MALAYSIA ECONOMIC MONITOR DECEMBER 2021 Staying Afloat CONNECT WITH US wbg.org/Malaysia @WorldBankMalaysia @WB_AsiaPacific http://bit.ly/WB_blogsMY MALAYSIA ECONOMIC MONITOR © 2021 International Bank for Reconstruction and Development / The World Bank Sasana Kijang, 2 Jalan Dato Onn, Kuala Lumpur 50480, Malaysia Some rights reserved This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Nothing herein shall constitute or be considered to be a limitation upon or waiver of the privileges and immunities of The World Bank, all of which are specifically reserved. Rights and Permissions This work is available under the Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO) http://creativecommons.org/licenses/by/3.0/igo. Under the Creative Commons Attribution license, you are free to copy, distribute, transmit, and adapt this work, including for commercial purposes, under the following conditions: Attribution: Please cite the work as follows: World Bank (2021) “Staying Afloat” Malaysia Economic Monitor (December), World Bank, Washington, DC. Translations: If you create a translation of this work, please add the following disclaimer along with the attribution: This translation was not created by The World Bank and should not be considered an official World Bank translation. The World Bank shall not be liable for any content or error in this translation. Adaptations: If you create an adaptation of this work, please add the following disclaimer along with the attribution: This is an adaptation of an original work by The World Bank. Views and opinions expressed in the adaptation are the sole responsibility of the author or authors of the adaptation and are not endorsed by The World Bank. Third-party content: The World Bank does not necessarily own each component of the content contained within the work. The World Bank therefore does not warrant that the use of any third- party-owned individual component or part contained in the work will not infringe on the rights of those third parties. The risk of claims resulting from such infringement rests solely with you. If you wish to re-use a component of the work, it is your responsibility to determine whether permission is needed for that re-use and to obtain permission from the copyright owner. Examples of components can include, but are not limited to, tables, figures, or images. All queries on rights and licenses should be addressed to World Bank Publications, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; e-mail: pubrights@worldbank.org. MALAYSIA ECONOMIC MONITOR DECEMBER 2021 Staying Afloat Acknowledgements This edition of the Malaysia Economic Monitor (MEM) was co-led by Shakira Teh Sharifuddin and Ririn Salwa Purnamasari (Part 2), and a team comprising Yew Keat Chong, Mahama Samir Bandaogo, Sheau Yin Goh, Alyssia Thien Nga Maluda, Zainab Ali Ahmad, Yashodhan Ghorpade, Alyssa Farha Jasmin, Amanina Abdur Rahman, Aija Maarit Rinkinen, Yin Yee Tham, Carmen Loo, Hayeon Kim and Suet Li Liew. Shafaat Khan, Yu Cao, Waewnet Sukkasem, Sidong Kim, Junya Toya, Hui Sin Teo and Mei Ling Tan provided additional contributions. Ndiame Diop, Yasuhiko Matsuda, Lars Moller, Rinku Murgai, Yasser El-Gammal, Toby Linden, and Apurva Sanghi provided overall guidance. The team is grateful to Mathew Wai Poi, Roberto Palacios, Ergys Islamaj, Ekaterine T. Vashakmadze and Souleymane Coulibaly for their constructive input on the document. This report benefited from productive discussions with staff from the Economic Planning Unit, the Ministry of Finance, Bank Negara Malaysia, and many other government ministries and agencies, all of whom provided valuable information and useful feedback. In particular, the team would like to thank the International Cooperation Division of the Economic Planning Unit for close ongoing collaboration with the World Bank and for the crucial support to the launch of this report. The team would also like to express its gratitude to analysts at several private financial firms and rating institutions, whose participation in a constructive dialogue also informed the analysis. Joshua Foong and Daniel Rajasingam Subramaniam led external communications and the production and design of the report. Irfan Kortschak provided editing assistance, while Shanta Anna Anthony Vincent provided administrative support. Kane Chong and Francis Sim designed the report and its cover. Cover image: Lano Lan / Shutterstock.com Content images: Samuel Goh / World Bank The report is based on information current as of December 15, 2021. Please contact Shakira Teh Sharifuddin (MEM task team leader at stehsharifuddin@worldbank.org) or Apurva Sanghi (World Bank Lead Economist for Malaysia at asanghi@worldbank.org) if you have any questions, comments, or suggestions regarding the Malaysia Economic Monitor. 4 MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 Abbreviations B40 Bottom 40 percent (of the population) MCO Movement Control Order BNM Bank Negara Malaysia MEM Malaysia Economic Monitor BPN National Caring Aid (Bantuan Prihatin Nasional ) MNC Multinational Corporations BPS Business Pulse Survey MOF Ministry of Finance Malaysia BSH Cost of Living Aid (Bantuan Sara Hidup Rakyat) MPC Monetary Policy Committee CMCO Conditional Movement Control Order MTFF Medium-Term Fiscal Framework COVID-19 Coronavirus Disease 2019 MTRS Medium-Term Revenue Strategy CPI Consumer Price Index MSME Micro, Small and Medium Enterprises Comprehensive and Progressive Trans-Pacific NPL Non-performing Loans CP-TPP Partnership OE Operating Expenditure DE Development Expenditure OPR Overnight Policy Rate DFI Development Finance Institution Programme for International Student PISA DOSM Department of Statistics Malaysia Assessment E&E Electricals and Electronics RMCO Recovery Movement Control Order EAP East Asia and Pacific RPGT Real Property Gains Tax EMCO Enhanced Movement Control Order SESSS Self-Employment Social Security Scheme EMDEs Emerging Market and Developing Economies SOEs State Owned Enterprises EPF Employees Provident Fund SMEs Small and Medium Sized Enterprises FBM KLCI FTSE Bursa Malaysia Index SRR Statutory Reserve Requirement FDI Foreign Direct Investment SST Sales and Services Tax GDP Gross Domestic Product T20 Top 20 percent (of the population) GFCF Gross Fixed Capital Formation TFP Total Factor Productivity GIC Global Investment Competitiveness Trends In International Mathematics and TIMSS Science Study GLC Government Linked Corporation UMIC Upper-middle Income Countries GNI Gross National Income WHO World Health Organization GST Goods and Services Tax Y/Y Year-on-Year GVCs Global Value Chains HiFy High-Frequency Phone Survey ICT Information and Communication Technology ILO International Labor Organization IMF International Monetary Fund IPI Industrial Production Index LAYS Learning-Adjusted Years of Schooling LCR Liquidity Coverage Ratio Inland Revenue Board (Lembaga Hasil Dalam LHDN Negeri Malaysia) M40 Middle 40 percent (of the population) MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 5 6 MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 Table of Contents Acknowledgements 4 Abbreviations 5 Summary 8 Recent economic developments 9 Economic outlook 10 Staying Afloat 11 PART ONE 16 Recent economic developments 18 The resurgence of the pandemic and supply chain disruptions have weighed on the global economy 18 Developments in the Malaysian Economy 19 Domestic economic activity has been affected by the reimposition of movement controls 19 Gross exports remained resilient, with robust demand for manufacturing and commodity exports 21 Labor market conditions softened as the economy slowed down 25 Malaysia is gradually emerging from the worst wave of COVID-19 infections 27 Financial sector conditions have remained broadly stable 28 The fiscal deficit is expected to widen in 2021 30 Fiscal space is expected to remain constrained 32 Economic outlook 35 Global growth is projected to moderate next year 35 Malaysia’s economic recovery is expected to gain momentum next year 36 The balance of risks for growth is tilted to the downside 37 In the near term, the government should continue existing support measures 38 As the recovery becomes more entrenched, fiscal policy should focus on rebuilding fiscal buffers 40 PART TWO 45 Staying Afloat 46 The pandemic has exacerbated existing challenges faced by poor and vulnerable Malaysian households 46 Employment has fluctuated, with low-income and informally employed workers particularly affected by the shocks 49 Although the economy is gradually recovering, the progress is uneven, leaving low-income households and informally employed workers more vulnerable 54 A large share of those not covered by social insurance, such as informally employed workers, were also excluded from government assistance 58 The more severe impact faced by the poor and informally employed workers underscores gaps in the social protection system 60 The pandemic has widened existing learning gaps between children in Malaysia 63 Children from low-income households face different realities pre- and during COVID-19, casting a clearer light on issues in the education system 67 The pandemic will potentially further contribute to socioeconomic inequalities, besides slowing future growth 71 In the near-term, support for the poor and vulnerable, including informally employed workers and children, should remain in place 75 In the medium- to long-term, policies should look into addressing shortcomings and managing impact of the pandemic 79 References 82 MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 7 Summary Following the surge in COVID-19 infections in Q3 2021, Malaysia is gradually emerging from the worst wave of the pandemic The surge in COVID-19 infections in the Q3 2021 at 5.8 percent in 2022 (2021f: 3.3 percent) – is expected significantly affected the Malaysian economy. to be anchored by a rebound in domestic demand The reimposition of pandemic-related restrictions and continued expansion in exports. Nevertheless, saw the closure of most economic sectors, with only several downside risks remain, including new COVID-19 key essential services allowed to operate. Vulnerable outbreaks, faster-than-expected slowdown in global households and small and medium enterprises (SMEs) and regional growth, unanchored inflation expectations in particular, were most affected. Malaysia’s economy and faster-than-anticipated tightening of global subsequently contracted by 4.5 percent in Q3 2021. financial conditions. Nevertheless, Malaysia is gradually emerging from In the near-term, it is key to ensure that targeted the worst wave of the pandemic. New daily cases have support measures remain in place. As recovery trended down significantly, relieving some pressure becomes more entrenched, steps could be taken to on the health system. This is largely explained by the recalibrate existing support programs, along with acceleration in the National Immunization Program, a robust medium-term fiscal consolidation plan to with 78 percent of the population being fully vaccinated expand revenues and contain expenditures. as of December 16, 2021. This coincided with the drop in hospitalization as well as daily fatality rates. With the The Malaysia Economic Monitor (MEM) consists of decline in the number of infections, the government two parts. Part 1 presents a review of recent economic has eased most of the movement restrictions. developments and a macroeconomic outlook. Part 2 focuses on a selected special topic that is key to As a result, the Malaysian economy is expected to Malaysia’s medium-term development prospects and be on a recovery path next year. Growth – projected to the achievement of shared prosperity. 8 MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 Summary Recent economic Nevertheless, recently there has been a marked surge in the prices of selected food items. The sharp developments increase in food items such as poultry and vegetables was driven by a shortage in supply, as adverse weather conditions and shortage of foreign labor have affected the production of fresh produce. The government Domestic economic activity was severely impacted is looking into measures to manage price increases, by the reimposition of movement controls. including organizing regular sales for basic necessities. Malaysia’s economic growth contracted by 4.5 percent While such measures may be effective in the short- in Q3 2021 after a strong 16.1 percent expansion in term, medium-term measures are needed to reduce the Q2. Private consumption contracted as COVID-related impact of climatic volatility on agriculture output and restrictions, heightened cautionary behavior among food supply. consumers, and elevated uncertainty over employment and earnings constrained spending by households. Malaysia’s exports have remained relatively Investment activities were also affected as business resilient, supported by robust external demand sentiments remained subdued. and a diversified export base. The strong growth in exports was driven mainly by strong external demand On the supply side, the contraction in growth for non-E&E manufactured products, including was broad-based as pandemic mitigation measures petroleum and chemical products, metal manufactures affected output across all sectors. Construction activity and palm-oil based products. Higher commodity prices was most affected following temporary halts in non- also contributed to increased commodity exports, essential construction work, falling by 20.6 percent in particularly crude palm oil (CPO) and liquefied natural Q3 2021. gas (LNG). Meanwhile, services exports, particularly travel and tourism remained subdued. Inflationary pressure in Malaysia has remained contained relative to other countries in the The headline unemployment rate remained largely region. This was partly due to a smaller base effect unchanged at 4.5 percent. However, unemployment from fuel prices; the implementation of electricity bill rate for the 15-24 age group has remained high (11.7 discount; and price caps and subsidies on essential percent in Q3 2021; Q2 2021: 11.0 percent) amid commodities. Core inflation remained broadly stable at prolonged economic uncertainty and job mismatches. 