Tag: COVID-19

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Economics Politics & government

[2948] Government money is best used for actual spending and investing, not replenishing EPF savings

National Union of Bank Employees (Nube), the banking union in Malaysia, wants the government to “return monies withdrawn by B40 and M40 members under the Covid-19 relief package.”[1] I take that as demanding the government to directly replenish EPF contributors’ savings that were depleted by government Covid-19 withdrawal programs. The news report does not mention when the union spokesperson wants the replenishing to happen, but I assume as soon as possible.

For the uninitiated, the Employees Provident Fund (EPF) is a compulsory retirement scheme for private sector workers.

I disagree with the withdrawal EPF schemes, and along with many others, instead have advocated for the government to raise its borrowing and commit to greater spending instead in order to provide greater assistance.[2] But the government was too worried about its fiscal deficit, too fresh to learn all the economic levers it had, and too desperate to find ways to relieve the spending pressures they felt. Among the chaos, they heard Najib Razak’s bad advice and took it.

But it is done now. A mistake has been made. While too many EPF contributors find their account depleted as a result, the overall economic circumstances have changed. During the pandemic, we needed economic programs guaranteeing everybody a certain level of welfare, particularly when a significant part of the economy was shutdown. With the private sector disabled so thoroughly, it was the responsibility of the government to secure everybody’s basic needs. It was a hibernation policy: lockdown and government assistance.

Now that the economy is back operating albeit weakly, priorities have changed. We need to strengthen the economy. Instead of hibernating, we need more spending and investing by the both the public and the private sectors.

This of course assumes we will not make any more mistake on the health front. While there is a real room for optimism going forward, with vaccination rate running high, and that we know more about the virus, after the government’s naïve V-shape recovery blunder, we can never be too careful.

Having the government replenishing EPF savings, especially if immediately or the near future, runs contrary to current priority of economic recovery: pushing for greater spending, investing in capacity building, and simultaneously creating jobs.

Why?

Because putting government revenue (or borrowing or both, since the government unlikely to enjoy any kind of fiscal surplus) into EPF savings would store the money into passive activity for an extended period of time (due to the nature of the scheme, which savings could only be withdrawn at retirement age under normal circumstances; for the macro-inclined, you would remember S=I, but here I would argue S=aI where a<1 since EPF typically invest in equities and debt, and not directly, and if directly definitely in the very minority, into new productive assets like factories and infrastructure). It would go into the financial market, but that is not the most productive of all options available out there. In other words, the act of replenishing will take a lot of steam needed to power the recovery.

And it is worth remembering that economy in 2021 will be smaller than it was in 2019: recovery is not complete. This is an important point because it has long-term repercussion on the economy.

To illustrate the point, it is good to go back to the 1998 during the Asian Financial Crisis. The Malaysian economy only truly recovered from the 1990s crisis by mid-2010s: actual GDP only surpassed the what-if-there-was-no-1990s-crisis GDP around 2015-2016. To put it differently, actual GDP level only surpassed the pre-crisis level around 2014. That is close to 20 years of lost potential.

Actual GDP vs hypothetical pre-AFC growth trend

For 2021, we are still both below pre-crisis level and trend.

For fear of losing more potential, we need to focus on spending and investing. Having the government correcting their EPF mistake by replenishing the accounts will heighten the risk of us losing potential.

The replenishing size, and in turn, potential loss from the replenishing policy, is not small. A report from the Finance Ministry shows the cumulative EPF withdrawal under the 3 programs (i-Lestari, i-Sinar and i-Citra) was RM90.3 billion as of early October 2021. More has been approved but yet to be withdrawn. Replenishing it as soon as possible would take at least RM90.3 billion off the economy in terms of spending and investment, ignoring any multiplier effect.[3] To put the number in perspective, that is nearly 30% of what the government plans to spend in 2022 and in fact, RM15 billion bigger than the government’s development allocation. Even by spreading the replenishment over 2 or 3 years, such policy would take so much money from most parts of the economy, and into the finance industry that will eventually manage those money.

But that does not mean there is no other way of replenishing it. Two ways I can think of are:

  • Tiering the dividend, which those with the least savings getting the highest rate. I have suggested tiering because, but it was primarily made out of realization the wrong people are given the incentive to save, and so, disincentive to spend and invest.
  • Increasing employers’ mandatory contribution. This will increase cost of doing business, but the government, while not doing enough, did a lot for businesses. Perhaps, it is time for businesses to play their role here.

Both however will be a slow replenishing process. Furthermore, increased mandatory contribution, for instance, might reduce take home pay as employers recalibrate their wage structure.

