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PETALING JAYA: Malaysia’s overall output losses due to lockdowns in 2021 are estimated to amount to at least RM23.2 billion, according to Malaysian Rating Corp Bhd (MARC).

Its economic research unit elaborated that the estimate is based on a daily output loss of RM1.3 billion per day for MCO 3.0, an ease in mobility restrictions later in the year which would offset GDP losses via greater economic expansion amid reopening, as well as a 100,000 increase in job losses in MCO 3.0 as the unemployment rate would remain elevated for an extended period than initially estimated.

Moreover, it had maintained an inflation projection at 3% and that the government would resort to debt to mitigate greater economic losses due to a prolonged lockdown.

Earlier this month, it revised the country’s GDP growth forecast for the second time this year, to 3.9% year-on-year (y-o-y) from an initial projection of 5.6% growth in January 2021.

“Notwithstanding the lockdown costs, we believe that mobility restrictions cannot be dismantled/reversed in practice amid its wide-reaching application in the overall global pandemic response,” said MARC Research in a report yesterday.

“As a democratic society, the government needs to provide ample reasoning to ensure the public is aware of the consequences of a crisis-mode public policy.”

It opined the real policy challenge is to either phase it out entirely over a long period of time or improve the existing lockdown implementation.

Given the emergence of newer and more contagious Covid-19 variants over time, the research unit professed a preference for the latter.

The research unit argued the government should allow companies to operate albeit with social distancing measures, in the same light as allowing a sole proprietor to conduct business, as it would allow economic agents readjust their priorities accordingly with minimal government intervention.

“Simply put, the owners of capital should be allowed to calibrate their business models to suit the current operating environment. Blanket SOPs are grossly inefficient and punitive to capital owners who cannot adjust their business model accordingly.”

It stated highly restrictive SOPs would discourage capital owners to find new ways to operate more efficiently, thus leading to a deadweight loss to both consumers and producers. Therefore, MARC said the government should place a “floor” level of SOPs and leave capital owners to determine their own “new norm” business model.

Overall, it assumes the target of achieving zero positive case is ambitious in the foreseeable future. The government must find ways to live with the virus as Covid-19 may not be entirely eradicated unless the world population is adequately protected.

The research unit found that the government does not suffer from financial or export-led constraints in any way. It also does not subscribe to the notion that policy response should be similar to past crises, nor should it mirror experiences of other countries.

The ratings agency also cautioned that a prolonged lockdown may eventually lead to liquidity issues and subsequently a full-blown financial and political crisis. Furthermore, it believes the economic costs of lockdowns can be both quantitative and qualitative.

“While the GDP losses are enormous, we believe that the intangible costs are much higher and would only be realised in time.”

On the bright side, the research unit think it is possible to recoup the economic losses in GDP in the fourth quarter of this year.

“Reopening the economy and allowing for greater public and private investments will place the Malaysian economy on a much stronger path towards full recovery.”

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