0.7 percent. The Central Bank of Malaysia has kept the Moreover, the underemployment rate also remained overnight policy rate unchanged throughout 2021 and elevated, reflecting the continued under-utilization of continues to regard the current degree of monetary labor force. It also underscores structural issues such accommodativeness to be appropriate. as skills mismatches, the rise of the informal and gig MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 9 Summary economy, and the lack of affordable childcare, affecting the creation of stable jobs. Economic outlook The financial sector remained stable, with banks Global growth is projected to decelerate to 4.3 maintaining adequate liquidity positions. Liquidity percent in 2022 (2021: 5.6 percent). This reflects coverage remains elevated at 154 percent at the headwinds from COVID-19 flare-ups, continued supply end of September, above the statutory requirement disruptions and diminished macroeconomic support. of 100 percent. There was sufficient liquidity at the Growth is projected to moderate to 4.0 percent in institutional and system-wide levels to support financial advanced economies next year (2021: 5.4 percent) as intermediation. In addition, despite the increase policy support gradually recedes, partially cushioned by in overall household debt, the bulk of household the continued release of pent-up demand. Meanwhile, borrowers remain resilient. Non-performing loans growth in emerging markets and developing economies have remained steady at 1.9 percent, likely due to the (EMDEs) is projected to moderate to 4.7 percent in forbearance measures because loans under repayment 2022 (2021: 5.9 percent). assistance are not classified as impaired. The fiscal deficit is expected to widen to 6.5 percent in 2021. Federal government spending in 2021 was revised upwards by 0.6 percent of GDP, while revenue collection was revised downwards by 0.5 percent of GDP. This resulted in a projected increase of 1.1 percent of GDP to the fiscal deficit. Similarly, the primary deficit is expected to widen marginally to 3.9 percent of GDP in 2021, up from 3.8 percent in 2020. The government has raised the debt limit to accommodate the higher spending. In October 2021, the parliament approved the increase in the debt ceiling from 60 to 65 percent. The ceiling was previously increased from 55 to 60 percent of GDP. Debt service charges breached the self-imposed limit of 15 percent of revenue. In 2020 they stood at 15.4 percent of revenue and are expected to rise to 17.4 and 18.4 percent in 2021 and 2022 respectively. The increase in debt service charges partly reflects the decline in revenue and the increase in debt. While the breach is expected, it has contributed to the narrowing of Malaysia’s fiscal space, increasing fiscal rigidity and crowding out discretionary spending. Budget 2022 indicates fiscal space is expected to remain constrained. Government revenue has been on a downward trend since 2012, mainly driven by declines in oil-related revenues, and consumption Economic recovery in Malaysia is expected to taxes. Although the government announced a new set gain momentum in 2022. The economy is projected of tax measures, including a one-off windfall tax, tax to grow by 5.8 percent in 2022. This is mainly driven on sugar-sweetened beverages as well as the removal by acceleration in private consumption. Exports are of tax exemptions on foreign income, the impact is projected to continue to expand, albeit at a slower expected to remain small. pace, in line with the expected moderation in global trade growth. Growth is anticipated to be broad-based, The government has proposed introducing a Fiscal with recovery across all economic sectors. Responsibility Act (FRA) in 2022. Such an Act, if properly designed and implemented, should establish Headline inflation is projected to moderate in a path for medium-term fiscal consolidation. 2022. The base effect of the higher domestic retail fuel 10 MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 Summary prices is expected to dissipate. Underlying inflation is expected to be broadly contained over the near term Staying Afloat in the absence of immediate domestic cost pressures. Even before the advent of the pandemic, an The balance of risks for growth is tilted to the increasing number of Malaysians, in both low- downside. A resurgence in COVID-19 infections and the and middle-income groups, were struggling to emergence of the Omicron variant could dampen both make ends meet. Malaysia’s recent economic growth global and domestic economic recovery. In addition, has benefited people through enhanced economic rising vulnerability among affected households and opportunities and higher incomes. Even so, in recent firms could also pose headwinds to growth. Defaults times, more Malaysians felt that these headline will likely rise once debt repayment moratoria and other successes have not translated into real improvements regulatory forbearance measures expire. in their daily lives, according to the World Bank report Aspirations Unfulfilled: Malaysia’s Cost of Living Continuing existing support measures should Challenges. Reasons for this include rising prices of remain the focus in the near term. Targeted social basic goods and services, sluggish income growth, and spending should remain in place given that there increasing housing costs. With these challenges, many remains a high degree of uncertainty over the health and Malaysians entered the COVID-19 crisis with household economic outlook. The High-Frequency Phone Survey balance sheets that were already stretched. (HiFy) survey which was conducted during the pandemic showed that there were some households within low- income segments such as informally employed workers Informally employed did not receive government assistance. workers experienced Strengthening the health system’s readiness greater food remains a top priority. It is also important to ensure a successful response to the booster shot program to insecurity, economic provide enhanced protection to at-risk individuals. uncertainty, and Efforts to rebuild of fiscal buffers should be distress during the accelerated in the medium-term. Measures to pandemic increase revenue collection through a more progressive tax framework need to be accelerated, with a clear implementation timeline. Concurrently, it is important The pandemic has exacerbated existing challenges for the government to raise its spending efficiency. This faced by the poor and vulnerable, including includes improving the targeting of social spending informally employed workers. Lower-income, less- and at the same time phasing out generalized and educated, and young workers were more likely to regressive subsidies, such as fuel subsidies. be exposed to employment disruptions. Moreover, informally employed workers (who do not receive Looking further ahead, policies could also be contributions to either EPF or SOCSO from their current aimed at addressing the gaps in social safety nets employer) were also more severely impacted by the and improving human capital. The pandemic has pandemic. They face structural vulnerabilities including exposed several limitations in the ability of Malaysia’s irregular income and precarious terms of employment, existing social safety nets system to fully protect poor greater exposure to shocks, and incomplete insurance and vulnerable households. It is also important that against risks. As a result, informally employed workers significant measures are undertaken to enhance human experienced higher food insecurity, economic capital, which has experienced significant disruption uncertainty, and financial distress during the crisis. during the pandemic. These issues and policies are explored in greater detail in Part 2 of this edition of the Although the economy is gradually recovering, the MEM, titled Staying Afloat. progress is uneven, leaving low-income households and informally employed workers more vulnerable. By November 2021, half of the people who became unemployed during the pandemic had returned to work. A quarter of those who continued working throughout the pandemic were no longer experiencing income reduction. These recent improvements were MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 11 Summary translated into improvements in socioeconomic Children from low-income households face indicators, including lower prevalence of food insecurity different realities pre- and during COVID-19, and higher share of online learning participation among casting a clearer light on issues in the education children. Nevertheless, the adverse impact of the system. Several studies show that family wealth as pandemic still lingers around the poor and vulnerable, well as parental educational levels and occupation are with many low-income households and informally positively correlated with students’ development of employed workers becoming less resilient and more cognitive and socioemotional skills. The World Bank’s financially vulnerable. Given the tendency to rely on HiFy survey highlights that children from low-income harmful coping strategies, such as sale of assets and families were less likely to engage in home-learning reduction in food consumption, poor and vulnerable activities during the pandemic. While most Malaysian Malaysians are expected to have diminished productive children have had access to online classes or mobile potential in the long-term. learning applications, 23 percent of children from lower- income households were unable to participate, mainly The pandemic has brought into sharper focus due to the unavailability of stable internet and devices. long-standing weaknesses in Malaysia’s social More recent findings, however, show a decline in protection system, underlining the need for a online learning constraints related to access to devices, robust and shock-responsive social protection consistent with a number of initiatives implemented by system. In response to the pandemic, the government the government in 2021 to address the lack of devices intensified a progressive social assistance response, and internet access among disadvantaged children. including establishing mechanisms to deliver the benefits swiftly. Despite this, a significant share of those who are eligible have not received any assistance. Findings from both rounds of the HiFy survey show It will be critical to that about a quarter of lower-income households had missed out on various government assistance improve outreach and programs during the crisis. Even among recipients of intake among the excluded, government assistance during the pandemic, informally employed workers and their households experienced particularly informally higher food insecurity, alluding to the insufficiency of employed workers who current assistance programs compared to exacerbated needs for support. The government’s ability to provide are not linked to the tax meaningful assistance to the poor and vulnerable has system, or avail social been hampered by several weaknesses of the social protection system. These include low benefit adequacy, insurance benefits linked fragmentation of programs, non-standardized to formal employment targeting, and the limited reach of social insurance especially among the poor. The exclusion among the poor in the receipt of COVID-19 assistance are in large part a consequence of these systemic weaknesses. To ensure Malaysia fulfills its growth potential in the next coming years, it is a critical and opportune On the education front, the pandemic has widened time for the country to address pre-existing gaps existing learning gaps between children in as well as newly emerged challenges from the crisis. Malaysia. Prior to the pandemic, there were already The HiFy survey confirms that the negative economic significant learning gaps between students from shock among households is often accompanied by a socioeconomically advantaged and disadvantaged deterioration in other non-economic aspects. While the households. By 2018, the performance gap for PISA early impact of the pandemic was relatively widespread, between these two groups of students had increased its adverse consequences are expected to be more for reading, mathematics, and science. In addition, severe and longer among the poor and vulnerable, Malaysia had one of the longest school closures in potentially contributing to long-term socioeconomic the region, potentially exacerbating pre-existing inequalities. A set of comprehensive immediate and learning issues and gaps. Our simulations estimate up medium-to longer term policies are needed to realize to 1.3 years of additional learning losses for Malaysian an inclusive and sustainable recovery for Malaysia. In students, which could result in average annual earning the short-term, policy measures should be geared losses of up to US$2,320 per student. towards maintaining financial support for the poor and vulnerable, and establishing a more inclusive social 12 MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 Summary insurance framework. This can be achieved through to improve outreach and intake among the excluded, the continuation of cash and other social assistance particularly informally employed workers who are programs at least for the first half of 2022, as well as not linked to the tax system, or avail social insurance pilot programs and assessment of complementary benefits linked to formal employment. Improvements interventions such as targeted wage subsidies and the in targeting can also potentially free up resources to extension of social insurance schemes, including to increase the benefit levels of cash transfers, resulting informally employed workers. in better coverage of the currently excluded poor households and therefore also a stronger impact With widening learning disparities, short- on poverty and inequality reduction, without a term policy measures should also focus on commensurate increase in costs. Consolidating multiple mitigating further learning losses, especially current programs can potentially reduce under- for socioeconomically disadvantaged children. coverage, enable a higher impact of resources directed As schools reopen, students’ level of learning and towards social assistance, as well as achieve efficiencies socioemotional wellbeing needs to be assessed before in social protection delivery. All these measures can introducing targeted remedial interventions. These ensure better preparedness and lower household-level remedial interventions are crucial, as there is a risk distress in the event of any future economic shocks. that students may not reach their potential, or they