Introduction
The health, social, and humanitarian crises caused by the COVID-19 pandemic have currently reached unprecedented levels. After taking office in early March 2020, the new administration in Malaysia has been coping with the impacts of the pandemic (Nga et al., 2021). These entail the shutdown of trade and tourism, rising debt, financial limitations, declining oil prices, and dwindling oil production (Abhari et al., 2021).
The government’s testing, contact tracing, quarantine, and treatment efforts during the epidemic were lauded internationally (Khor et al., 2020). Based on this, it was possible to ensure first responders’ safety and offer sound guidance and information to the general public. The number of new infections, the rate at which they spread, the number of those who have died and those who have recovered, and the locations of any hot spots were monitored daily.
The MCO ordered the closure of all enterprises and the mandatory stay-at-home of all residents except those in a few selected vital service and natural resource sectors. However, the decision to considerably relax limitations by May 4, 2020, under a Conditional Movement Control Order (CMCO) was controversial (Tajudin et al., 2021). It seemed that the shutdown was becoming an economic crisis threatening the Malaysian economy (Tajudin et al., 2021).
The economic downturn worsened poverty and hardship for the most disadvantaged groups while also expanding the wealth gap between the wealthy and the poor. This report’s data and statistics serve as diagnostic baselines for determining which employees and businesses are more at risk and in need. This can help the Malaysian government to tailor its stimulus measures in response to COVID-19, thus meeting the needs of these groups.
Current Situation
Malaysia’s economy is the 39th largest globally and the fourth largest in Southeast Asia. Over the past few years, Malaysia’s economy has expanded at a steady rate. The country’s GDP increased by 4.3% in 2019, following a 4.8% expansion in the previous year (Hashim et al., 2021). This was caused by a number of factors, such as the nation’s improving economy and standard of living, as well as growing demand for electronics, gas, and oil on the global market and sufficient infrastructure spending.
As a result of the COVID-19 epidemic and other factors, the upward trend in Malaysia’s economy was disrupted, and the GDP contracted in 2020. The economy shrank by 5.6% in 2020 due to the pandemic’s effects (Hashim et al., 2021). The GDP growth rate picked back up to 3.1% in 2021. The International Monetary Fund (IMF) predicted continued economic growth in Malaysia of 5.4% in 2022 as the country recovers from the COVID-19 recession (Khor et al., 2020). The IMF revised its forecast for 2023 downward from 4.7% to 4.4% (Khor et al., 2020). This is based on the Malaysian government’s efforts to establish recovery measures from the pandemic.
The first incidence of COVID-19 in Malaysia was found on January 25, 2020. Increases in the number of new coronavirus infections each day culminated in March when the government of Malaysia announced statewide mobility restrictions for everyone beginning on March 18, 2020 (Elengoe, 2020). Though progress was made in reducing infection rates initially, and nationwide movement restrictions were lifted by May 2020, a fresh wave of illnesses began in September 2020 (Elengoe, 2020).
The effects of COVID-19 in Malaysia extend far beyond public health and into the country’s economy. Damage to the economy comes from two directions, which are either external or domestic. External damage stems from the effects of the coronavirus in other countries, which include lower levels of demand from other countries and increased global uncertainty. Income and production impacts from adopting social distancing and closure restrictions as part of the nationwide mobility controls are another source of economic damage.
April 1, 2022, saw the reopening of Malaysia’s borders as part of the country’s effort to enter the endemic Phase. Malaysia’s economic sectors have been operating normally, and nearly all of the newly diagnosed cases of COVID-19 have been classified as having either no symptoms at all or very weak symptoms. Effective August 1, 2022, neither a pre-departure nor an on-arrival COVID-19 test nor proof of vaccination against COVID-19 was required for entry into Malaysia (Elengoe, 2020).
The COVID-19 pandemic did not result in any quarantine restrictions being applied by the Malaysian government. There were 42,717 new cases, 4,635,737 recoveries, and 36,044 deaths from COVID-19 in Malaysia as of August 9, 2022 (Elengoe, 2020). These statistics clearly indicate how the prevalence of the pandemic in Malaysia has affected a working population tasked with boosting the economy.
