Economists: Loan moratorium a relief but SMEs need more to weather income loss
CORONAVIRUS | Economists welcome the six-month moratorium on loan repayments as it will provide short-term relief for those hardest hit by the movement control order - small and medium enterprises (SMEs).
The move will help preserve jobs and prevent bankruptcies, but experts hope for more initiatives in the government’s upcoming stimulus package to help firms in the longer term...
CORONAVIRUS | Economists welcome the six-month moratorium on loan repayments as it will provide short-term relief for those hardest hit by the movement control order - small and medium enterprises (SMEs).
The move will help preserve jobs and prevent bankruptcies, but experts hope for more initiatives in the government’s upcoming stimulus package to help firms in the longer term.
Speaking to Malaysiakini, economist Hafiz Noor Shams supported Bank Negara's decision.
“I think it's a good move. It allows companies to reallocate resources towards other more critical areas and hopefully, that means wages. The moratorium will reduce chances of massive layoffs,” he said when contacted.
Monash University Malaysia associate professor for economics Poon Wai Ching also backed the move but believed that banks will be uncomfortable with it.
“For banks, on one hand, this is not a favourable remedy as many of their clients may opt to not repay at all for the next six months. On the other hand, the banks likely will see lower non-performing loans in the near future,” she said.
Less optimistic about the moratorium was Universiti Malaya economics professor Rajah Rasiah, who predicted limited impact given the grave losses faced by SMEs during the Covid-19-triggered financial downturn.
He expected cash-strapped employers to flout obligations to give staff paid leave.
“It will ease the financial burdens faced by firms a little. It will be helpful, but it will not directly impact the loss of revenue and income from the movement control order [...]
“Income lost will not be replaced. Jobs lost will not bring income. (Therefore), despite regulations to pay salaries over the lockdown, many employers are likely to abscond from doing so,” he told Malaysiakini.
SMEs play a significant role in the economy. In 2018, they contributed RM521.7 billion or 38.3 percent to the country’s gross domestic product (GDP).
Moratorium means higher debts
Yesterday, the central bank ordered all banks to grant an “automatic” but optional half-year moratorium on all loans from April 1.
No penalties will be imposed on deferred payments, but interest will accrue during the deferment period.
This means borrowers will eventually need to resume repayments along with any accumulated interest after the deferment period ends in October.
READ MORE: BNM FAQ: No need to apply, interest will be accrued
Economist Laurence Todd of think tank Ideas cautioned that firms who take up this short-term relief would inevitably end up with higher debt.
“Malaysia’s very high household debt will be put under further strain as the interest accrues if individuals aren’t paying down debt.
“In the future, the higher debt and interest payments will also weigh on disposable income, so individuals and businesses need to make use of this relief cautiously,” he said.
Subsidise salaries
Hafiz, who was the special officer to former finance minister Lim Guan Eng, opined that the moratorium alone will not suffice and urged the Finance Ministry step in to protect SMEs.
“The ministry needs to match this with monetary responses, especially in convincing companies to hoard labour instead of laying them off.
“It needs to support companies by, among others, subsidising wages temporarily like what is being done in the UK and Denmark,” he said.
Also in favour of wage subsidies was Universiti Tunku Abdul Rahman (Utar) economics professor Wong Chin Yoong, who mooted that the ministry and Bank Negara work together to implement a comprehensive monetary and fiscal SME “rescue plan”.
“Bank Negara can offer term facilities through banks to help SMEs restructure loans at a loan rate that is close to the overnight policy rate (OPR).
“Bank Negara can even purchase all of the new government securities issued to pay for the rescue plan, which of course can be sold in the secondary market. After all, Malaysian government securities are highly sought-after investment-grade bonds. By doing so, the central bank relieves the market’s doubt on public debt sustainability.
“This, of course, needs a coordinated plan between the Finance Ministry and Bank Negara, a monetary-fiscal coordination,” he proposed.
The central bank cut the OPR twice in the first three months of the year to encourage borrowing, boost consumption and ultimately stimulate economic growth.
The rate now stands at 2.5 percent.
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