may drop out due to learning and wellbeing-related Finally, the government needs to build a more challenges in the aftermath of the pandemic. In the inclusive, effective, and resilient education system event of future school closures, measures to support that is capable of responding to future shocks. This and enable disadvantaged students and their parents includes enhancing training for teachers and principals to meaningfully engage in home-based learning should to deliver more individualized instruction for students also be put in place. Furthermore, school leaders and and provide contextualized support for schools to make teachers could play a critical role in fostering a positive localized decisions that are most responsive to their environment that promotes stronger sense of belonging needs. It is also an opportune time to further develop and growth mindset as students return to school, and the resilience of the education system by improving the thus contributing to better learning outcomes and accessibility and quality of digital learning. Ensuring performance. the adequacy of ICT infrastructure, strengthening the digital skills of educators and students, as well as In the longer-term, Malaysia should take steps to reviewing and improving the current digital learning reform the social protection system to make it: delivery system can encourage better engagement (i) more broad-based and robust, (ii) progressively in home-based or hybrid learning environments and targeted, (iii) poverty and inequality reducing, (iv) minimize the risk of disadvantaged students being left shock-responsive, and (v) efficient. It will be critical behind. MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 13 Recent trends in Malaysia’s economy Malaysia’s economy contracted by 4.5 ...weighed down by declines in private percent in Q3 2021... consumption, investment, and net exports GDP, y/y, Percentage Contribution to GDP Growth, y/y, Percentage 20 20 15 15 10 10 5 5 0 0 -5 -10 -5 -15 -10 -20 -15 Q1-2018 Q2-2018 Q3-2018 Q4-2018 Q1-2019 Q2-2019 Q3-2019 Q4-2019 Q1-2020 Q2-2020 Q3-2020 Q4-2020 Q1-2021 Q2-2021 Q3-2021 -20 Q1-2018 Q2-2018 Q3-2018 Q4-2018 Q1-2019 Q2-2019 Q3-2019 Q4-2019 Q1-2020 Q2-2020 Q3-2020 Q4-2020 Q1-2021 Q2-2021 Q3-2021 Net Exports Private Consumption Public Consumption GFCF Change in Inventory Real GDP, y/y With the global economy expected to ...Malaysia’s economy is forecast to grow by expand at 4.3 percent in 2022... 5.8 percent in 2022 GDP, y/y, Percentage GDP, y/y, Percentage 8 8 6 6 4 5.8 5.8 5.0 4.8 4 4.4 4.4 2 3.3 0 2 -2 0 -4 -6 -2 -8 -4 2020e 2021f 2022f 2020e 2021f 2022f 2020e 2021f 2022f -5.6 World Advanced Emerging Market -6 Economies and Developing Economies -8 Latest Estimates (June 2021) 2015 2016 2017 2018 2019 2020 2021f 2022f Previous Estimates (January 2021) Limited scal space remains a key challenge ...while rigid operating expenditures have with revenue expected to decline further... grown markedly over time Federal Government Revenue, Percentage of GDP Share of Federal Government Operating Expenditure, Percentage 20 80 0.4 70 1.1 0.9 15 1.0 3.5 0.7 0.9 60 1.2 1.0 4.0 2 2.8 2.7 50 10 0.7 40 7.5 7.0 7.1 7.0 30 5 20 1.2 1.0 1.1 1.0 1.8 1.8 1.7 1.7 0 10 2019 2020 2021e 2022f 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021e 2022f SST Indirect Tax (excl. SST) Direct Tax (excl. PITA) Petronas Special Dividend Petroleum revenue Others Retirement charges/pensions Emoluments Inv. Inc. (exc. Petronas div.) Debt service charges 14 MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 Staying Afloat Low-income, less educated, youth, and older Informally employed men were more likely workers are more likely to stop working to have experienced a reduction in income Stopped working at any time since March 2020, Percentage of adults Income changes among wage workers, between March 2020 and working in March 2020 May–June 2021, Percentage 80 100 22 28 34 60 80 54 40 60 64 20 40 63 54 40 0 20 RM2,000 and below RM2,001-RM4,000 RM4,001-RM10,000 More than RM10,000 No formal education Primary Secondary Post-secondary Vocational/Technical Male Female 18-24 25-34 35-44 45-54 55-64 65 and above 14 10 11 5 0 Male Female Male Female Formal Informal Pre-pandemic Education level Gender Age group individual income Income increased Income unchanged Income decreased While signs of improvement are observed ...the adverse impacts of the pandemic across most income groups... remain higher among low-income households Stopped working at any time or experienced income lossduring the Ran out of food in past 30 days or children cannot participate in online pandemic, Percentage of individuals learning, Percentage of households 50 50 40 40 30 30 20 20 10 10 0 0 RM2,000 and below RM2,001-RM4,000 RM4,001-RM10,000 More than RM10,000 RM2,000 and below RM2,001-RM4,000 RM4,001-RM10,000 More than RM10,000 RM2,000 and below RM2,001-RM4,000 RM4,001-RM10,000 More than RM10,000 RM2,000 and below RM2,001-RM4,000 RM4,001-RM10,000 More than RM10,000 Stopped working Income reduction Food insecurity Children can't participate online Between March 2020–June 2021 Between June 2021–November 2021 February 2020 May-June 2021 October-November 2021 In recent months, higher shares of households Children from low-income households remain have received cash transfers from the less likely to engage in online learning government activities Received government cash transfers, Percentage of households within each Engaged in online classes or used mobile learning apps, by household income group income, Percentage of households with children engaged in at-home learning 80 100 70 90 60 50 80 40 30 70 20 60 10 0 50 RM2,000 and below RM2,001-RM4,000 RM4,001-RM10,000 More than RM10,000 RM2,000 and below RM2,001-RM4,000 RM4,001-RM10,000 More than RM10,000 Since March 2020 Since June 2021 May-June 2021 October-November 2021 MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 15 PART ONE Recent Economic Developments and Outlook 16 MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 17 PART ONE - Recent Economic Developments and Outlook Recent economic developments The resurgence of the pandemic and supply chain disruptions have weighed on the global economy After rebounding strongly in Q2 2021, the pace some major central banks  have reduced long-term of global economic recovery has moderated due asset purchases or signaled plans to raise policy rates. to the resurgence of the pandemic and lingering supply chain disruptions (see Figure 1). With the Economic activity has improved in the East Asia emergence of the more infectious Delta variant, the and Pacific (EAP) region in recent months, following recent surge in COVID-19 case numbers has dampened a setback in Q3 2021 (see Figure 2). In China, the consumer demand globally, albeit to a lesser extent recovery has been mainly driven by increased activity than during previous waves. Concurrently, supply chain in the manufacturing and trade sectors. Consumer disruptions have weighed on global manufacturing and spending, by contrast, has remained relatively subdued trade. In advanced economies, the effective rollout of due to recurrent localized outbreaks of COVID-19 and vaccination programs and sizable fiscal support have associated mobility restrictions. Excluding China, the mitigated some of these adverse effects. While activity recovery in the region has gained momentum as a result has picked up in the emerging market and developing of stronger domestic demand, with mobility constraints economies (EMDEs), the speed of the recovery has gradually loosened and vaccination rollouts increased. differed considerably across countries. Global financial However, goods trade has moderated in the context of conditions have remained accommodative even as prolonged supply chain disruptions. FIGURE 1 FIGURE 2 The pace of recovery in global economic activity Activity has gained strength in the EAP region, moderated in Q3 2021 following a setback in Q3 2021 GDP, y/y, Percentage GDP, y/y, Percentage 15 20 15 10 10 5 5 0 0 -5 -5 -10 -10 -15 -15 -20 Q1-2016 Q3-2016 Q1-2017 Q3-2017 Q1-2018 Q3-2018 Q1-2019 Q3-2019 Q1-2020 Q3-2020 Q1-2021 Q3-2021 Q1-2016 Q3-2016 Q1-2017 Q3-2017 Q1-2018 Q3-2018 Q1-2019 Q3-2019 Q1-2020 Q3-2020 Q1-2021 Q3-2021 World Advanced Emerging and EAP Developing China Vietnam Economies Developing Economies Indonesia Philippines Malaysia Thailand Source: World Bank Global Economic Prospects Source: World Bank Global Economic Prospects 18 MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 PART ONE - Recent Economic Developments and Outlook Developments in the Malaysian Economy Domestic economic activity has been affected by the reimposition of movement controls In Malaysia, the reimposition of stringent movement activity was affected by subdued business sentiment. controls has impacted domestic economic activity. Malaysia’s economic growth contracted by 4.5 percent On the supply side, the contraction in growth was in Q3 2021, after a strong 16.1 percent expansion in Q2 broad-based, with pandemic mitigation measures (see Figure 3). During the quarter, private consumption affecting output across sectors. Output declined contracted by 4.2 percent (Q2 2021: 11.7 percent), across all economic sectors during the quarter, with mainly reflecting the reimposition of movement construction sector activity being most severely restrictions between May and September, which led affected due to temporary halts in non-essential to notable decreases in mobility levels at public places construction work. Movement restrictions also (see Figure 4). Heightened cautionary behavior among contributed to weaknesses in consumption-related consumers and elevated uncertainty over employment segments, such as vehicle sales, retail and tourism and earnings also constrained household expenditure which more than offset expansions in the insurance, during the quarter. Meanwhile, private investment information technology and government services FIGURE 3 FIGURE 4 Malaysia’s economy contracted by 4.5 percent in ...as mobility levels remained subdued throughout Q3 2021... the quarter GDP, y/y, Percentage Change from baseline, Percentage 20 Full MCO / National National Recovery MCO 2.0 MCO 3.0 Recovery Plan Phase 1 Plan Phase 4 0 15 -10 10 -20 5 -30 -40 0 -50 -5 -60 -10 -70 -80 -15 -90 -20 01-01-21 22-01-21 12-02-21 05-03-21 26-03-21 16-04-21 07-05-21 28-05-21 18-06-21 09-07-21 30-07-21 20-08-21 10-09-21 01-10-21 22-10-21 12-11-21 03-12-21 Q1-2018 Q2-2018 Q3-2018 Q4-2018 Q1-2019 Q2-2019 Q3-2019 Q4-2019 Q1-2020 Q2-2020 Q3-2020 Q4-2020 Q1-2021 Q2-2021 Q3-2021 Retail and recreation Workplaces Transit stations Source: DOSM Source: Google Community Mobility Reports MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 19 PART ONE - Recent Economic Developments and Outlook sub-sectors. The manufacturing sector registered the The headline inflation rate stood at 2.2 percent smallest contraction, benefiting from less stringent during Q3 2021, compared to 4.1 percent in Q2 movement restrictions and strong external demand for 2021. Inflationary pressures remained relatively manufactured exports (See Table 1). contained in Malaysia compared to other countries TABLE 1 GDP growth decomposition GDP, y/y, Percentage Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3   2019 2019 2019 2019 2019 2020 2020 2020 2020 2020 2021 2021 2021 GDP 4.7 5.0 4.5 3.7 4.4 0.7 -17.2 -2.7 -3.4 -5.6 -0.5 16.1 -4.5 Consumption Private Sector 7.7 7.8 7.1 8.2 7.7 6.7 -18.5 -2.1 -3.5 -4.3 -1.5 11.7 -4.2 Public Sector 6.1 0.0 0.7 1.0 1.8 4.9 2.2 6.8 2.4 3.9 5.9 9.0 8.0 Gross Fixed Capital -3.4 -0.6 -3.7 -0.7 -2.1 -4.5 -29.0 -11.4 -11.8 -14.5 -3.3 16.5 -10.8 Formation Exports of Goods 0.3 0.6 -1.6 -3.3 -1.0 -7.2 -21.7 -4.9 -2.1 -8.9 11.9 37.4 5.1 & Services Imports of Goods -1.6 -2.3 -3.3 -2.3 -2.4 -2.7 -19.7 -7.9 -3.3 -8.4 13.0 37.6 11.7 & Services Sectoral Agriculture 6.1 4.2 3.7 -5.5 2.0 -8.6 0.9 -0.3 -1.0 -2.2 0.2 -1.5 -1.9 Mining -0.1 2.9 -2.8 -2.5 -0.6 -2.9 -20.8 -7.8 -10.4 -10.6 -5.0 13.9 -3.6 Manufacturing 4.1 4.3 3.6 3.0 3.8 1.4 -18.3 3.3 3.0 -2.6 6.6 26.6 -0.8 Construction 0.6 1.1 -1.4 1.3 0.4 -7.9 -44.5 -12.4 -13.9 -19.4 -10.4 40.3 -20.6 Services 6.5 6.2 5.9 6.2 6.2 3.1 -16.2 -4.0 -4.8 -5.5 -2.3 13.5  -4.9 Source: World Bank staff calculations based on DOSM data FIGURE 5 FIGURE 6 Inflationary pressures in Malaysia remained ...partly driven by a smaller base effect from fuel contained relative to regional countries... prices In ation, y/y, Percentage Contribution to In ation, y/y, Percentage 8 6 6 4 4 2 2 0 0 -2 -2 -4 -4 -6 01/2020 03/2020 05/2020 07/2020 09/2020 11/2020 01/2021 03/2021 05/2021 07/2021 09/2021 04/2018 07/2018 10/2018 01/2019 04/2019 07/2019 10/2019 01/2020 04/2020 07/2020 10/2020 01/2021 04/2021 07/2021 Malaysia Indonesia Philippines Others Food and Non-Alcoholic Beverages Thailand Vietnam Transport Headline In ation Housing, Water, Electricity, Gas & Other Fuels Source: DOSM and Haver Analytics Source: World Bank staff calculations based on DOSM data 20 MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 PART ONE - Recent Economic Developments and Outlook in the region (see Figure 5), driven by several factors. Nevertheless, there has been a recent marked First, there was a smaller base effect from fuel prices surge in the prices of a number of basic food in the same period last year. Second, the government items, largely driven by supply issues. The sharp implemented an electricity bill discount under the increase in food items such as poultry and vegetables Pemulih Electricity Discount scheme, which led to lower has been driven by supply shortages amid adverse utility prices (see Figure 6).1 Third, the domestic prices weather conditions and shortages of foreign labor. In of some essential commodities are either controlled response, the government is looking into measures to or subsidized by the government, which reduced the manage these price increases, with plans to organize pass-through of higher global commodity prices to regular sales offering basic necessities at prices up to domestic inflation. Underlying inflation, as measured by 20 percent lower than prevailing market prices.2 core inflation, has remained broadly stable, in the range of 0.6 - 0.8 percent throughout the year. Gross exports remained resilient, with robust demand for manufacturing and commodity exports Recent trends in export growth and its broad- including those from Malaysia and other EAP countries. based drivers have provided support to Malaysia’s However, Malaysia’s exports have rebounded swiftly to economy during the pandemic. The COVID-19 previous levels, outpacing global and the EAP average pandemic resulted in a steep decline in global exports, (see Figure 7). Recent data indicate that Malaysia’s FIGURE 7 FIGURE 8 Malaysia’s exports declined significantly during Malaysia performed better than regional peers in early 2020 but rebounded swiftly, outpacing electronics and electrical equipment exports global and the EAP average Export Growth, y/y, Percentage Growth in E&E Exports Compared to Q1 2020, Percentage 40 1 50 0.8 40 20 0.6 30 0 0.4 20 -20 0.2 10 -40 0 0 01/2020 03/2020 05/2020 07/2020 09/2020 11/2020 01/2021 03/2021 05/2021 07/2021 09/2021 -10 Q2-2020 Q3-2020 Q4-2020 National-wide Lockdown Dev. EAP exc. China Malaysia ASEAN Malaysia World Source: World Bank Staff calculations based on Global Economic Monitor Source: World Bank staff calculations based on DOSM data Note: The chart plots a 3-month moving average of the monthly export growth over the corresponding month in 2019. 