Another way by way of indirect replenishing is to make something like a senior citizen cash transfer bonus, payable by the government upon a person’s retirement, on top of existing cash transfer programs. But done together with dividend tiering, increased contribution and perhaps other ways too, this could reduce the size of the program, while pushing it far enough into the future.

Hafiz Noor Shams. Some rights reserved

[1] — KUALA LUMPUR (Nov 22): The National Union of Bank Employees (NUBE) had on Monday (Nov 22) urged the Employees Provident Fund (EPF) to demand that the government return monies withdrawn by bottom 40% (B40) and middle 40% (M40) segment EPF members to protect their retirement savings at a time when EPF members’ retirement savings have depleted due to Covid-19 pandemic-driven economic challenges. [Shazni Ong. EPF asked by NUBE to demand govt to return monies withdrawn by B40, M40 members during Covid-19. The Edge Markets. November 22 2021.]

[2] — Two experts Malaysiakini spoke to had concerns about allowing such a large number of people to dig into their retirement savings. Instead of tapping into EPF, both opined that the government could have spent more to provide assistance to households amidst the Covid-19 pandemic. Economist Hafiz Noor Shams previously analysed that the government was not spending enough in Budget 2021 to support the economy, by virtue of what he regarded as an overly conservative deficit estimate. [Annabelle Lee. Economists: Why let 8m tap EPF when govt can afford cash assistance?. Malaysiakini. November 27 2020.]

[3] — Laporan LAKSANA ke–76. Page 11. Ministry of Finance, Malaysia. November 17 2020.]

Categories
Conflict & disaster Personal Politics & government

[2938] From political to personal

Favored mindless slogan among Pas, Bersatu and Umno members and supporters early during the incompetent handling of the pandemic had something to do with politics. Despite the deeply political nature of the whole situation, they would say “jangan berpolitik.” That roughly translates into “don’t politicize the issue.” Do not politicize Covid-19. Do not politicize the handling.

They repeat the phrase while politicking, and eventually causing the state-wide Sabah by-election. Coupled with uneven enforcement of physical distancing, we are here today: a nearly collapsed healthcare system and continuing rising number of infection cases.

Failures in managing the case, and actions worsening the situation persisted, amid the mindless slogan: don’t politicize the issue.

Hafiz Noor Shams. Some rights reserved

My grandmother died in her bed six days ago, a day before Eid. Initially, everybody thought she died of old age. She died in her sleep. Her death was shocking, but she was old. And she had a good life.

Post-mortem at the hospital revealed she had Covid-19.

She was unvaccinated. I am unsure why. I am just angry.

I could not go to her burial. I have not met her for nearly two years. No, too late. I had not met her.

Hafiz Noor Shams. Some rights reserved

Five days after her death, I received by second Covid-19 vaccine jab. A slot I had to fight for. Such an inequity, created by an unscientific hunch.

Hafiz Noor Shams. Some rights reserved

I am sure my experience is not unique. With nearly 8,000 deaths and counting, everybody must have known somebody who has died.
I wonder how they feel. Do they feel all those incompetence, mismanagement and failures political? Is 3-day quarantine political?

Is death of a family member political? Or is it personal, meant to be grieved privately?

Are these killings political, or are they a private matter?

Hafiz Noor Shams. Some rights reserved

It must be politicized. It is the only way to make irresponsible, incompetent and unaccountable men and women of this government accountable.

Categories
Conflict & disaster Economics

[2937] Premature fiscal consolidation influences our vaccination strategy adversely

Our vaccination program is taking the big solution approach. Since the Covid-19 pandemic is a big challenge, it might be natural to come up with a big solution. Mega vaccination centers are a critical part of the program. Big space with hundreds if not thousands of personnel vaccinating hundreds if not thousands more individuals. Big, shinny glittering, big. It is as if Mahathir of the 1990s is back.

It has been a slow painfully slow start with some big mess made along the way, but the program is picking up steam. Vaccination pace is still below what is required but we are getting somewhere: on June 10, approximately 155,000 dosages were administered, and close to 10% of the population has received at least one dose of Covid-19 vaccines.

Behind the headline numbers, stories are appearing that people are not showing up for vaccination despite registration. The authorities at first tied the no-show to vaccine hesitancy. Earlier rationale for separating Astra-Zeneca vaccines from the main public vaccination program was based on the understanding that the public distrusted that particular vaccines. After all, AZ had bad press for some time.

