This article first appeared in The Edge Malaysia Weekly on August 14, 2023 - August 20, 2023

BEING the “wealthiest country of the six” studied, and the only upper-middle-­income country compared, Malaysia “had the most favourable business environment” and fared better than five other East Asian middle-income developing countries surveyed by the World Bank to examine the economic impact of policy responses to the Covid-19 pandemic on households and firms.

The report, “Crisis Recovery and Learning from Covid-19’s Economic Impacts and Policy Responses in East Asia”, launched in Kuala Lumpur on Aug 3, noted that the six countries studied — Cambodia, Indonesia, Malaysia, Mongolia, the Philippines and Vietnam — were “geographically close to each other, experienced the crisis differently and implemented a variety of measures to contain the spread of the virus and mitigate economic impacts with varying success”.

It did not say why Thailand — another upper-middle-income country with a gross national income (GNI) per capita of US$7,230 in 2022 (US$7,090 in 2021) — was not included among the countries while Mongolia, which is not an Asean country, was.

Singapore, meanwhile, is a developed high-income nation with a GNI per capita of US$67,200 in 2022 (US$63,000 in 2021), according to World Bank data. Indonesia, which was a lower-middle-income country when the surveys were done, had since June this year regained the upper-middle-income country status with its GNI per capita at US$4,580 in 2022, up from US$4,170 in 2021. (See Table 1.)

In the 210-page report, researchers at the World Bank noted that Malaysia had achieved impressive progress in its vaccine rollout since June 2021. “By mid-March 2022, 98% of adult Malaysians had been fully vaccinated and 65% had received their booster (third) dose,” allowing the country to transition to the endemic phase, reopening borders for international travellers with minimal testing requirements from April 2022.

While gradual recovery occurred from the second half of 2021, researchers called for policy action to “turn the pandemic into a transformative moment for reducing in­equality”, reiterating the fact that “progress has been uneven, increasing the risks of greater inequality” with vulnerable groups as well as small and medium-size enterprises (SMEs) disproportionately affected by the Covid-19 crisis.

What should governments focus on as economies emerge from the economic shock of the pandemic?

“One clear message that emerges from the country chapters is the need to strengthen social protection systems. Doing so may require that some countries commit to increasing fiscal spending relative to what they had before the pandemic struck,” the World Bank report read, noting that “improved systems of providing unemployment insurance will strengthen the establishment of automatic stabilisers for future crisis situations”.

Researchers acknowledged that Malaysia, which is estimated to have 16.8% to 30.5% of informal employment, did consider bridging gaps in the coverage of precarious workers and had “provided incentives to firms and the self-employed for firms to hire new formal workers and matched social contributions for self-employed and gig workers” during the pandemic.

Researchers noted that going forward, governments “need to consider alternative mechanisms to manage these risks”.

“In the long term, wage subsidies are inefficient, because they hinder the reallocation of workers from less productive to more productive firms and sectors. Creating unemployment insurance and social safety nets that can quickly adapt to shocks would be a better way to ensure that workers do not bear the brunt of recessions. Other instruments that can be quickly deployed — such as forbearance of payment of bills or short-term lending support through micro-lending institutions — are also likely to be helpful,” the bank wrote in the report.

Malaysia can further strengthen its labour market policies and develop its labour and skills development programmes by integrating programmes across ministries and agencies to increase shock responsiveness as well as expand access to workers in the informal sector.

“Hiring incentives should be balanced with well-designed training programmes to address skills mismatches,” the World Bank said, noting that continual evaluation for policy enhancements as well as investments in data-driven decision-making “will be crucial in effectively navigating future challenges and ensuring a more resilient and inclusive labour market”.

Malaysia would also benefit from having identification systems or up-to-date registries that allow dynamic targeting of those with the greatest need of social assistance, to allow for better targeting without excluding those most vulnerable during times of severe shock.

“Preparing for the next crisis means not only strengthening data and monitoring systems for the delivery of assistance but also allowing for the evaluation of the effectiveness and impact of the assistance provided,” the researchers wrote, noting that registries of those needing assistance should ideally be updated yearly, and not every three to five years, which is what is usually done in practice.

Flagging the need for Malaysia to consolidate support instruments,the researchers said the ability for better targeting would help towards improving the timeliness, scale and predictability of social assistance when the next crisis hits, recalling the fact that “the duration and size of government support [during the Covid-19 pandemic] were often not sufficient to offset persistent labour income losses”.

“Programmes could prioritise vulnerable groups, broaden eligibility, and provide temporary coverage for households experiencing economic shocks. Consolidation of social assistance programmes can enhance range and protection for low-income and vulnerable families, promoting equitable recovery,” the World Bank said, reiterating the need for policymakers to prioritise equitable recovery, leverage technological advancements, and strengthen social safety nets to protect vulnerable groups.

According to the comparative study, “businesses in Mongolia, Malaysia and the Philippines were the most likely to reduce working days and hours to reduce their wage bill”. Researchers also described the update of digital technology by firms in the six countries studied as “impressive”.

“Globally, the share of firms that increased the use of digital technologies rose from 31% in the early months of the pandemic to 44% some seven to 12 months into the crisis. In the six East Asian countries, 38% of firms used digital technology in the early months, but four to six months later, the figure had risen to 55%. As a result, there was an uptick in the use and adoption of digital technologies recorded by each successive wave of the survey, coinciding with the progression of the pandemic and economic contraction.” (See Chart 1.)

“Only Malaysia — where the use of these technologies was the highest among the six economies and higher than the regional average before the pandemic started — did not experience this change. Although there was a wide variation among countries and waves, the tendency to increase the use of these platforms as the pandemic progressed was robust,” the researchers said in the report, noting that there are sector-specific patterns to digital adoption across the six East Asian economies studied.

“On average, establishments in ICT and education increased their use of the internet by 30% more than average in the economy. At the opposite end of the spectrum, use of digital platforms by firms in the food services sector was 12% below average, and the manufacturing sector lagged by 7%,” the researchers added. (See Chart 2.)

Malaysia — whose business environment is ranked highest among the six countries studied on the World Economic Forum’s Global Competitiveness Index — should direct policy action towards programmes that improve long-term growth potential to ensure a more robust and adaptive labour market as well as strengthen its capacity to manage and mitigate the effects of future shocks.

“Policy instruments should prioritise the self-selection of productive firms and investments in technology adoption and innovation,” the World Bank said, highlighting the need to invest in digital infrastructure and remote work capabilities to enhance resilience and efficiency in the face of future crises.

Investments in data collection and monitoring systems are crucial, researchers say, as these tools enable evidence-based decision-making, allowing policymakers to respond quickly and effectively to future crises.

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