1 The scheme was announced as part the Pemulih relief package and included discounts ranging from 5 to 40 percent depending on monthly electricity bill. 2 Malaysia Family Sales: https://www.nst.com.my/news/nation/2021/12/750732/nanta-gives-assurances-comprehensive-solution-food-price-hikes MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 21 PART ONE - Recent Economic Developments and Outlook BOX 1 Malaysia’s E&E Export Performance during the Pandemic The strong recovery of Malaysia’s E&E sector is Malaysia’s E&E sector is at least partially due to past associated with the robust global demand for efforts to boost R&D investment and innovation in products such as home office equipment, consumer the sector. Over the 2002-2016 period, 35 percent of electronics, and medical devices. The demand for patent applications in the country came from the E&E Malaysia’s E&E products comes mainly from within sector, with Malaysia accounting for more than 65 the EAP region, with this region accounting for more percent of E&E patent applications by all developing than 71 percent of Malaysia’s E&E exports in 2020. ASEAN countries. Measured in terms of number of In addition, the recent upward growth trajectory of patent application per value added in medium to high FIGURE 9 While Malaysia is a major innovator in the E&E industry in the region, it lags behind China Patent per Billion Value Added 20 1.5 16 1.2 12 0.9 8 0.6 4 0.3 0 0 1999-2003 2004-2008 2009-2013 2014-2018 Malaysia China (No data in 1999-2001) Vietnam Other ASEAN Countries Malaysia's Relative Patent Quality (Right) Source: World Bank Staff calculations based on PATSTAT Global and World Development Indicators Note: Patent application in each period is calculated on the basis of the total number of E&E patent applications to the US, Japan, and European Patent Office by companies in different regions/countries. Real value-added in medium to high tech manufacturing (converted to 2015 US$) is used to normalize total patent applications. Patent Quality is measured in terms of the forward citation per patent within 3 years of each patent’s publication date. Malaysia’s Relative Patent Quality is calculated in terms of Malaysia’s average patent quality divided by China’s average patent quality. 22 MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 PART ONE - Recent Economic Developments and Outlook FIGURE 10 Malaysia’s Export Market Share of E&E products has declined with the rise of China and Vietnam E&E Export Market Share, Percentage 10 35 8 28 6 21 4 14 2 7 0 0 1999-2003 2004-2008 2009-2013 2014-2018 2019-2020 1999-2003 2004-2008 2009-2013 2014-2018 2019-2020 1999-2003 2004-2008 2009-2013 2014-2018 2019-2020 1999-2003 2004-2008 2009-2013 2014-2018 2019-2020 East Asia and Paci c Region United States European Union World Total Malaysia Vietnam Other ASEAN Countries China (Right) Source: World Bank Staff calculations based on the UN Comtrade Database Note: Each bar represents the country’s E&E export market share in different regions and periods. For instance, Malaysia’s E&E export market share is the EAP region calculated as Malaysia’s total E&E export to the EAP region divided by the world’s aggregate E&E export to the EAP region. manufacturing, the innovation intensity of Malaysia’s innovation, its relative comparative advantage in E&E sector is significantly higher than that of Vietnam technology advances is unable to offset its relative and other developing ASEAN counties (see Figure disadvantages in higher labor costs. Compared to its 9). Malaysia’s higher innovation capacity has made ASEAN peer, Malaysia is not an effective alternative it a favored destination for multinational companies for foreign investors to relocate their production. seeking to relocate their E&E supply chains away from Malaysia has relatively high labor costs for high-skilled China as a result of the recent US-China trade war. workers compared to Vietnam, which might lower the short-term benefit it could gain from the US-China However, over recent decades, Malaysia’s R&D decoupling, with a loss of FDIs to Vietnam in the near investment and innovation outcomes have still term. Malaysia’s insufficient investment in innovation lagged behind those of China. In 2018, Malaysia’s might slow down its endeavors to move up the global R&D expenditure to GDP ratio stood at 1.0 percent, value chain in the long term. Malaysia’s R&D investment much lower than the ratio recorded in China, at around would need to be more industry relevant to strengthen 2.1 percent. In recent years, compared to Chinese its competitiveness in the E&E sector in the future. companies in the E&E sector, similar-sized Malaysian companies in the E&E sector applied for less than 60 Despite these longer-term trends, Malaysia’s percent of patents (see Figure 10), with a lower average exports have been on a steadily increasing growth patent quality. Over the long term, Malaysia’s share trajectory since the second half of 2020. Even of the E&E market has declined, particularly with the during one of the worst periods of the pandemic, with rise of China over the 2000-2014 period and the rise of the outbreak of the Delta variant in the middle of 2021, Vietnam over the 2014-2018 period. Malaysia’s export growth only flattened for a brief period before recovering in the third quarter of 2021. Recent tensions between the US and China as Going forward, the focus should still be on containing a result of trade and technology issues have the spread of the virus and administering booster benefited Vietnam more than Malaysia and the vaccine doses to reduce the likelihood and severity of other ASEAN nations (see Figure 10). This could future waves. In addition, policymakers should focus on be caused by Vietnam’s relatively low labor costs and measures to boost global value chain participation, to its trade agreements with the US and the European upgrade technology, and to improve trade facilitation. Union. Given Malaysia’s insufficient investment in MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 23 PART ONE - Recent Economic Developments and Outlook exports of petroleum oil and natural gas increased by 3 export growth during the pandemic was also sustained percent in September 2021, contributing to 18 percent by the exceptional performance of its electronics and of the month’s export growth. With an increase in electrical (E&E) sector, which has been significantly palm oil prices, palm oil and palm oil-based products outpacing that of other ASEAN countries (see Figure became the second-largest contributor to Malaysia’s 7 and Box 1). export growth in the third quarter. Malaysia‘s aggregate TABLE 2 Selected external sector indicators Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2019 2019 2019 2019 2020 2020 2020 2020 2021 2021 2021 Balance of Goods & Services 8.9 6.7 7.4 7.2 5.8 4.5 7.6 7.5 5.8 6.8 6.9 (% of GDP) Current Account Balance (% of GDP) 4.8 4.0 3.5 1.9 2.4 2.5 6.7 4.9 3.3 3.9 3.1 Total Exports (% of GDP) 66.2 65.8 65.2 64.0 60.9 60.8 61.0 62.8 66.3 71.2 68.5 Total Imports (% of GDP) 57.4 59.1 57.8 56.8 55.1 56.4 53.4 55.3 60.5 64.4 61.6 Net Portfolio Investment (RM billion) 6.8 -9.8 -25.8 -3.5 -41.4 20.6 -20.3 -7.1 0.4 20.0 -4.3 Gross Official Reserves (RM billion) 420.3 425.5 431.3 424.1 440.1 443.1 436.5 432.3 451.0 461.6 482.6 (US$ billion) 103.0 102.7 103.0 103.6 101.7 103.4 105.0 107.6 108.6 111.1 115.2 Source: World Bank staff calculations based on DOSM data 24 MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 PART ONE - Recent Economic Developments and Outlook Labor market conditions softened as the economy slowed down Malaysia’s reimposition of movement controls High underemployment has interrupted the nascent recovery of the labor market. Employment growth in Q3 2021 moderated rates underscore several following the reimposition of movement controls, with structural issues including the unemployment rate remaining largely unchanged (see Figure 11). Unemployment continues to be driven the lack of affordable by relatively high unemployment rates for the 15-24 age childcare group, with these remaining elevated at 11.7 percent in Q3 2021 (Q2 2021: 11.0 percent). Overall underemployment rates remained elevated, Divergent performance across economic sectors reflecting the continued under-utilization of contributed to a variance in the trends in sectoral Malaysia’s labor force (see Figure 12). The reimposition wage growth. While labor productivity in the of movement controls has contributed to both skills- manufacturing sector declined by 3.5 percent during related and time-related underemployment remaining the quarter,3 wages in this sector grew by 2.3 percent at elevated levels.4 While high underemployment rates (Q2 2021: 6 percent), partly reflecting its continued are partly due to the slack in the labor market, they resilience. Conversely, the contraction in the services also point to a number of structural issues such as skills sector contributed to a decline in both the sector’s mismatches, the rise of the informal and gig economy, labor productivity (-6.2 percent) and wage growth (-2.6 and the lack of affordable childcare, which undercut the percent; Q2 2021: 0.4 percent). creation of stable jobs. FIGURE 11 FIGURE 12 Unemployment rate remained relatively Underemployment rates remained elevated unchanged Unemployment Rate, Labor Force Participation Rate, Percentage Underemployment Rate, Percentage 5.5 70 14.0 3.0 5.0 4.5 69 12.0 2.5 4.0 3.5 10.0 2.0 68 3.0 2.5 8.0 1.5 67 2.0 1.5 6.0 1.0 1.0 66 0.5 4.0 0.5 0.0 65 2.0 0.0 01/2015 06/2015 11/2015 04/2016 09/2016 02/2017 07/2017 12/2017 05/2018 10/2018 03/2019 08/2019 01/2020 06/2020 11/2020 04/2021 09/2021 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 2018 2018 2019 2019 2020 2020 2021 2021 Labor Force Participation Rate Skill-related underemployment rate Unemployment Rate Time-related underemployment rate (RHS) Source: DOSM Source: DOSM 3 Labor productivity is measured as value added per employment 4 Skill-related underemployment rate is the fraction of the labor force with tertiary qualification who work in semi-skilled or low-skilled jobs. Time-related underemployment rate is the share of the labor force employed for less than 30 hours per week due to the nature of their work or to the insufficient availability of work. MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 25 26 MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 PART ONE - Recent Economic Developments and Outlook Malaysia is gradually emerging from the worst wave of COVID-19 infections Malaysia’s daily number of COVID-19 cases has comparing well to other upper-middle and high-income trended down significantly in recent months, countries in the region (see Figure 14). A booster shot relieving some of the pressure on the health system. program has now been initiated, starting with high- In August 2021, the number of new confirmed daily risk individuals such as the elderly and those who are cases surpassed 600 per 1 million people, substantially immunocompromised. In addition, the government has higher than in all other countries in the region (see taken steps to ensure greater accessibility to COVID-19 Figure 13). However, by 12 December 2021, daily rapid test kits, which are now widely available at case numbers had declined to approximately 143 per pharmacies. Consequently, Malaysia’s positivity rate 1 million people, with the hospital and intensive care has declined dramatically from a high point of 14.8 unit (ICU) utilization rate also declining over this period, percent in September to 3.1 percent as of 14 December with the former standing at 64.9 percent (August 2021: 2021.7 ~95 percent) and the latter at 62 percent (August 2021: ~100 percent) as of 29 November 2021.5 With the decline in the case numbers, the government has eased most movement restrictions. The decline in case numbers coincided with the rapid Most sectors of the economy are now operating at full rollout of the National COVID-19 Immunization capacity, guided by the standard operating procedures Program and with measures to improve access announced by the National Security Council (Majlis to testing. After a slow start in February 20216, the Keselamatan Negara, MKN). Interstate travel is allowed, immunization program picked up pace in June, with contributing to the return of domestic tourism. In almost 2 percent of the population being vaccinated addition, most schools have also reopened, with many each day at its peak in late July. Approximately 78 adopting a hybrid teaching mode, involving both online percent of the population is now fully vaccinated, and face-to-face modalities. FIGURE 13 FIGURE 14 Malaysia’s new COVID-19 cases have trended COVID-19 vaccination coverage is high compared down significantly since August to other countries in the region New con rmed COVID-19 cases per 1 million people Population fully vaccinated (as of 14 December 2021), Percentage 700 100 90 87 600 81 80 80 78 500 70 400 62 59 60 300 50 200 40 37 36 30 100 20 0 10 01/01/2021 29/01/2021 26/02/2021 26/03/2021 23/04/2021 21/05/2021 18/06/2021 16/07/2021 13/08/2021 10/09/2021 08/10/2021 05/11/2021 03/12/2021 0 Singapore Korea, Rep. China Malaysia Thailand Vietnam Indonesia Philippines Malaysia Indonesia Thailand Philippines India Source: Our World in Data Source: Our World