After a while, that rationale is starting to become weak, especially given logistical concerns on the recipients’ side. More and more, it sounds like that particular claim was based on a misreading of incomplete data, and hasty conclusion. The kerfuffle between the Selangor state government and the federal government regarding total dosage the former received, for example, does not inspire confidence in the analytical skills of those in power in Putrajaya. Hesitancy is a big problem, but it is becoming clear that it had been used as a catch-all excuse to brush aside other big problems faced by the vaccination program.

To me, the no-show cases and the government’s preference for the big approach raise a question regarding our vaccination philosophy: are our methods primarily designed to be the easiest for the central authority to deliver the vaccines, or for individuals to get vaccinated?

The first part of the question—is the method easiest for central planners?—has the program administrators firstly in mind. If the administrators are the primary focus of the process, then having big centers is the way. This is because the big approach pools resources and rides on economies of scale. Pooling makes the vaccination program cheaper for the side managing it. Also, easier. The big approach necessarily means having few centers. And having fewer centers means the logistics becomes simpler, given all else the same: manage 3,4 or 5 big centers is significantly less complex than dealing 30, 300, or 3,000 spread across wide geography.

The second part of the question—is the method designed to be the easiest for individuals to get vaccinated?—puts potential recipients as the primary focus. It makes it easier for individuals interested in vaccinating themselves get vaccinated. Instead of having to travel from one part of the city to the another, or worse, having to travel from one part of the state to another (which is common enough), a person would be able to get his or her dose from the neighborhood clinics, hospitals, public halls or anything that could function as a vaccination center. This path is more expensive compared to other approach because it is more complex: it requires hundreds or thousands of small vaccination centers all around the country. It will involve resources being spread as widely as possible. But it is easier for potential vaccine recipients.

So, why did we choose the big approach, i.e. the method easiest for the central planners?

There might be multiple reasons behind that. I suspect one of them is related to cost consideration.

This goes back to the November 2020 when Budget 2021 was tabled in the Parliament. In that Budget, the government of the day in all its wisdom decided to embark on fiscal consolidation immediately. That policy was made based on rosy assumptions: the economy was to experience a V-shape recovery as soon as possible. Things would return to normal soonish.

That consolidation plan has gone awry. Recovery, if it could be called as such, is proceeding slower than what the government expected. When the budget was unbelievably passed despite it grave flaws in December 2020, Malaysia was still in recession. In fact as of the first quarter of 2021, the country was still in recession.

Since then, the government has been spending additional resources little by little, but not enough to solve the pandemic problem comprehensively. It has been reactive as the crisis develops, always one or two steps behind, almost ways coming short to the challenge. With available resources limited by the badly designed Budget 2021, those planning for vaccinations had to resort to the big approach: pooling resources, economies of scale, cheaper method. They had to minimize the monetary cost.

That comes at a (different) cost of course: it makes logistically hard to some individuals to get to the vaccination centers. Some is an understatement as we race toward herd immunity. The big approach contributes to the no-show cases: no-show because the big approach needs the people to go to the central planners, instead of the central planners coming to the people. All this raises the risk of Malaysia failing to achieve herd immunity as soon as possible, and letting the economy to muck around longer.

In short, the premature fiscal consolidation planned by this government had influenced our vaccination strategy adversely.

Categories
Conflict & disaster Economics

[2936] Latest government Covid-19 spending plan is ‘dasar cukup makan’

Severely underwhelming.

Those are the words I would use to describe the financial assistance the government launched in conjunction of the latest round of lockdown. The government values the program at RM40 billion, with approximately RM5 billion involving actual government spending. The rest are exemption or postponement-based initiatives, with loan repayment moratorium being the biggest and borne by somebody else.

What we need is not a band-aid program with actual spending being slightly greater than the RM3 billion auditor KMPG has trouble tracing in brewing Serba Dinamik financial scandal. Malaysia needs a new comprehensive program cognizant of the trouble we are facing collectively. I have earlier suggested the government will need to ramp up its spending significantly by raising its deficit ratio from approximately 6% of 2021 GDP currently to 9%-10% or even higher, while making all the consequential legal changes. We need to do whatever it takes to resolve the crisis as soon as possible.

But this government has failed to do that. The latest program proves this government is reactive to events, and always one-step behind. Muhyiddin and his incapable ministers just cannot look beyond the molehill. They keep holding on to plans which foundation has been dismantled by the worsening crisis. Those earlier plans, encapsulated by Budget 2021, were based on rosy assumptions that did not come true. Even with flawed assumptions, they keep going at it. Worse, a huge chunk of spending under the previous plans has yet to be executed.