After a successful vaccination program and the complete relaxation of mobility restrictions, the Malaysian economy is on the upswing toward recovery from the pandemic. Of Malaysia’s entire population, 84.1% had received at least two doses of vaccination, with 49.6% having received at least one booster (Khalid, 2021). Some examples of vaccine manufacturers are Cansino, AstraZeneca-Oxford, Sinovac, and Pfizer-BioNTech. The Pfizer-BioNTech COVID-19 booster is the preferred option unless contraindications exist (Khor et al., 2020). The AstraZeneca-Oxford booster is advised for those who received the Pfizer mRNA or AstraZeneca 2-dose vaccination.
The effects of the crisis on economic expansion have been profound and enormous. The Malaysian GDP declined by 17.1% year-on-year in 2020 (Khalid, 2021). This was the largest percentage since the aftermath of the Asian Financial Crisis in 1998. With the loosening of migration restrictions, the decline rate slowed, and Malaysia’s GDP fell by 2.7% in the third quarter of 2020 (Cheng, 2020).
While Malaysia’s economy recovered quickly following the Global Financial Crisis in 2009, a return to pre-crisis GDP levels will be a more gradual process this time (Cheng, 2020). In 2009, the GDP recovered to pre-crisis levels in less than a year, thanks to a significant rebound in oil and electronic exports and a rise in foreign investment (Cheng, 2020). It is now far less probable that the global economy would see a “V-shaped” rebound. This is attributed to low global energy costs, subdued demand from the world’s main nations, and a predicted gradual recovery in global commerce.
Several years of economic growth and development in Malaysia have been stopped since the start of the COVID-19 crisis. In 2020, the GDP fell by 5.6% from the previous year, making it the worst annual fall since the Asian financial crisis of 1997 and the second-largest annual decline since Malaysia’s independence in 1957 (Cheng, 2022). This slowdown in economic activity in Malaysia was primarily caused by a sharp drop in investment (fixed capital formation) and the export of goods and services, bringing GDP back to 2018.
A third wave of infections at the end of 2020 and the subsequent round of movement restrictions resulted in a statewide total lockdown in June 2021, both of which weighed heavily on economic growth throughout the rest of the year (Cheng, 2022). Earlier projections for a return to pre-pandemic levels of GDP were pushed back to 2022 due to the reinstatement of these lockdown measures, which substantially slowed the economic recovery plans.
Overall, the effects of the pandemic on Malaysia’s GDP have slowed the country’s progress toward reaching a per capita gross national income over the World Bank’s criteria for high-income nations. The World Bank predicted in 2018 that Malaysia would achieve high-income status by 2022 before the pandemic struck (Cheng, 2022). However, updated baseline predictions show that Malaysia would not become a high-income nation until 2025, three years later than expected, before the GDP growth collapsed in 2020 (Cheng, 2022). Based on this idea, it is evident that the COVID-19 pandemic has profoundly impacted the Malaysian economy, hence the need for sustainability.
The elderly population in Malaysia (those aged 65 and over) is particularly vulnerable since they are less likely to have access to and less able to tolerate alternative treatments for COVID-19. The worldwide death rate for those over the age of 70 is the highest of any age group (Noor et al., 2021). An estimated 2.8 million B40 households were impacted because B40 workers in Malaysia are disproportionately likely to be retrenched, putting them in a poor financial position (Noor et al., 2021).
B40 households are at a higher risk due to their poor health, illiteracy, hunger, and chronic ailments, as well as their confined living conditions. Estimates put the number of migrant laborers (both legal and illegal) at about 3 million (Noor et al., 2021). In a variety of fields, migrant jobs such as construction, hospitality, and plantations are indispensable. The stigma associated with using public health services and the fear of losing a job, being deported, or both, especially among undocumented workers, has largely impacted the Malaysian economy.