in Data 5 https://covidnow.moh.gov.my/ 6 See “The Malaysian Health Sector’s Response to COVID-19” in World Bank (2021) “Weathering the Surge” Malaysia Economic Monitor (June), World Bank, Washington, DC. 7 The World Health Organization (WHO) suggests that a positivity rate lower than 10 percent, and ideally lower than 3 percent, can be regarded as a benchmark of adequate testing. MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 27 PART ONE - Recent Economic Developments and Outlook Financial sector conditions have remained broadly stable Malaysia’s central bank, Bank Negara Malaysia pandemic, since loans under relief, restructuring and (BNM), maintained the overnight policy rate (OPR) rescheduling programs are not classified as impaired. at 1.75 percent throughout the year. The OPR has remained constant since July 2020, when it was lowered The slowdown in economic activities resulted in a from 2.0 percent. Given expectations regarding more moderate expansion to net financing during improved economic performance next year, together the quarter (see Figure 15). Net financing expanded with the containment of inflationary pressures, BNM at the slower rate of 3.9 percent in Q3 2021 (Q2 2021: considers the current monetary policy stance to be 4.4 percent) due to a moderation in outstanding loans. accommodative. Outstanding household loan growth moderated to 3.2 percent during the quarter (Q2 2021: 5.2 percent) The financial sector remained stable in Q3 2021, (see Figure 16). Meanwhile, growth in outstanding with banks maintaining adequate capital and business loans accelerated, reaching 2.4 percent in Q3 liquidity positions throughout the quarter. The 2021 (Q2 2021: 1.3 percent), reflecting a more rapid banking sector’s return on equity remained relatively expansion in working capital loans. The higher growth stable at 9.5 percent in the third quarter (Q2 2021: rate in outstanding business loans was mainly driven 9.7 percent). Over the same period, return on assets by increased loans to the wholesale and retail trade, stood constant at 1.1 percent. Liquidity coverage ratio restaurants and hotels, and manufacturing sectors. remains high at 154 percent as at end of September, above the statutory requirement of 100 percent. Domestic financial markets have been affected Additionally, banks maintained an adequate capital by a number of external developments. Financial buffer, with the tier 1 capital ratio standing at 14.9 market developments in China, persistent supply percent at the end of September 2021. The overall chain disruptions and energy shortages in several gross loan impairment ratio remained broadly stable major economies, together with the tapering of the at 1.6 percent in September 2021 (August 2021: 1.7 asset purchase program by the US Federal Reserve, percent). This is likely due to the forbearance measures caused global bond yields to rise. As a result, the instituted as part of the government’s response to the 3-year, 5-year, and 10-year Malaysian Government FIGURE 15 FIGURE 16 Net financing expanded by 3.9 percent in Q3 Household loans expanded by 3.2 percent during 2021 Q3 2021 Contribution to Net Financing Growth, y/y, Percentage Growth, y/y, Percentage 9 10 8 7 5 6 0 5 4 -5 3 2 -10 1 0 -15 01/2017 05/2017 09/2017 01/2018 05/2018 09/2018 01/2019 05/2019 09/2019 01/2020 05/2020 09/2020 01/2021 05/2021 09/2021 Q2-2019 Q3-2019 Q4-2019 Q1-2020 Q2-2020 Q3-2020 Q4-2020 Q1-2021 Q2-2021 Q3-2021 Corporate Bonds Total Net Financing Purchase of Passenger Cars Credit Card Banking System and DFI Loans Purchase of Residential Property Household loans Personal Use Source: World Bank staff calculations based on BNM data Source: World Bank staff calculations based on BNM data 28 MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 PART ONE - Recent Economic Developments and Outlook Securities (MGS) yields increased by 20.7, 38.1 and 9.6 1532.6 points registered at the end of June 2021. The basis points, respectively (see Figure 17). The domestic real effective exchange rate (REER) of the ringgit has equity market improved marginally over the quarter, remained broadly stable in recent months (see Figure with the FBM KLCI closing slightly higher at the end 18). of September 2021, at 1537.8 points, compared to the FIGURE 17 FIGURE 18 Despite unfavorable external developments, the The ringgit has remained broadly stable in recent domestic financial markets experienced non- months resident portfolio inflows Non-resident Portfolio Flows, RM Billion Real Effective Exchange Rate (CPI-based), Broad Indices, 2010 = 100 15 140 10 130 5 120 0 -5 110 -10 100 -15 90 -20 -25 80 01/2018 04/2018 07/2018 10/2018 01/2019 04/2019 07/2019 10/2019 01/2020 04/2020 07/2020 10/2020 01/2021 04/2021 07/2021 10/2021 01/2020 03/2020 05/2020 07/2020 09/2020 11/2020 01/2021 03/2021 05/2021 07/2021 09/2021 Government Bonds and BNM Bills Equity Malaysia Philippines Corporate Bonds and Sukuk Thailand China Source: BNM and Bursa Malaysia Source: Bank for International Settlements (BIS) MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 29 PART ONE - Recent Economic Developments and Outlook The fiscal deficit is expected to widen in 2021 Malaysia’s fiscal deficit is expected to widen to and Economic Recovery Package (Pemulih) (see Table 6.5 percent in 2021, reflecting the impact of the 3). The combined value of these four packages stands COVID-19 pandemic. In the initial budget for 2021, at 14.9 percent of GDP, with the value of direct fiscal the fiscal deficit was projected to reach 5.4 percent injections amounting to 1.7 percent of GDP.8 of GDP. However, prolonged movement restrictions imposed in response to the resurgence of COVID-19 The aggregate government expenditure for 2021 infections prompted the government to increase relief was revised upward due to COVID-19 related spending during the year. Total public spending in 2021 spending (see Figure 19). Allocations for the COVID-19 was revised upwards by 0.6 percent of GDP, while the Fund was revised upwards from the initial budgeted forecast for revenue collection was revised downwards amount of 1.1 percent of GDP to 2.6 percent. Following by 0.5 percent of GDP. This resulted in a projected the increase in relief spending, total government increase of 1.1 percent of GDP to the fiscal deficit. expenditure in 2021 is now expected to reach 21.1 Similarly, the primary deficit is expected to widen percent of GDP, compared to the initially estimated marginally to 3.9 percent of GDP in 2021, up from 3.8 figure of 20.5 percent. Meanwhile, revenue in proportion percent in 2020. to GDP is expected to decline to 14.6 percent in 2021 (see Figure 20), largely reflecting expected shortfalls To support vulnerable households and businesses, across direct tax revenues and investment income the government introduced a series of economic excluding Petronas dividend. stimulus and relief packages throughout the year. In total, the government has announced four relief Government debt increased further to 63.3 percent packages this year: Perlindungan Ekonomi dan Rakyat of GDP as at end-June 2021 (end-December 2020: Malaysia (Permai); the Strategic Program to Empower 62.1 percent of GDP) (see Figure 21). To accommodate the People and Economy (Pemerkasa); the Strategic increases to government debt, parliament approved Program to Empower the People and Economy Plus the Temporary Measures for Government Financing (Pemerkasa+); and the National People’s Well-Being Act 2020 to enable an increase to the statutory debt TABLE 3 The total value of all relief packages enacted in 2021 stood at 15 percent of GDP     Total Spending Direct Fiscal Injection Value Value Year Program (RM billion) % of GDP (RM billion) % of GDP 1H 2020 PRIHATIN 250 18 25 2.0 1H 2020 PRIHATIN SMEs 10 1 10 1.0 1H 2020 PENJANA 35 3 10 1.0 2H 2020 KITA PRIHATIN 10 1 10 1.0 TOTAL   305 23 55 5.0 1H 2021 PERMAI 15 1 2 0.0 1H 2021 PEMERKASA 20 1 11 1.0 1H 2021 PEMERKASA+ 40 3 5 0.0 1H 2021 PEMULIH 150 10 10 1.0 TOTAL   225 15 28 2.0 Source: World Bank staff calculations based on MOF data 8 Based of revised expected GDP in 2021. 30 MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 PART ONE - Recent Economic Developments and Outlook FIGURE 19 FIGURE 20 Federal government expenditure as a share of Federal government revenue as a share of GDP GDP is expected to rise in 2021 due to pandemic is expected to decline in 2021 due to shortfalls in related spending direct tax revenue and investment income Federal Government Expenditure, Percentage of GDP Federal Government Revenue, Percentage of GDP 22 15 1.2 0.7 20 1.1 2.6 1.2 1.2 18 4.4 2.4 4.1 2.8 16 10 14 12 10 7.6 7.1 8 15.1 14.5 5 6 4 0.9 1.1 2 1.8 1.7 0 0 2021 Initial 2021 Revised 2021 Initial 2021 Revised Covid Fund Development Expenditure Inv. Inc. (exc. Petronas div.) Others Operating Expenditure Petroleum revenue Petronas special dividend Direct Tax (excl. PITA) Indirect Tax (excl. SST) SST Source: World Bank staff calculations based on MOF data Source: World Bank staff calculations based on MOF data limit from 60 to 65 percent, following earlier measures percent at the end of 2020 to 19.8 percent at the end to increase the statutory ceiling from 55 to 60 percent of June. Similarly, committed guarantees declined from of GDP. 13.1 to 12.6 percent of GDP over the same period. The greatest proportion of the newly issued government As of June 2021, government guarantees had guarantees was for the financing of infrastructure- declined from the levels recorded at the end of related projects (54.2 percent) and services (26.6 2020 (see Figure 22). As a share of GDP, government percent). guarantees declined slightly, going down from 20.8 FIGURE 21 FIGURE 22 Federal government debt rose to 63.3 percent of Government guarantees as share of GDP declined GDP at the end of June 2021 as at the end of June 2021 Federal Government Debt, Percentage of GDP Government Guarantee, Percentage of GDP 21 60 63.3 60.7 20.8 19.8 18 53.6 18.4 18.2 50 52.5 51.9 51.2 17.4 50 15 15.0 15.0 40 12 30 9 20 6 10 3 0 0 2015 2016 2017 2018 2019 2020 End 2015 2016 2017 2018 2019 2020 End June June 2021 2021 Source: World Bank staff calculations based on MOF data Source: World Bank staff calculations based on MOF data MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 31 PART ONE - Recent Economic Developments and Outlook Fiscal space is expected to remain constrained The government unveiled its proposed budget space (see Figure 23). The increased expenditure on for 2022 in October 2021, with its total value these items, together with the decline in revenue, will estimated to stand at 20.3 percent of GDP. The narrow the government’s fiscal space and could pose budget for operating expenditure is estimated to reach risks to long-term fiscal sustainability. 14.3 percent of GDP, while the development budget is forecast at 4.6 percent of GDP. The special COVID-19 Since 2020, expenditure on debt service has Fund for 2022 is set at 1.4 percent of GDP. Almost 90 exceeded the administrative limit of 15 percent percent of the development budget is for on-going of federal government revenue (see Figure 24).9 This projects (5,575 projects in total), with the remainder for expenditure is forecast to continue to increase further new projects. In particular, the development budget to 18.4 percent of federal government revenue in 2022 has been allotted to construct and maintain key with the increase in debt. While this is expected in the transport infrastructure; to enhance access to energy context of the crisis-related spending, it has contributed and public utilities; and to construct and expand to the continued narrowing of Malaysia’s fiscal space, educational institutions and healthcare facilities. Most increasing fiscal rigidity and crowding out discretionary of the COVID-19 Fund will be channeled towards the spending. provision of cash and social assistance to vulnerable groups and to fund the wage subsidy program. Despite the announcement of a number of new revenue measures, the trend decline in federal Rigid operating expenditures have grown markedly government revenue is expected to continue in over time, resulting in significant budget rigidity. 2022 (see Figure 25). Federal government revenue is The combined spending of emoluments, retirement, projected to continue its long-term declining trend, and debt service charges is expected to reach almost going down from 22.3 percent of GDP in 2009 to 68 percent of operating expenditures by 2022, placing 14.3 percent in 2022. Although the government has additional constraints on the already limited fiscal announced a new set of tax measures, including a one- FIGURE 23 FIGURE 24 Rigid operating expenditures have grown Debt service charges is expected to exceed 18 markedly over time percent of federal government revenue in 2022 Share of Federal Government Operating Expenditure, Percentage Percentage of Federal Government Revenue 80 20 70 18 60 16 50 14 12 40 10 30 8 20 6 10 4 0 2 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021e 2022f 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021e 2022f Retirement charges/pensions Emoluments Debt service charges Source: World Bank staff calculations based on MOF data Source: World Bank staff calculations based on MOF data 9 According to the Administrative Guideline in the Federal Constitution Article 98 (1)(b), debt service charges should not be more than 15 percent of revenue collected. This self-impose administrative rule serves as a tool that guides the government in ensuring prudent public finance management. Nevertheless, in time of a crisis, selected exemptions to the rules and discipline or specific exit clause may be necessary to enable countercyclical measures in rejuvenating the economy. (https://belanjawan2021.treasury.gov.my/pdf/revenue/2021/section4.pdf) 32 MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 PART ONE - Recent Economic Developments and Outlook FIGURE 25 FIGURE 26 Federal government revenue is expected to The fiscal deficit is projected to stand at 6 percent remain on a downward trend in 2022 of GDP in 2022 Federal Government Revenue, Percentage of GDP Fiscal De cit, Percentage of GDP 20 0 0.4 1.1 -1 0.9 15 1.0 3.5 0.7 0.9 1.2 1.0 -2 4.0 2 2.8 2.7 0.7 -3.1 -2.9 10 -3 -3.2 -3.4 -3.4 -3.8 -3.7 7.5 7.0 7.1 7.0 -4 -4.3 5 1.2 1.0 1.1 1.0 -5 1.8 1.8 1.7 1.7 0 -6.0 -6 -6.2 2019 2020 2021e 2022f -6.5 SST Indirect Tax (excl. SST) -7 Direct Tax (excl. PITA) Petronas Special Dividend 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021e 2022f Petroleum revenue Others Inv. Inc. (exc. Petronas div.) Source: World Bank staff calculations based on MOF data Source: World Bank staff calculations based on MOF data off windfall tax, taxes on sugar-sweetened beverages, The government intends to implement a number of and the removal of tax exemptions on foreign income, measures to enhance revenue collection, including by the impact is expected to remain small. streamlining its tax policy, reviewing the tax legislation, and modernizing revenue administration. In 2022, the fiscal deficit is projected to decline to 6 percent of GDP, compared to 6.5 percent in 2021 (see Figure 26). Revenues in 2022 are projected to decrease to 14.3 percent of GDP, compared to 14.6 The declining trend in percent in 2021. However, government spending is government revenue is projected to decline to 20.3 percent of GDP in 2022 (2021: 21.1 percent of GDP), leading to a narrowing expected to continue of the budget deficit. The primary deficit is projected in 2022; concurrently, to narrow to 3.3 percent in 2022 (2021: 3.9 percent of GDP). committed expenditures are expected to The Medium-Term Fiscal Framework (MTFF) projects an average fiscal deficit of 5 percent increase further of GDP over the 2022-2024 period. The MTFF in last year’s budget projected an average fiscal deficit of 4.5 percent of GDP for this period, based on To improve the MTFF, the government is currently projected real GDP growth rates in the range of 4.5- formulating a Fiscal Responsibility Act (FRA). 