Friday 29 Mar 2024
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KUALA LUMPUR (May 29): Malaysian Rating Corporation Bhd (MARC) sees a reduced likelihood for further cuts in the overnight policy rate (OPR) as lower borrowing cost will not necessarily induce further credit growth.

This is because there is also a rising risk aversion of banks, the ratings agency said.

“Additionally, it is acknowledged that fiscal policy, not monetary policy, should play the lead role in economic crises, especially in the current crisis that has been characterised by a rare supply-demand shock.

“After all, the overarching objective of most Central Banks, even if expressed in different ways, is price stability,” said MARC in a statement today on the impact and implications of COVID-19 for Malaysia.

Nevertheless, even though the Government might be bounded by its fiscal constraints to implement fiscal stimulus, MARC thinks Putrajaya still possesses some fiscal leeway to do so.

“We should note that the fiscal deficit, which we estimate to come in at between 5% and 5.5% of GDP this year, remains well below the 6.7% registered in 2009 during the Global Financial Crisis,” it said.

Meanwhile, it also expected that the fiscal consolidation that has been postponed will remain so for a period even after the current health crisis ends.

While the postponement of fiscal consolidation might affect Malaysia’s credit profile, MARC said such policy moves should be seen in the totality of the Government’s efforts to maintain economic and financial stability amid a disruptive pandemic.

“It is important to note that current policy measures are necessarily short term and reactive in nature, much like social distancing and restrictions on movement sans a vaccine to neutralise COVID-19.”

Given the possibility that the COVID-19 could become endemic and may never go away, MARC said there are important implications for Malaysia’s long-term macro-development strategies.

First and foremost, there are dire implications for sectors that continue to rely on cheap, low-skilled migrant worker especially since there are currently around two million documented migrant workers in the country, with most employed in the manufacturing, construction and plantation sectors.

“With successes at containing the pandemic patchy among countries that are important sources of documented migrant workers, the question of what the future holds for important economic sectors that are dependent on migrant workers has become crucial,” it said.

This issue of overdependence on cheap, low-skilled migrant workers has been raised many times before and continues to weigh on efforts to raise productivity and create higher-skilled and better-paying jobs.

“This has, among other things, made it difficult for Malaysia to escape the middle-income trap. It is possible that the COVID-19 outbreak could increase the political will to reduce the country’s dependence on foreign labour,” MARC said.

Besides that, the firm thinks that the deglobalisation in businesses will transpire even after the pandemic ends.

Against this backdrop, it also thinks that Malaysia, a net food importer, could face food security issues with food protectionism expected to become the new normal in the post-pandemic world.

“These are just some examples of the long-term implications of the pandemic on Malaysia. It is certainly not too early, maybe overdue in some cases, to firmly re-look our macro-development strategies,” said MARC.

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