That mistake of inadequate actual and approved spending in favor of unthinking fiscal consolidation has hobbled Malaysia’s response to the Covid-19 crisis. The government is unnecessarily self-limiting public spending that is needed to raise the health system capacity immediately and hasten the pace of vaccination in the population.

This is a disappointing policy that the Prime Minister should be embarrassed of announcing.

What the latest program really is, is that it is a “at least we tried” policy. Dasar cukup makan.

This spending is not about resolving the crisis. It is the government providing talking points to unthinking political operatives on the ground. It is to show the government is at least is responding to public demand. Moratorium? Yes, half-hearted but at least it is included. Wage subsidy? Yea, it is minimal by at least it is provided. “At least we the government are doing something.”

To come on top of this crisis, at least we did something is not good enough. The leadership of this government is not capable of doing more than “at least we tried.”

“You’re dying, but at least we’re giving you a glass of warm water.”

How comforting.

Hafiz Noor Shams. Some rights reserved

Awani interviewed me on June 2 2021 about my views. Here it is (when I said US and UK with respect to sovereign debt crisis, I meant Europe. I misspoke):

Categories
Personal

[2935] From BCG to Covid-19 vaccine

It is hard to remember it after all these years. I vaguely recall lining up along one of the corridors of my primary school building. The school had a mid-20th century architecture, with the present classrooms opened in 1964 in Kuala Lumpur. It had two symmetrical yellowish cream-colored long buildings running parallel and facing each other, with an open grass compound in the middle where little students would chase each other whenever the tropical sun was kind.

It was late morning I think, just after the 10AM recess. I may have made that up. But let us just say it was a bright sunny day because I do not remember it rained.

The school must have had 300-500 pupils aged from 7 to 12 years old. I do not know how old I was, but about a hundred were queuing up that day. My cohort was there to get our vaccination and health check-up. Was it BCG? I am unsure. Maybe.

What I remember best was the feeling I had while waiting. This line had no queue-jumper: everybody was scared. Some cried their hearts out and had to be consoled with an ice-cream cone or some candy. I did not cry despite my heart pounding, and I did not flee despite wanting to.

It did not help that the government of the day was running an anti-drugs campaign. The now-demolished old Pudu Jail had a long mural, purportedly the longest in the world along its walls for any would-be offender to see. The wall had images for drug abuses and its consequences painted in dark colors. Coloring contests were held about the evils of najis dadah. TV was telling us drugs were bad. Jangan hisap dadah. I want to hear that in Samy Vellu’s voice.

All that had the needle as a symbol of drug abuse and that symbol was strongly etched into my young mind.

On that day, I was confused. Why does my school want use a needle on me?

I was scared.

The queue had to end somewhere. It was not a wait forever. I did not look at it when the needle pierced through my skin, with a chemical concoction injected on my left arm. People told me it was like an ant bite. Either they were lying, or their ant was a huge killer-insect.

That is my memory when it come to injection. I may have grown up, but every time I have to face the needle for whatever reason, a little part of me shrinks in fear. “Please doctor, please, not the needle,” my little inner voice would shriek silently.

In this mismanaged pandemic, Malaysia is beginning to vaccinate our population seriously after a slow start. I had my first dose a week ago, and the line was a long one. My mind hovered around my old memory of vaccination and wondered if it still hurt while I was lining up.

I had several injections since that BCG vaccination. Funnily enough, I cannot recall any of them. My mind must have blotted them out. It must be traumatic.

As the line snaked into the main vaccination hall, I thought to myself, “antivax people are really antivax because they have a horrible injection experience. They have never grown out of it. ‘Never again,’ they said!”

I tried getting my mind off it by reading a book. But Hussin Mutalib’s Islam and Ethnicity in Malay Politics is not a titillating read. Interesting, but it is an academic work. Besides, it was hard to concentrate in the hall. Workers and volunteers were shouting out instruction, and people were talking to each other.

Eventually I found myself in a carrel where the vaccine would be administered. The vaccinator showed me the vaccine. There was a minor controversy just a day earlier where a person proved that he got less vaccine than he should. It should have been 0.5ml and no less.

The rumor machine went on an overdrive, suggesting somebody was purposefully giving less either to profit off it, or that supply was running out. Either way, for a program bedeviled by problems, the episode widened the trust deficit this government suffered, and this government suffers a deficit much bigger than the Najib administration.

I appreciated that the vaccinator showed me the volume, and I knew I should watch the whole procedure to ensure I got the whole 0.5ml.

But I did not.

I shut my eyes, trying not to think my BCG experience 20-30 years ago.

“All done. You’re good to go,” she said.

“Oh?”