5.5 percent. However, following the increased stimulus The FRA is intended to increase accountability and packages enacted by the government in response to transparency in fiscal policy and to ensure long-term the prolonged economic crises, the projected average fiscal sustainability. With fiscal policy and management fiscal deficit for this period has been revised upwards to currently regulated by a number of disparate laws and 5 percent of GDP. This projection assumes that nominal regulations, the proposed FRA aims to establish a GDP will expand by an average annual rate of 7.7 percent single dedicated law. The formulation of the FRA is still and that the average price of crude oil will stand at ongoing, with the MOF conducting public consultations US$67 per barrel, with an output of 580,000 barrels per in early September 2021 to elicit feedback from a range day. Structural challenges remain, with revenue over of stakeholders. If properly designed and implemented, the medium term expected to decline in proportion the FRA is likely to contribute to the achievement of to GDP, at an average of 13.9 percent over the period. long-term fiscal sustainability. MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 33 34 MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 PART ONE - Recent Economic Developments and Outlook Economic outlook Global growth is projected to moderate next year While the global economic recovery is expected moderate to 4.7 percent in 2022 (2021f: 6.0 percent), to continue next year, its pace is projected to with the growth trajectories in many economies moderate. The global economic growth rate is insufficient to return their output to pre-pandemic projected to decelerate to 4.3 percent in 2022 (2021f: levels during the forecast period. 5.6 percent), reflecting headwinds from resurgences of the COVID-19 pandemic, continued supply disruptions, Aggregate growth in EAP is forecast to moderate and diminished macroeconomic support (see Figure to 5.4 percent in 2022 (2021f: 7.5 percent), in part 27). Growth is forecast to moderate to 4.0 percent in reflecting a deceleration in China (see Figure 28). advanced economies (2021f: 5.4 percent), with policy Growth in China is projected to slow to 5.4 percent next support gradually being wound down, although this year (2021f: 8.5 percent), amid the lingering effects of will be partially offset by the continued release of pent- the pandemic, tighter regulations on certain segments up demand. Despite this deceleration, the projected of the economy and diminishing support from exports. pace of recovery is expected to be sufficient to return Excluding China, growth in the region is forecast to aggregate output in the advanced economies to pre- increase to 5.2 percent (2021f: 2.5 percent) in 2022, with pandemic levels, thus completing the cyclical recovery. the impact of the pandemic waning following the scale However, recovery in many emerging markets and up of vaccination programs. However, the speed of developing economies (EMDEs) is expected to be recovery differs considerably across countries. In about constrained by the ongoing impact of the pandemic, one-fifth of developing EAP countries, particularly those lingering obstacles to vaccine procurement and uptake, that rely heavily on tourism, the projected recovery will and the continued unwinding of macroeconomic not be sufficient to offset the pandemic-related output support.  Aggregate EMDE growth is projected to losses over the forecast horizon. FIGURE 27 FIGURE 28 Global growth is projected to decelerate to 4.3 Aggregate growth in EAP is forecast to moderate percent in 2022 to 5.4 percent next year GDP, y/y, Percentage GDP, y/y, Percentage 8 8 6 7 6 4 5 2 4 0 3 -2 2 1 -4 0 -6 -1 -8 -2 2020e 2021f 2022f 2020e 2021f 2022f 2020e 2021f 2022f 2020e 2021f 2022f 2020e 2021f 2022f 2020e 2021f 2022f World Advanced Emerging Market Developing EAP Developing EAP China Economies and Developing excl. China Economies Latest Estimates (June 2021) Latest Estimates (June 2021) Previous Estimates (January 2021) Previous Estimates (January 2021) Source: World Bank staff projections Source: World Bank staff projections MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 35 PART ONE - Recent Economic Developments and Outlook Malaysia’s economic recovery is expected to gain momentum next year Malaysia’s economy is projected to grow by 5.8 the Mass Rail Transit 3 (MRT3). Private investment is percent in 2022 (2021f: 3.3 percent), driven also expected to improve next year, although at a more mainly by a rebound in domestic demand (see moderate pace than public investment. Table 3).  Private consumption growth is forecast to increase to 7.2 percent next year (2021f: 3.4 percent). Malaysia’s trade is expected to expand at a more This increased growth is premised on further relaxation moderate pace next year. Exports are projected to of pandemic-related restrictions, dissipation of continue to expand, albeit at a slower rate at 4.5 percent uncertainties, continued policy support, and gradual next year (2021f: 15.7 percent), in line with softer global improvements to employment and income prospects. trade in goods. The prospects for services exports, By contrast, growth in public consumption is forecast to particularly travel and tourism, are likely to remain decelerate to 1.3 percent in 2022 (2021f: 3.9 percent) on relatively subdued until the pandemic is brought more expectations of reduced COVID-19 related expenditure firmly under control and cross-border travel restrictions and the government’s optimization of operating are loosened considerably. Imports are forecast to expenditure.  grow by 4.8 percent in 2022 (2021f: 17.3 percent), with broad-based expansion expected across consumption, Gross fixed capital formation is projected to intermediate and capital imports, in line with stronger grow by 5.1 percent (2021f: 2.5 percent), with the consumer spending and continued expansion in acceleration largely driven by a strong rebound in exports and investment activity.  public investment. Projected public investment activity will be supported by the intensified implementation of Headline inflation is projected to moderate next major existing transportation infrastructure projects, year, with the base effect of the higher domestic including the Mass Rapid Transit Line 2 (MRT2), the retail fuel prices dissipating. Underlying inflation is Light Rail Transit 3 (LRT3), and the Pan Borneo Highway, expected to be broadly contained over the near term and by the commencement of new projects, including in the absence of immediate domestic cost pressures. TABLE 4 GDP growth and contribution to growth Annual Growth, y/y, Percentage Contribution to Annual GDP Growth (Percentage Point)   2020 2021f 2022f 2023f   2020 2021f 2022f 2023f GDP -5.6 3.3 5.8 4.5   Domestic Demand Domestic Demand (including stocks) -5.1 3.4 6.0 4.4 (including stocks) -4.8 3.2 5.6 4.1 Private Consumption -4.3 3.4 7.2 5.9 Private Consumption -2.5 2.0 4.3 3.6 Public Consumption 3.9 3.9 1.3 0.9 Public Consumption 0.5 0.5 0.2 0.1 Gross Fixed Capital Gross Fixed Capital Formation -14.5 2.5 5.1 3.2 Formation -3.4 0.5 1.1 0.7 External Demand External Demand Exports of Goods & Exports of Goods & Services -8.9 15.7 4.5 4.4 Services -5.9 9.7 3.1 3.0 Imports of Goods & Imports of Goods & Services -8.4 17.3 4.8 4.2 Services -4.7 9.6 3.0 2.6 Source: World Bank staff calculations and projections 36 MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 PART ONE - Recent Economic Developments and Outlook The balance of risks for growth is tilted to the downside A resurgence of the pandemic, including through Increased vulnerability among affected households the emergence of new variants, could dampen and businesses could also constrain growth. The economic recovery globally and domestically. Since pandemic has exacerbated the existing challenges June, the rapid rollout of Malaysia’s national vaccination faced by poor and vulnerable households (see Part program has resulted in a steep reduction in daily 2) and businesses in Malaysia, especially SMEs.10 The case numbers, easing the burden on the healthcare recent sharp increase in food prices may constrain system. Nevertheless, the emergence of the more households’ ability to sustain consumption in the near transmissible Omicron variant poses risks to Malaysia’s term, resulting in a slower-than-expected recovery health system. While the government has indicated that in private consumption. Furthermore, defaults on it will not reimpose total lockdowns, partial movement loan repayments may increase once debt repayment restrictions may be implemented, potentially impacting moratoria and other regulatory forbearance measures the pace of economic recovery in the near term. expire. Ongoing disruptions to global value chains could also have a negative impact on Malaysia’s trade and manufacturing activities in the near The recent sharp term. Since mid-2020, the rapid recovery in global increase in food prices goods consumption has exerted pressure on the global manufacturing sector. Concurrently, sporadic may put a strain on resurgences of the pandemic in various countries households’ ability to around the world have led to production disruptions at various points along complex global value chains, sustain consumption impacting final goods production. In Malaysia’s case, in the near-term the cooling down of China’s economy or a resumption in US-China trade tensions could affect Malaysia’s external demand, including through lower demand for Malaysia’s commodity-based exports. Nevertheless, there are also upside risks to the growth outlook, predicated on the successful Given Malaysia’s deep integration with management of the pandemic and minimal international financial markets, a more rapid than disruptions to the re-opening of the economy. expected monetary tightening could have negative This could lead to a faster-than-expected recovery in spillovers in domestic financial markets. Monetary consumer demand and greater investor confidence, normalization in advanced economies, particularly in consequently resulting in a more robust recovery in the US, may result in decreased investor appetite for domestic economic activity in 2022. Growth could also emerging market assets, a reversal in portfolio flows benefit from increased technology adoption during the and heightened financial market volatility. Investor pandemic, contributing to higher productivity growth sentiment could also shift rapidly with increased rates. uncertainty regarding the outlook for the pandemic or policy developments. Nevertheless, Malaysia’s deep capital market and the presence of large institutional investors could mitigate this volatility. 