5.3 percent—which is the highest ever in the last 30 years. It improved in June at 4.9 percent, but this figure remains the highest in three decades.
Youth unemployment, which was at 11 percent as of the end of last year, increased to 13.1 percent in June due to the weakening of the labor market. Underemployment, which is equally a challenge, also spiked. Currently, half of all unemployed graduates (about 80,300) are young people under 25 years of age, due to both skills and job mismatch. The country produces more graduates than what the job markets offers. It is expected that the number of student loan defaulters among youth will also increase, as data show that 87.7 percent defaulted in paying their student loans due to a lack of financial security (Cheng 2020). Younger households are the least able to withstand a fall in their incomes due to their lack of financial buffers and student debt.
Given the severity of the crisis, the slowdown in the economy will leave a negative impact on the government's tax collection and thus revenue, which consequently would curtail any further intervention. The limited fiscal space will impede the ability of the government to assist the vulnerable optimally. As with any economic shock, vulnerable groups are the most exposed to risk, and the health and economic consequences originating from this global pandemic will inflict serious repercussions.
The government has launched several programs in assisting Malaysians to weather the pandemic, including cash assistance, loan moratoriums, and a reduction in certain expenses. A special COVID-19 survey conducted by the Department of Statistics revealed that 96.8 percent of the respondents received benefits from the government Prihatin economic stimulus package, of which 17.9 percent received one aid, 13.9 percent received two aids, and 68.2 percent received three aids (DOSM 2020c). Among the recipients, 79.2 percent received one-off cash aid, higher education student aid, and e-Hailing assistance; 60.5 percent received moratoriums; 47.4 percent received utility discounts; 41.2 percent were entitled to Employee Provident Fund (EPF) cash withdrawals; 13.7 percent received wage subsidy payments under the Employee Retention Program (ERP); and 8.4 percent received credit guarantee schemes (DOSM 2020c, p. 19). The list of key government assistance programs are as follows:
One-off cash assistance (Bantuan Prihatin Nasional) for lower-income and middle-income households, with a total allocation of RM 10 billion. For low-income households earning RM 4,000 and less per month, RM 1,600 is provided. For middle-income households (i.e., those earning between RM 4,000 and RM 8,000 per month), RM 1,000 is provided. For single individuals aged 21 years old and above with monthly incomes below RM 2,000, a cash assistance of RM 800 is provided, and RM 500 assistance is allocated for those with monthly incomes between RM 2,000 and RM 4,000. A one-off RM 200 cash assistance is also given to postsecondary students. However, the assistance is on a one-off basis, and limited to Malaysians, and the size of household was not considered in the design of the program.
To put more cash in the hands of workers and boost private consumption, the compulsory monthly minimum employee contribution to the EPF was reduced from 11 percent to 7 percent to increase their disposable income. The government also allowed withdrawal from EPF Account 2 of RM 500/month up to RM 6,000 for 12 months (MOF 2020a).
Contributors of private retirement schemes (PRS) were allowed an early withdrawal of up to RM 1,500 from PRS Account B without a tax penalty from April to December 2020. However, the majority of those enrolled in these schemes are often high-income individuals who are taking advantage of tax exemptions offered by the PRS.
Moratorium on loan repayment (all loans except credit cards) for 6 months, which aims to benefit 65 percent of households. However, despite earlier assurance from the Minister of Finance and the Minister of International Trade and Industry that the interest would not be accrued and compounded during the moratorium period, it was announced on 1 May 2020 that borrowers will be charged compounded interest. On 6 May 2020, the Minister of Finance announced that banks have agreed to waive additional charges on hire-purchase loans (Lai 2020).
Exemptions on housing and business premise rentals. For the urban poor, there is a rental exemption of 6 months for 3,636 public housing units (Pusat Perumahan Rakyat) under the Ministry of Housing (KPKT), a deferment of 6 months rental for 4,649 units of Rent to Own houses under KPKT, and exemption of 6 months rental for 40,000 public housing tenants under the city council (Dewan Bandaraya Kuala Lumpur).