Key Issues
COVID-19 has had disastrous effects on the economy of Malaysia, in addition to its effects on public health. The sources of economic damage are twofold: either external or domestic. External damage results from the coronavirus’s effects elsewhere across the globe. This includes a decline in foreign demand and a rise in uncertainty worldwide. The adoption of social distancing has adverse effects on domestic economies due to the disruptions it causes in terms of both revenue and productivity (Shakeel et al., 2020). It can also happen as a result of the countrywide movement regulations closing down fundamental necessities.
The COVID-19 shock has primarily spread internationally through commercial ties. International restrictions have weakened demand for Malaysia’s exports, which were already threatened in 2018 and 2019 by rising trade uncertainty due to the ongoing trade dispute between the United States and China (Shakeel et al., 2020). This is exacerbated by Malaysia’s economy being highly integrated into global value chains and having some of the greatest trade exposure in the Asia-Pacific.
Domestic factors provide the economy’s second major source of volatility. Even while limiting travel was a necessary step in stemming the spread of the coronavirus in Malaysia, the country has incurred a heavy economic cost. Consumption and investment have been destroyed, and supply and demand have been affected in innumerable ways. This is due to the forced shutdown of enterprises and services and mobility restrictions.
The COVID-19 crisis has hurt the Malaysian labor market and the lives of Malaysian employees, in addition to its consequences on economic growth. Recent data shows that the headline unemployment rate is still lingering at multi-decade highs despite the easing of movement restrictions, indicating that measures of labor market slack have reached their highest levels in decades (Shakeel et al., 2020). Recent studies have demonstrated, however, that there have been significant distributional implications in Malaysia beyond just the headline unemployment rate (Cheng, 2020).
Workers from historically marginalized groups, such as women, young people, and those with lower levels of education, have been impacted the hardest by the COVID-19 crisis. In contrast, males with more education have been mainly shielded from the effects on the job market. However, as the labor market has worsened in recent months, there is evidence of many women and young people leaving their jobs (Cheng, 2020). As a whole, the crisis has exacerbated economic and social disparities that had existed before it.
The number of Chinese tourists to Malaysia, formerly a popular vacation spot, dropped significantly due to the pandemic. The outbreak in China has cost the country’s tourism industry over RM3.37 billion (Cheng, 2020). Johor, Malacca, Penang, and Sabah, four of Malaysia’s states that rely heavily on the tourism industry and serve as gateways for visitors from Mainland China, were among the hardest hit (Abhari et al., 2021). Most of the state’s hotels and street vendors reported significant losses during this period. As a result, the states were compelled to transfer their attention from the dwindling Mainland Chinese market to the much larger Southeast Asian market. Some 149,000 Malaysians have signed a petition calling for a ban on Chinese visitors to the nation (Cheng, 2020). This is despite the fact that the country’s tourism industry has suffered significant losses since the onset of the pandemic.
During the outbreak, investors dumped shares on the Bursa Malaysia stock exchange out of concern for the virus’s continued economic impact, which is projected to be felt by other emerging financial markets. Since China is Malaysia’s major trading partner, the economies of both countries felt the effects of the pandemic.Economists have warned that a prolonged outbreak could have a significant impact on GDP (Khalid, 2021).
The effects of COVID-19 on the Malaysian economy can be evidenced by the country’s high unemployment rate and a fall in the value of the Malaysian ringgit relative to the US dollar. The unemployment rate in Malaysia was 3.3% in 2019, which translates to 508,200 people (Nga et al., 2021). Economically, this means that Malaysia was hit hard by the COVID-19 pandemic. Indicative of this is a look at how Malaysia’s unemployment rate stacks up to other countries. The unemployment rate in January 2020 is 3.2%, but it rises steadily until May of that year when it peaks at 5.3% (Nga et al., 2021). As a result of this, the need for workers is declining, which is a worrying trend.
Similarly, the value of a country’s currency relative to another’s can be gauged to provide insight into the state of its economy. This is due to the fact that the value of the currency exchange rate has a significant impact on the volume of trade between countries. Malaysia’s March 2019 currency rate is RM 4.08, while the July 2020 exchange rate was about RM 4.26 (Estrada et al., 2020).
