JUNE 16 – The Prime Minister’s announcement of Malaysia’s exit strategy against Covid-19 is at least the first time the government has given us a clear plan since the start of the pandemic as opposed to a ‘wait and see’ approach “.

Nonetheless, it will send a chilling effect on everyone to see how long the plan will take to come to fruition and how much it will cost to bring it to fruition.

Now that we have a clearer picture of government plans, we should try to calculate the economic cost. We previously estimated that the total cost of the various lockdowns, including the full lockdown from June 1 to 14, would be around RM 107 billion. Based on the new exit strategy, we estimate this cost will be Ringgit 170 billion or 12.7% of GDP, including previous foreclosure costs.

To put that into context, according to the estimated treatment costs reported by the Galen Center, it would have cost around RM8 billion to treat the 668,000 people who have tested positive for Covid-19 so far.

So even if we were to have a similar number of cases by December, which would be three times the infection rate of the past 18 months, it would cost more than 20 times more to try to prevent the disease than to try to cure it.

Financial costs are, of course, only part of the problem. The Malaysian SME Association said there were 100,000 small business closings last year with another 50,000 to come even before the announcement.

A survey by the Ministry of Entrepreneurship Development and Cooperatives (MEDAC) released on June 4 found that more than 90% of micro, small and medium-sized enterprises were at risk of shutting down, with 54% saying they could only survive three days. six months and 72% cent expecting losses. It is now almost certain.

Excellent new data from the Department of Statistics on underemployment shows that there are 2.1 million underemployed people, of whom 310,000 are short-term and 2.1 million are in jobs below their levels. qualification with a lower salary. With 771,000 wholly unemployed, 3.1 million or 19.4 percent of the workforce are working to make ends meet.

The production loss of RM 170 billion is sufficient, at least mathematically, to guarantee a recession in the coming months and is based on the static linear cost estimates provided by the government for previous shutdowns.

This does not include the effect of reducing underlying growth and destroying capacity that we can see with business closures that was predicted by Bank Negara in its annual report earlier this year, which reduced underlying potential growth by 1.3%.

Based on the government’s four-step plan, we believe the most likely outcome for the economy now is a recession with a 55% chance or a weak recovery with a 45% chance.

There is no chance of a consistent and robust recovery which predicted 6-7.5% growth for 2021 and this has already been conceded by Prime Minister’s Cabinet Minister Mustapa Mohamed and also by the Minister of Finance Tengku Zafrul.

A weak recovery is only possible if there is a meaningful political response. We had previously said that the combination of fiscal and monetary policy will play a key role in determining whether the economy experiences a weak recovery or a moderate recession and that the government and Bank Negara need to establish a fully specified stimulus package from within. minus 100 billion ringgit. direct injection into the economy.

We are of the opinion that such a plan should be balanced between 60 billion ringgit of direct cash transfers to households B40 and M40 or 1500 ringgit per month until December.

The remaining 40 billion ringgit in the form of structured support for businesses, especially small businesses, would offer hope that they could survive and even grow.

In other words, the main problem with the profitability of the government’s “containment and vaccination” plan is to risk the loss of 170 billion ringgit in economic costs and possibly incur 100 billion ringgit in additional borrowing in order to try. to control the virus or to spend. a fraction, perhaps as little as 8 billion ringgit to treat those who contract the virus.

As we have mentioned in previous articles, a multiple treatment approach with prophylactic or preventive treatments and therapeutic agents and an extension of the “test, trace, isolate and treat” regimen advocated by the World Health Organization , both to be carried out in parallel. with the current vaccination program and treatment regimen would decouple managing the virus from managing the economy at a much lower cost by balancing lives and livelihoods.

The other key risk factor is the assumption that it will be the terminal strategy that ends the Covid-19 crisis by December. As the UK experience shows, even with very high vaccination levels, the risk of waves of new variants is a real and present danger.

The strategy of depleting the RM 170 million economy and increasing the debt by RM 100 billion would leave no room for tackling future virus outbreaks when they do occur, which is almost certain. This terminal exit strategy could therefore be the last roll of the dice.

* Dr Paolo Casadio is Economist at HELP University and Professor Geoffrey Williams is Economist at Malaysia University of Science and Technology. The opinions expressed are those of the authors.

** This is the personal opinion of the author or post and does not necessarily represent the views of Malaysian courier.