Another intervention by the government to assist firms is the introduction of the wage subsidy program. Each employee will be subsidized between RM 600 and RM 1,200 per month. This scheme is expected to benefit 4.8 million workers. Under the program, employers who are registered with Social Security Organization (SOCSO) are subsidized for a period of three months for wages incurred on employees earning RM 4,000 and below. Employers are required to retain their employees without enforcing unpaid leave or wage cuts for at least six months (three months under the wage subsidy program and three months thereafter). The size of the wage subsidy is provided based on the size of the firms. For enterprises with more than 200 employees and a revenue decline of more than 50 percent since January 2020 or subsequent months, a wage subsidy of RM 600 per month is given for every eligible employee (capped at 200 employees). For enterprises with 75 to 200 employees and a revenue decline of more than 50 percent since January 2020 or subsequent months, a wage subsidy of up to RM 800 per month for every eligible employee will be available. For enterprises with fewer than 75 employees, a wage subsidy of RM 1,200 per month is given for every eligible employee (no revenue reduction criteria are imposed) (SOCSO 2020a).
Those who lost their jobs can apply for the ERP. The ERP provides immediate financial assistance for employees (who earn less than RM 4,000 per month) who are currently on unpaid leave, and they are paid RM 600 per month. The duration is between one and six months, depending on the unpaid leave period. It is effective from 1 March 2020. To be eligible, the employee must be currently contributing to the Employment Insurance System (EIS). Although this measure is to benefit employees, employers are required to apply for the benefit on behalf of their employees and must disburse it to their employees within seven days of receipt.
Electricity bill discounts by the national electricity company with a total allocation of RM 530 million. This follows a 50 percent discount for consumption of less than 200 kWh, 25 percent for consumption between 201 and 300kWh, 15 percent for consumption between 301 and 600kWh, and 2 percent for consumption exceeding 600kWh. In addition to this, the Sabah state government had allocated RM 35.7 million to provide a 28 percent discount on electricity bills for three months starting from April, and 335,000 domestic consumers will benefit from a three-month water bill waiver with an allocation of RM 36 million (Zulkepli 2020).
Financing for firms: Zero interest loan packages such as the microcredit scheme under National Savings Bank (BSN) and the SMEs soft loan via the central bank to facilitate the cash flow of SMEs were also provided (MOF 2020b). These initiatives are important as SMEs employ 48.4 percent of total workers and 5.7 million or 70 percent of the 9.5 million private sector employees in Malaysia (Bernama 2019). Moreover, SMEs also contribute 38.9 percent to the Malaysian real GDP (DOSM 2020d).
The government also allocated RM 25 million to provide food, health care items, and assistance for the elderly and children in shelters, the disabled in aid centers, and the homeless. However, challenges remain in the implementation process, as it is reported that aid was given only through selected political parties and their supporters. There have been cases where perishable food items were left rotten in the distribution centers and not given to the poor. The government also introduced a new set of guidelines, allowing aid to be distributed solely by the Welfare Department instead of civil society groups or non-governmental organizations, which impedes the speedy delivery of assistance.
Monetary measures were also introduced to dampen the economic impact. In response to the COVID-19 outbreak, the Central Bank of Malaysia (BNM) reduced the Overnight Policy Rate by 175 basis points from 3 percent to 1.75 percent in 2020. It has cut the interest rates four times in seven months, by 25 basis points from 3 percent to 2.75 percent on 22 January, another 25 basis points to 2.5 percent on 3 March, and again by 50 basis points to 2 percent on 5 May, and finally by 25 basis points on 7 July (BNM 2020. The current rate of 1.75 percent is the lowest ever recorded (Wong 2020). BNM also decreased the Statutory Reserve Requirement ratio from 3.0 percent to 2.0 percent (Wong 2020).
In total, the value of the stimulus packages amounted to RM 260 billion or 17 percent of GDP, with RM 45 billion in direct fiscal injection. Despite the assistance provided by the government, there are bureaucratic problems in ensuring that assistance is provided speedily—this will delay economic recovery. Data from the Ministry of Finance shows that as of the 21 August, only 22,322 SMEs (MOF 2020c) were benefitting from the SME soft loan. That is merely 2.46 percent of the 907,065 SMEs in Malaysia (DOSM 2017). The utilization of the wage subsidy is also rather small. As of 9 September, the number of firms applying to the wage subsidy program is 315,987, or roughly about 1 in 3 of total SMEs in Malaysia (SOCSO 2020b). The utilization of the microcredit loan provided by BSN for micro-enterprises is also equally small. As of 21 August 2020, only 11,188 micro-enterprises have received this assistance, which is about 5 percent of the total 693,670 micro-enterprises in the country (MOF 2020c).