Since the price of imported raw materials is increasing, weakening exchange rates will cause price-pushing inflation. Since much of Malaysia’s machinery comes from China and Japan, this will profoundly affect the country’s economy as a whole (Estrada et al., 2020). Even though more Malaysian ringgit is needed to trade for US Dollars, the weakening currency has a negative effect on the purchasing power of the Malaysian ringgit. As a result, people in Malaysia will have less money available, lowering their standard of living.
Recommended Solutions
Financial Relief
There is a need for the government to provide financial relief to organizations offering employment opportunities. In the event of a sudden economic downturn, providing subsidies to small and medium-sized businesses (SMEs) can help cushion the blow (Mustapa & Mohamad, 2021). A government grant is monetary assistance from a national, state, or municipal government agency to a deserving organization or individual (Shah et al., 2020).
In times of economic instability, grants that do not need to be repaid might be a lifeline for small and medium-sized enterprises (Mustapa & Mohamad, 2021). In addition, the availability of grants will inspire young businesspeople to launch their ventures despite the pandemic. Employment will be available again once the MCO ends, helping Malaysia’s economy recover from the downturn. This means more money for businesses as customers can spend on goods and services.
Additionally, the provision of grants by the government will lead to dependency among organizations. There could be an increase in the number of startups that fail due to insufficient profitability or market competitiveness. Those who establish their firms are more likely to take chances. In order to kickstart the stagnant economy, entrepreneurs should be encouraged to take greater risks.
If this pandemic does not end, Malaysia will be unable to recover from its economic downturn (Shah et al., 2020). Small enterprises that experience a loss of revenue during their MCO period can be saved by applying for and receiving assistance from the government. Malaysian small businesses urgently need financial aid to help them stay afloat so they can avoid laying off workers or reducing pay. Small and medium-sized enterprises (SMEs) are driving Malaysia’s economic revival and expansion.
Wage Subsidies
The purpose of wage subsidies is to protect low-skilled workers from having their wages reduced by their employers. A further cut in pay would exacerbate the already precarious financial situation of those holding such employment. In addition, low-skilled workers are less likely to be able to work remotely, increasing their likelihood of being unemployed (Mustapa & Mohamad, 2021). The government should oversee the wage subsidy to prevent businesses from using it as an excuse to lay off or lower pay for low-wage workers.
Individuals’ propensity to adjust their spending will decrease if their earnings are subsidized. Providing wage subsidies helps Malaysia achieve a V-shaped economic rebound. After the MCO, there may be a short period in which consumer demand must be adjusted (Shah et al., 2020). The current overall spending has been cut in half due to the MCO. As a result of the wage subsidy, customers do not have to adjust their purchasing habits after the MCO expires. Boosting the economy’s total demand for goods and services will, in turn, boost employment opportunities. As a result, the wage subsidy acts as a double-edged sword in the service of economic expansion.
Conditional Cash Transfers
Conditional cash transfer (CCT) programs provide financial incentives to encourage households to meet specific goals. In order to ensure that those most in need of financial assistance are able to receive the CCT, it should be subject to means testing (Ladhani & Sitter, 2020). CCT can be used as either an immediate or long-term fix. It helps the needy right away, and the conditions provided can stimulate economic growth by funding areas like healthcare and education. When applied to the problem of income disparity, CCT can immediately help those who are struggling financially and redistribute funds (Ladhani & Sitter, 2020). The interruption in the global supply chain has reduced the availability of manufactured goods and services. Therefore, a more equitable distribution of commodities and services is necessary to satisfy the fundamental requirements of all Malaysians. The interruption in China’s supply chain will have far-reaching consequences for the Malaysian economy.
Conclusion
In conclusion, it has been evidenced that the COVID-19 pandemic had far-reaching consequences, especially for the Malaysian economy. These impacts further affected the savings and spending that Malaysia was making from various sectors. The growing global demand for oil, gas, and electronic products, along with sufficient investment in infrastructure have seen their economy rise again steadily. As a result of a successful vaccination program and the lifting of all travel restrictions, the Malaysian economy is beginning to show signs of recovery from the pandemic. However, the government needs to adopt strategies such as the provision of financial relief, wage relief subsidies, and conditional cash transfer programs for the economy to fully recover.
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