10 World Bank (2021) “Weathering the Surge” Malaysia Economic Monitor (June 2021). MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 37 PART ONE - Recent Economic Developments and Outlook In the near term, the government should continue existing support measures It is essential to avoid any premature unwinding including by ensuring that testing remains accessible of assistance measures to ensure that economic and affordable. It will also be necessary to continue recovery remains on track. While the economy is to apply non-pharmaceutical interventions, such as expected to continue to grow next year, the outlook physical distancing and masking requirements. Finally, remains highly uncertain, with risks tilted to the the government should scale up its recently initiated downside. It is therefore crucial that the government booster vaccine program to provide greater protection remain vigilant and apply the appropriate measures to at-risk individuals and contain new outbreaks (see to manage and mitigate the impacts of the pandemic. Box 2). In addition, the various financial and employment assistance programs implemented under the With the gradual reopening of the economy, government’s stimulus packages should remain in place targeted social spending should remain in place in until economic recovery becomes more entrenched. the near term to protect vulnerable households and businesses. To date, the various support measures, Strengthening Malaysia’s health system remains which include cash assistance and wage subsidies, important to ensure a safe resumption of economic have provided some relief to low-income households activity. The immediate focus should be on ensuring and businesses, especially SMEs. With the high degree sufficient capacity of the health system, including of uncertainty regarding the health and economic through the supply of oxygen generators to hospitals, outlook, these measures should remain in place at expanded intensive care unit (ICU) capacity, and least for the next six months to help smooth household improvements to the associated human resources, consumption and support businesses in the event of supplies, and consumables. During this phase, the any unexpected shocks. At the same time, steps should government’s COVID-19 management strategy should be taken to improve targeting and expand coverage to also shift its focus from the number of new daily those who have been excluded from assistance during cases to hospital utilization rates, and continue to the pandemic (See Part 2). implement an effective testing and tracing strategy, 38 MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 PART ONE - Recent Economic Developments and Outlook BOX 2 Managed Endemicity: The New Normal and its Implications With increasing global vaccination coverage asymptomatic cases at home, such as in Singapore’s rates, many countries are now expecting to enter Home Recovery Program, which is now the default phase of “managed endemicity.” Experience over approach for most cases. the past couple of years shows that the elimination of COVID-19 is likely to be unrealistic and unaffordable, Apart from improving health outcomes more given the wide-reaching economic and social impacts generally, longer-term investments in public of domestic lockdowns and closed borders. Thus, it health care may enable Malaysia to mitigate the is likely that societies around the world will choose to impact of future pandemics more effectively. With find ways of living with COVID-19 other than striving for the COVID-19 pandemic, it is clearly established that its elimination through the imposition of economically underlying health conditions, including cardiovascular debilitating measures. In this context, it will be essential disease, diabetes, and chronic respiratory disease, to strengthen health systems to meet the challenges exacerbate vulnerability to the disease. Even outside faced during this new phase.11 the context of the current pandemic, these conditions are the top three contributors to Malaysia’s burden For Malaysia to manage endemic COVID-19 of disease. The improved prevention and treatment effectively, it needs to strengthen public health of these noncommunicable diseases, including in the measures and to ramp up treatment capacity. it primary health care setting (before diseases progress is essential to increase testing capacity and to invest to more severe stages) is therefore critical, not just in automated contract tracing systems. Increasing to mitigate the impact of the current pandemic, but treatment capacity (including through the supply to improve health outcomes more generally. The of oxygen generators to hospitals, expanded ICU pandemic has also forced governments to rethink their capacity, and improvements to the associated human service delivery systems, with digital health becoming resources, supplies, and consumables) will also be an important option. This could include electronic important. At the height of the pandemic in July and patient registers, track and trace systems, telemedicine August 2021, ICU and ventilator utilization exceeded etc., to enable effective pandemic management and to capacity.12 In addition, it may be necessary to develop a ensure the continuity of essential health services. system to enable the effective management of mild and 11 https://openknowledge.worldbank.org/bitstream/handle/10986/36396/Managing-Long-COVID-in-East-Asia-and-the-Pacific.pdf?sequence=1&isAllowed=y 12 https://covidnow.moh.gov.my/ MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 39 PART ONE - Recent Economic Developments and Outlook As the recovery becomes more entrenched, fiscal policy should focus on rebuilding fiscal buffers To restore the government’s fiscal space, efforts expedite the recovery of the private sector following to enhance revenue collection should remain a the pandemic, there is an opportunity to recalibrate top priority over the medium term. Even before these programs towards priority areas, such as through the pandemic, government revenue has been on a initiatives to build the digital capabilities of SMEs and downward trend for nearly a decade, and has declined thus to increase private sector growth and resilience. further in the wake of the COVID-19 crisis. In this Additionally, the recalibration of some of programs, context, efforts to increase revenue collection through especially those related to the pandemic, could the imposition of a more progressive tax framework potentially alleviate the government’s fiscal pressures need to be accelerated, with a clear implementation going forward. timeline. In particular, consideration should be given to broadening the tax base by reviewing and streamlining exemptions on personal income tax and It is important that by enhancing the consumption tax framework (see Box 3). The government has announced that it is preparing significant measures its Medium-Term Revenue Strategy (MTRS), which is are taken on raising intended to enhance revenue collection by reviewing tax legislation and modernizing revenue administration. human capital, especially on the education front, Concurrently, it is vital for the government to increase its spending efficiency over the medium which have experienced term. There are several areas that it could examine significant disruption to achieve this, including improving the targeting of social spending and phasing out generalized and during the pandemic regressive subsidies, such as fuel subsidies. While spending on blanket subsidies especially on fuel and cooking oil have to a large extent, helped to put a Over the medium term, the government could also lid on price pressures, these subsidies constitute the establish policies to address the gaps in social largest share of the government’s social and subsidies safety nets and to improve human capital. The spending at about 48 percent in 2021.13 In addition, the pandemic has exposed a number of gaps and limitations government may need to consider measures to contain in the ability of Malaysia’s existing social safety net the rising costs of public wage bill and pensions and to system to adequately protect poor and vulnerable ensure better outcomes from spending on health and households in crises, despite a range of relief measures education. There should also be an ongoing focus on for these households. Going forward, the government reducing wastage and leakages through strengthening could take action to address the shortcomings in the public investment project selection and management social safety net, including through consolidating systems and processes. various existing programs. The government should also strive to strengthen human capital, particularly through As recovery becomes more entrenched, steps could measures to improve educational outcomes, especially be taken to consolidate and recalibrate existing given that the educational system has experienced support programs. Over the years, the government significant disruptions as a result of the pandemic. These has introduced, implemented, and reformed numerous issues, and the policies that could be implemented to instruments and programs to support a wide variety of address them, are explored in greater detail in Part 2 of SME activities. With new programs being designed to this edition of the MEM, titled Staying Afloat. 13 It is estimated that spending on these two subsidies would amount to RM8 billion (0.5 percent of GDP) or 48 percent of total social and subsidies spending in 2021. 40 MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 PART ONE - Recent Economic Developments and Outlook BOX 3 Malaysia’s Consumption Tax Systems: Challenges and a Path Forward It is vital for Malaysia to rebuild its fiscal buffers sales service tax (SST) on September 1, 2018, due to by increasing revenue collection. With the pandemic concerns regarding its regressivity and its impact on resulting in both increased government expenditure and the purchasing power of low-income households.16 decreased revenue collections, Malaysia’s fiscal deficit widened to 6.2 percent of GDP in 2020.14 At present, The GST is viewed as a more efficient way to Malaysia’s revenue collection is relatively dependent on mobilize consumption tax revenues than the SST corporate income tax (CIT) and petroleum income tax. for three reasons. First, by widening the tax base This has motivated the government to consider a shift and bringing more firms into the tax net, the GST to a more stable and sustainable revenue structure. In could provide nearly twice as much tax income as the this context, the government is considering options SST. In 2018, around 80,000 businesses in Malaysia to broaden the revenue tax base and to enhance the were registered under the SST, compared to 472,000 efficiency of tax collection. One possible option would businesses under the GST. In addition, a total of 5,445 be to reintroduce the good and service tax (GST).15 goods in the consumer price index (CPI) basket were The government previously introduced the GST on exempted from the SST, compared to only 545 that April 1, 2015, and subsequently replaced it with a were exempt from GST.17 The total value of collected FIGURE 29 The GST is viewed as a more efficient way to mobilize consumption tax revenues 0.820 0.797 10 0.9 0.745 10 10 10 10 10 10 9 0.8 Productivity and C-ef cency Ratio GST/SST Revenue (% of GDP) and 8 0.7 7 Statutory Rate (%) 0.6 0.426 6 6 6 6 6 0.5 5 0.271 0.256 0.4 0.241 0.240 0.237 0.234 4 0.3 3 3.3 3.2 3.0 2 0.2 1.8 1.8 2.0 1 1.5 1.5 1.5 1.5 0.1 0 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Statutory Rate (%) - left axis GST/SST Revenue (% of GDP) - left axis VAT Productivity - right axis C-ef ciency - right axis Source: World Bank Staff calculations 14 2022 Fiscal Outlook and Federal Government Revenue Estimates 15 Ibid. 16 IMF - Malaysia: Selected Issues Paper, Report No. 15/59, January 30, 2015. 17 Source: Total of 5,445 consumer goods to be exempted from SST | The Star https://www.thestar.com.my/news/nation/2018/08/30/total-of-5445-consumer- goods-to-be-exempted-from-sst/ MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 41 PART ONE - Recent Economic Developments and Outlook GST averaged at around 3.2 percent of GDP over the claim on their supplies, which increases the number 2015-2017 period, more than double the total value of of GST registrants and the transparency of the supply collected SST over the 2011-2014 period (see Figure chain. 29). The GST itself may also be less prone to leakages than the SST regime. In single-stage sales taxation Third, the GST avoids cascading effects and systems, where the tax is only collected at a single reduces distortions. Compared to other indirect or stage of the value chain, the fact that some businesses sales taxes, the GST avoids ‘cascading’ –i.e. where manage to slip out of the tax net will diminish tax taxes are applied twice to any ingredient of the final revenue collection. By contrast, with the imposition of product or service. The GST often replaces single-stage GST, if revenues are not collected at one stage, they taxation systems, where the cascading effect is common are collected at other stages. Thus, a GST regime is less because the tax generates a series of distortions from risky in terms of revenue leakage.18 the first stage of production to the last stage of retail sales distribution. These distortions could encourage Second, while the GST is more complicated to tax evasion and collusion between buyers and sellers, implement than the SST, the former is more consequently affecting the tax’s potential to generate transparent. The GST system is by nature self- revenues. policing, requiring businesses to issue invoices to claim input tax credits. Specifically, the GST is based on These features of the GST system act to increase invoices issued by the trader to the purchaser, which the efficiency and productivity of the consumption can be cross-checked to identify any overstatement tax system. The C-efficiency, which measures the gap of tax refunds, hence discouraging evasion. It also between the potential consumption tax base and actual encourages businesses to register for input tax credits tax revenues generated, and is one means to estimate 18 Malaysia Economic Monitor June 2015. 42 MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 PART ONE - Recent Economic Developments and Outlook the efficiency of GST/ VAT. Malaysia’s C-efficiency, at The GST may result in substantial compliance around 0.8 during the period from 2015-2017 when costs for businesses, particularly SMEs. The time GST was imposed, was much higher than the figure of and monetary cost involved in filing input tax claims 0.3 for the SST period (see Figure 6). (and training staff) may still be an issue for businesses, especially smaller businesses and traders that do not Given this, policymakers may consider the GST have adequate resources or skills. To alleviate these as an available option for reforms intended to costs on businesses, under its previous GST regime, increase government revenues. However, there are the Malaysian government introduced a number a number of issues that would need to be addressed. of measures to reduce compliance costs, such as First, the GST is inherently regressive because providing tax reliefs.19 However, there were concerns lower-income households pay a larger share of their regarding the time taken for businesses to receive income in taxes than do their higher-income peers. GST refunds, which resulted in cash flow burdens. International experience suggests that the equity gains There were also reporting issues, with businesses and from exemption and zero-rate in the GST is usually auditors having to assess whether a long-outstanding outweighed by increased efficiency costs. In 2015, input tax credit claim is truly recoverable. To address to alleviate the impact of the GST on lower-income these issues, the government could consider various households, the Malaysian government set a lower rate policy options, such as providing a sufficient transition than did many other countries and provided generous period, setting an adequate threshold to exclude small zero-rate and exemptions. The standard GST rate of and micro businesses, and granting companies support 6 percent and the average c-efficiency of Malaysian’s to further enhance the automation or digitalization of consumption tax during the 2010-2020 period stood at their daily operations and to train key personnel, while 0.4, lower than the figure recorded by any other ASEAN striving to ensure that the GST system is as simple as countries (see Figure 30). The government could possible. In addition, it is important to streamline tax consider offsetting the regressive effects of the GST administration processes to reduce the time taken to regime by increasing government spending targeted at receive tax refunds and to increase the likelihood of the lower-income groups. success of such tax reforms. FIGURE 30 GST could have a negative impact on low-income households VAT/GST Rate and Collection, EAP Region, 2019 VAT/GST Productivity20 and C-ef ciency, EAP Region 12 20 1.4 VAT/GST Revenue (% of GDP) 17 Statutory VAT/GST Rate (% ) 10 10 1.2 15 12 1.0 8 10 10 10 10 10 10 10 0.8 6 9 10 8 7 7 0.6 6 4 0.4 5 2 0.2 6.77 6.70 6.21 4.40 3.36 3.30 6.93 6.45 3.53 1.43 9.82 4.39 4.29 3.47 2.19 0 0 0 Mongolia Cambodia Vietnam Philippines Indonesia Lao PDR China Fiji Thailand Malaysia New Zealand Japan Korea, Rep. Australia Singapore Mongolia Cambodia Vietnam Indonesia Lao PDR Philippines Fiji China Thailand Malaysia New Zealand Japan Korea, Rep. Singapore Australia Lower middle Upper middle High Lower middle Upper middle High income income income income income income VAT/GST Revenue (% of GDP) - left axis VAT Productivity VAT Productivity Average EAP (2010-2017) Statutory VAT/GST Rate - right axis C-ef ciency C-ef ciency Average EAP (2010-2017) Source: MOF Malaysia and World Bank staff calculations Source: MOF Malaysia and World Bank staff calculations 19 (i) Training grant of RM100 million provided to businesses for their employees to attend GST courses;(ii) financial assistance amounting to RM150 million provided to SMEs for the purchase of accounting software;(iii) accelerated capital allowance on purchase of information and communications technology ICT equipment and software; (iv) expenses incurred for training in accounting and ICT relating to GST will be given additional tax deduction (IMF 2015, extracts from articles). 