The loss of income by SMEs contributed to the higher unemployment rate. SMEs employ 70 percent of the 9.5 million private sector employees in Malaysia—a closure of 20 percent of SMEs can potentially see up to 1.33 million people losing their jobs.
While the ERP provides immediate financial assistance, the majority of employees are not covered and the scheme was cancelled due to insufficient funds in May (Choong 2020). Out of about 9.5 million private sector workers and 2.7 million self-employed workers in the country, only about 7 million are registered with SOCSO. As of end of April, only 52,000 applications have been approved for the ERP (MOF 2020d), although one think tank estimates that almost 2.4 million would have lost their jobs (The Star 2020).
Despite the huge stimulus package, however, the Malaysian economy contracted the most in 2020:Q2 compared to others. In comparison to others in the region, Malaysia's 2020:Q2 GDP contracted the highest at 17.1 percent while Indonesia, Singapore, and the Philippines contracted lower at 5.32 percent, 13.2 percent, and 16.5 percent, respectively (Bernama 2020d). Malaysia spent much less in direct fiscal injection compared to other countries in the region.
Apart from fiscal and monetary stimulus, the government also passed a parliamentary bill to legally protect those affected by the crisis. The Temporary Measures For Reducing the Impact of Coronavirus Disease 2019 (COVID-19) Bill 2020 offers protection to individuals and businesses via five key reliefs—a legal shield for those who are unable to perform contractual obligations, amendments to current housing development laws, an extended limitation period until 31 December 2020, amendments to the current Insolvency Act 1967 (which increases the debt threshold from RM 50,000 to RM 100,000), and authority to the country's Chief Judge to expedite court proceedings (Lee 2020). However, critics argue that this bill is too little too late as the earliest it can be implemented is at the end of September 2020 and the law can only be applied to legal actions that take place within three months until 31 December (Zainudin 2020). If legal actions and claims were started or concluded prior to the bill coming into action, any form of protection stipulated by the bill will be meaningless, or in other words, the bill would not cover any legal actions or claims prior to its enactment.
4. Policy recommendations
Malaysia did many things right in managing the pandemic in the first half of 2020, especially with regard to the health aspect. In particular, the partial lockdown helped prevent the virus from spreading. Cash assistance to businesses and households helped in easing their cashflow as well as boosting the economy. The government also took advantage of the crisis to boost digitalization for SMEs, with the allocation of RM 500 million for the SME Technology Transformation Fund, as well as tax exemptions to encourage technological adoption among Malaysia companies (MOF 2020e).
However, the crisis also exposed certain shortfalls, and additional measures need to be considered to ensure that the impacts of the pandemic are mitigated. In terms of health, the coronavirus does not discriminate, although it has been shown to impact certain sections of the population much more than others. While interventions for Malaysian citizens have been impressive, treatment of migrant workers and refugees can be improved. It is counterproductive to detain undocumented migrants and place them in detention centers during the pandemic as it discourages them from seeking medical assistance. The crisis also exposes gaps in Malaysia's social protection system. Social safety nets such as EIS and EPF should be extended to all workers regardless of legal status, including migrants (both documented and undocumented), and refugees. Employees who fall out of the formal social protection system must be registered, including those who are informally employed by formal firms. This is in line with the government's commitment of “leaving no one behind.” The cost to the government is virtually zero as it will be financed from salary contributions from the workers themselves. The legal operating acts of SOSCO and EPF need to be changed to ensure that all firms and individuals are legally bound to register with these entities. The employment insurance system should also be open to all employees (currently migrant workers and the self-employed are excluded). As long as they contribute to the insurance scheme, they should be eligible to be protected from the risks of unemployment. As a start, those who have registered for the cash assistance program (BPN) should be automatically registered with SOCSO and EPF. This is to encourage the self-employed to register and contribute to SOCSO and EPF, thus ensuring that they will have unemployment insurance and old age savings.
