Kuala Lumpur, 14 August 2020 – The contraction in Q2 2020 GDP by 17.1% as announced by Bank Negara Malaysia (BNM) today largely reflected the economic cost of the lockdowns. The Institute for Democracy and Economic Affairs (IDEAS) recognises the trade-offs faced by the government when implementing lockdowns previously to address the COVID-19 pandemic.  But there should not be knee-jerk reactions to roll out more aggressive stimulus measures targeting the short-term. Instead, the policy focus should be on the longer-term plan for an inclusive and sustainable economic recovery

Commenting on the issue, IDEAS Research Manager, Lau Zheng Zhou, thinks that “Malaysia’s success so far in flattening the COVID-19 infection curve puts us on a strong footing for recovery. This is the time where we should undertake strategic reforms to address structural vulnerabilities facing our industries, especially the SMEs, and how to help them adapt more successfully for recovery in the longer term.” For instance, the government can encourage closer collaboration between SMEs and research universities on product and process innovation. Incentives can also be targeted towards SMEs to increase participation in the government’s Industry4WRD Readiness Assessment.

The lack of resilience by many SMEs was heightened as a result of shocks brought about by the pandemic. The lack of access to financing and capital buffers, limited capabilities to scale, and a cost-competitive model have rendered our SMEs more vulnerable during times of crisis, thus resulting in high unemployment and furlough, as well as insolvency. The success of an FDI-driven approach to promoting knowledge and technology transfers to SMEs is also mixed, with implications to Malaysia’s progress in achieving industrial upgrading and high-income growth.

So, it is timely for the government to identify and prioritize subsectors or key value chain activities where Malaysian industries and SMEs can be competitive, not just domestically, but more so regionally and globally. At the same time, the pandemic has highlighted the urgency to address existing gaps in social protection, targeting especially SMEs who remain the biggest employer in Malaysia. “While it is understandable that the sharp contraction in Q2 2020 GDP can be a cause for panic, but this is also an opportunity for us to reshape our policy direction so that we can promote a more competitive and inclusive economy moving forward,” added Lau.

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For media enquiries, please contact Lau Zheng Zhou at lau@ideas.org.my.