Rightways: Covid-19 pandemic recovery plan

Tuesday, February 22, 2022

Timely aid for small businesses

Impact will depend on execution of programme

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KUALA LUMPUR: The RM40bil Semarak Niaga Keluarga Malaysia programme is seen as timely in helping businesses to recover, although its impact would depend on execution and approval processes, according to economists.
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The programme, launched yesterday by Prime Minister Datuk Seri Ismail Sabri Yaakob, aims to increase access to financing for businesses especially micro, small and medium enterprises (MSMEs) and the informal sector.
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The programme comprises direct loans, financing guarantees and equity injections.
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Bank Islam Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said the programme is quite timely, as the global economy will take some time to recover.
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Bank Islam Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said the programme is quite timely, as the global economy will take some time to recover.

Bank Islam Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said the programme is quite timely, as the global economy will take some time to recover.
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“This economic disruption is unlike the previous ones such as the 2008 global financial crisis. Governments around the world are still hesitant about reopening their borders and economies,” he noted.
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Regarding government debt and fiscal sustainability, he said the programme involves various government agencies and development financial institutions (DFIs).
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“I don’t think there is direct financing from the government except if there are financing guarantees involved. While the DFIs have a mandate to support the government’s agenda in terms of promoting the growth of MSMEs, the DFIs also exercise their own due diligence to mitigate risk,” he said.
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Afzanizam added that the financial impact of the increased access to financing would also depend on “how quickly the funds are disbursed”.
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“This should help the Micro, Small, Medium Enterprises to recover faster, especially as the government has signalled that there would not be any more lockdowns. We can expect better prospects, going forward, for MSMEs involved in tourism and consumer spending-related activities,” he said.
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Afzanizam also noted that many industries were facing issues such as inflationary pressures due to higher raw material prices, difficulties in getting workers and logistical delays.
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“The better access to financing will certainly help businesses manage their working capital and boost their liquidity position,” he said.

`Meanwhile, Centre for Market Education CEO Dr Carmelo Ferlito told StarBiz he had mixed views about the programme.

Centre for Market Education CEO Dr Carmelo Ferlito told StarBiz he had mixed views about the programme. `

Centre for Market Education CEO Dr Carmelo Ferlito told StarBiz he had mixed views about the programme.

“From one side, the programme is an open recognition that lockdowns harmed the economy more than the benefits they provided (if any). In this sense, the government’s attempt to support businesses in general and SMEs in particular is welcomed,” he said.
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However, Ferlito said he is concerned about the potential unintended consequences such as inflation.
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“In a nutshell, easy credit or financing can only further stress the inflationary pressures currently at play. Just to give you some figures: given 100 the values of 2019, at the end of 2021, gross domestic product was 97.33 (so, below the 2019 level); however, M1 (the basic monetary aggregate) was 127.78, consumer price index 101.8 and producer price index 107.64.
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“So, further money injections in the form of zero-interest loans and other refinancing initiatives can only add pressure on pressure,” he explained.
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Ferlito said another concern is that economic initiatives may be initiated only because of the financial support rather than on the basis of a sound economic plan.
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On fiscal sustainability, Ferlito said a less risky way to address the needs of businesses is through more favourable tax schemes and incentives rather than ambitious financing programmes, which present risks for inflation, sustainability (for banks too) and in general, for the overall cyclical dynamic of the national economy.
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SME Association of Malaysia national secretary-general Chin Chee Seong said: “This programme is very much welcomed. For businesses to revive and to help in their cashflow, it is important for them to have fresh loans with lower interest and longer repayment periods.”
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Chin said one issue he foresees is that the loans and micro credit schemes may be “taken up very fast” and may not reach the businesses in dire need of such financing.
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“Also, the DFIs should be less stringent in assessing the loan applications and lower the bar for loan approvals,” he said.