In terms of cash assistance to households, a monthly cash assistance via direct bank transfer should be provided to unemployed and self-employed Malaysians, instead of just one-off aid. For those who have lost their livelihoods and are self-employed, a regular cash assistance at the same value as the minimum wage should be provided for a period of six months. This is higher than the current RM 1,600 and RM 1,000 one-off assistance for only B40 and M40 family heads. This additional provision would be worth approximately 1 percent of the national economy, and is fiscally reasonable.
Cash transfer programs should be given to women in households, rather than men. Studies have shown that it will provide better outcomes to the family, empower the women, and benefit children (Hagen-Zanker et al. 2017). For children who would otherwise be entitled to supplementary meal programs in schools that are currently closed, the government can use the allocation to distribute it directly to the parents, optimally via a top-up in their BPN account.
The wage subsidy should be increased. Currently, employers are given monthly assistance for three months only (RM 1,200 per worker for three months), later extended by another three months at RM 600 per month. This is rather low. It should be extended to at least another three months, and include the self-employed in this program as well. The current wage subsidy is too small to benefit SMEs, and it is much lower than the scheme provided in Singapore ($15.1 billion) (Seow 2020), Canada ($73 billion) (Aiello 2020), and Australia ($130 billion) (Karp and Hurst 2020). For instance, the Singapore government subsidized up to 75 percent of wages for nine months. The self-employed in the UK can apply for a grant worth 80 percent of their average monthly profits, up to £2,500, while salaried employees are provided with wage subsidies of 80 percent, with a cap at a certain level. It is important to ensure that the application and disbursement processes are done speedily without much bureaucracy. The employment retention schemes (wage subsidies, work retention program) should be open to all and be made compulsory, regardless of type of employment and nationality.
The fiscal assistance, although encouraging, is not enough to dampen the impact of the economic shutdown. The government should simply spend more. The direct fiscal injection of RM 45 billion, or 3.8 percent of GDP, is too small to make a meaningful impact. The fiscal deficit, according to MOF, is expected to increase to about 6 percent from 3.5 percent, although with the reduction in GDP, the deficit might be higher. The government expects the GDP to contract by 1.9 percent in 2020 after extension of the third MCO, although it is likely that it will worsen. The government can afford a higher deficit of up to 8 percent. This will enable the government to afford additional spending on social assistance. Singapore, via its stimulus package, has turned its budget surplus to a deficit of about 7 percent. The government may ask the central bank to provide lending directly to the federal government, which is currently being done in the UK and United States. Fiscal spending should aim to address and protect the vulnerable, as well as increase investments to promote long-term inclusive growth.
Malaysia has managed to contain the spread of COVID-19 well in the first half of 2020. The Ministry of Health prepared well, and past experience gained in handling previous epidemics and pandemics such as Nipah, SARS, MERS, and H1N1 was useful in preparing for the new coronavirus. The lockdown strategy, deployed in various stages, has proven extraordinarily successful in flattening the curve and breaking the transmission chain. Regular and extensive communications, and high compliance to the law, are also key contributing factors that have resulted in a low death rate in Malaysia. The Malaysian experience in managing the health crisis during this period is worth emulating.
Despite successful measures in preventing the pandemic from spreading, the economic management of the crisis is less successful. Despite announcing stimulus measures of about 17 percent of GDP, the impact to jobs and the economy is worse than many other countries. The unemployment rate registered in May 2020 is the highest since the 1997–98 Asian financial crisis, and the rate of economic contraction in 2020:Q2 (17.1 percent) is among the worse in the world. The direct fiscal stimulus by the government is lower than the average of ASEAN-6. The government spent too little, and too late.
The crisis also exposed cracks in the labor market, particularly the lack of a comprehensive social safety net. Coverage by SOCSO and EPF should be made mandatory to all workers, especially in the informal sector as well as migrants, documented or not. This initiative has little fiscal impact to the state as it will fully born by workers’ contributions.
The lessons learned from Malaysia's experience in successfully managing the health pandemic can be an important and useful case study for other countries. On the other hand, the crisis provides an opportunity for Malaysia to fix its economic policies, especially those related to labor. When the next crisis occurs, the country can then mitigate both health and economic impacts well.
Author calculation based on the data from MOH.
The author is grateful to Wing Thye Woo for the suggestions on the draft of the paper, and Syed Qoyyim Siddiqi Al Khered for the valuable research assistance.