20 VAT/GST productivity ratio is the ratio of actual VAT/GST revenues to the product of the standard VAT rate and GDP. MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 43 44 MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 PART TWO Staying Afloat MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 45 PART TWO - Staying Afloat Staying Afloat The pandemic has exacerbated existing challenges faced by poor and vulnerable Malaysian households As with people around the world everywhere, the hitting the labor market hard, pushing millions into pandemic has had a massive impact on the lives of poverty, and further increasing inequality.23 In Malaysia, Malaysians. After successfully containing the first wave official estimates suggest that the proportion of of the COVID-19 pandemic, Malaysia subsequently households living below the national poverty line experienced surges in the number of daily cases from increased from 5.6 percent in 2019 to 8.4 percent September 2020 onward. By June 2021, Malaysia had in 2020. Income inequality, as measured by the Gini the highest rate of confirmed cases per million people index, increased from 40.7 in 2019 to 41.1 in 2020.24 in the East Asia and Pacific (EAP) region. In addition Beyond the immediate and near-term economic to the direct morbidity and mortality impacts of the impacts, the pandemic is expected to have long- disease, measures to control the spread of the virus lasting consequences. In particular, the prolonged have had far-reaching effects on people’s lives and school closures and their impact on the delivery of livelihoods. Efforts to curb infections through multiple educational services could lead to the loss of human movement control orders (MCOs) have impacted capital in the longer run.25 The impact on children business operations across Malaysia, leading to most from poorer households has been particularly severe. businesses either scaling down their operations or In particular, these children face serious constraints on being forced to close. Affected by both demand and their participation in online learning modalities, with supply shocks, businesses have made employment 37 percent of Malaysian students not owning or having adjustments, mainly by reducing working hours and regular access to devices such as smartphones, tablets, lowering wages. Moreover, a large proportion of laptops, or personal computers.26 businesses, particularly SMEs, have endured pressing liquidity constraints.21 This has contributed to the Even before the advent of the pandemic, an highest unemployment levels since the Asian financial increasing number of Malaysians, in both low- and crisis, with unemployment peaking at 5.1 percent in Q2 middle-income groups, were struggling to make 2020 and still elevated at 4.7 percent as of Q3 2021.22 ends meet. 27 Broadly, Malaysia’s strong economic At the household level, the weakening labor market has growth over the past decades has benefited citizens by translated into job losses or temporary redundancy, enhancing economic opportunities and enabling them often with a severe impact on household incomes. to earn higher incomes. From 2015 to 2019, median nominal monthly salaries and wages for employees The pandemic has disproportionately impacted increased from RM  1,942 (US$ 458) to RM  2,442 (US$ poor and vulnerable Malaysian households. In 2020, 576).28 Over the same period, the median real household the pandemic led to a global economic downturn, income grew by an average rate of 3.9 percent per year.29 21 World Bank. 2021b. Malaysia Economic Monitor, June 2021, Weathering the Surge. 22 Department of Statistics Malaysia. 2021a. Labour Market Review Q3 2021. 23 World Bank. 2020b. Poverty and Shared Prosperity 2020: Reversals of Fortune. 24 Department of Statistics Malaysia. 2021b. Household Income Estimates and Incidence of Poverty Report 2020. 25 Miguel, E. and Mobarak, A. M. 2021. ‘The Economics of the COVID-19 Pandemic in Poor Countries’. Annu. Rev. Econ. 14: Submitted. DOI: https://doi.org/10.1146/ annurev-economics-051520-025412. 26 BERNAMA. (April 15, 2020). Accessed through https://www.kkmm.gov.my/en/public/news/16859-bernama-15-april-2020-kpm-serah-kepada-guru-tentukan- kaedah-pengajaran-dan-pembelajaran-menteri. 27 World Bank. 2020a. Aspirations Unfulfilled: Malaysia’s Cost of Living Challenges. 28 Salaries and wages refer to wage rate consisting of basic wages, cost-of-living allowances and other guaranteed and regularly paid allowances in cash or in kind and overtime payment. However, it excludes bonuses and gratuities, family allowances and social security payments made by employers. Converted into US$ at exchange rate US$ 1 = RM 4.24. 29 Department of Statistics Malaysia. 2021d. Salaries and Wages Survey Report 2020. 46 MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 PART TWO - Staying Afloat However, there has been a growing sense among low- has exacerbated the vulnerability of low-income and middle-income Malaysians, particularly those living households and informally employed workers. Second, in urban areas, that these headline successes have not it assesses the manner in which the existing social translated into real improvements in their daily lives. In protection system may have excluded or failed to 2018, nearly 30 percent of Malaysians responding to a provide adequate support to these vulnerable groups. survey stated that they did not have enough money for Third, it discusses how the pandemic has widened food, twice the proportion that expressed a similar view existing learning gaps between children and the in 2012.30 The perceived increases in the cost of living implications of this for the longer term. The analysis is stem from a range of issues not directly related to the mainly based on findings from two rounds of the World rising prices of goods and services, including lagging Bank’s High-Frequency Phone Survey (HiFy), which took income growth, high levels of household debt, and place in May-June and October-November 2021. These increasing housing costs.31 Furthermore, real income nationally representative surveys provide near real-time growth has slowed considerably, from a high average insights into issues related to employment, income, annual rate of 10 percent or more in the period from food security, access to public services, economic 2009 to 2014, to only 5.5 percent from 2014 to 2016. coping strategies, and the coverage and effectiveness As a result, over recent years, an increasing proportion of the public policy response (see Box 4). The analyses of households have members with secondary jobs or conclude with a set of short- and medium-term policy more than one member in the workforce, partly to meet recommendations. In the short term, the focus should expenses that can no longer be covered by the income be on maintaining financial support for the poor and of the primary breadwinner alone.32 Households vulnerable, achieving greater inclusivity, and facilitating have also increasingly tended to resort to borrowing, children’s learning. Over the longer term, measures including through personal finance loans and credit should aim to address the shortcomings in the current cards, to maintain their living standards. With these social protection system to make it more impactful in challenges, many Malaysians entered the COVID-19 addressing poverty and inequality and more responsive crisis with household balance sheets that were already to shocks In addition, it will be necessary to manage stretched. the pandemic’s long-term impact on livelihoods, well- being and human capital development. This special topic focuses on that low- and middle-income households have faced during the COVID-19 crisis, with a focus on three key issues. First, it examines the way in which the pandemic 30 Gallup World Poll. 2018. 31 World Bank. 2019a. Malaysia Economic Monitor, December 2019, Making Ends Meet. 32 World Bank-University of Malaya qualitative living standards survey in 2019, undertaken by a team of researchers led by Niaz Asadullah. MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 47 PART TWO - Staying Afloat BOX 4 The HiFy survey: Monitoring of Household Welfare during COVID-19 The pandemic has made clear the need for timely implemented in three rounds: the first round of data and representative data to inform policy making. collection was conducted in May–June 2021; the To alleviate the economic impact of the COVID-19 second round was recently completed in November pandemic, the Malaysian government has implemented 2021; and the third round is planned for February 2022. a series of stimulus packages, worth a combined total of more than RM 850 billion. With the pandemic The phone interviews employ a random digit dialing continuing to unfold, often in an unpredictable manner, (RDD) method using the Malaysian Communications timely, granular, and representative information is and Multimedia Commission’s (MCMC) active crucial to enable policy-makers to monitor the impact mobile provider list. The survey is conducted in three of the crisis and to determine the effectiveness of their languages (Bahasa Malaysia, Mandarin Chinese, and policy measures. Several surveys have been conducted English). With a small sample size and relying only on to provide insights into the immediate impact of the mobile users who were willing to answer the call, the pandemic on the economy and at the household level, HiFy has encountered a greater unequal selection including surveys conducted by the Department of probability and non-response than conventional Statistics Malaysia (DOSM) and UNICEF. However, none household surveys. To ensure the representativeness of these surveys was nationally representative, nor were of the HiFy sample, the completed survey data were they conducted on a recurring basis. adjusted through post-stratification weighting based on DOSM’s 2019 and 2021 population estimates for To meet the need for rapid and representative data Round 1 and Round 2 respectively. Moreover, to avoid to monitor the dynamics of households’ welfare respondents’ fatigue leading to non-response, the over the course of the pandemic, the World Bank 25–30 minute HiFy phone-based interviews utilized has conducted a High-Frequency Phone Survey close-ended questions. While the selected questions (HiFy) to determine its socioeconomic impacts at cannot probe as deeply as conventional surveys, they the household level. The HiFy involves 25–30 minute are informed by key indicators relevant to tracking the telephone interviews with more than 1,000 panel livelihood and welfare impacts of the pandemic. With respondents aged 18 years and above across the these caveats, the HiFy provides a valuable source of country. This nationally representative survey covers key near real-time representative information to monitor the topics related to livelihoods and other socioeconomic differential socioeconomic impacts of the pandemic to issues, including people’s access to health services, household-level welfare and to generate insights and vaccination status, employment and income changes, input to inform policy-making processes by identifying household concerns and coping strategies, safety gaps that may need to be addressed by scaling up or nets, digital adoption, and level of satisfaction with the redirecting policy responses as the crisis unfolds. government’s response during the crisis. The survey is 48 MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 PART TWO - Staying Afloat Employment has fluctuated, with low-income and informally employed workers particularly affected by the shocks There has been considerable churning in Low-income, less-educated, youth, and older workers employment. The HiFy survey shows that, over one were more likely to be exposed to employment year into the pandemic, the share of Malaysian working disruptions. The initial impacts of the pandemic on the adults had decreased from 69 percent in February 2020 labor market appeared to be widespread across income to 60 percent by June 2021, with quite some churning groups and education levels. However, consistent with throughout the period. As of June 2021, 26 percent observations in low- and middle-income countries of respondents had their employment status changed globally,33 low-income and less educated groups, as compared to February 2020, with a small share of new well as youth in Malaysia have experienced relatively entrants to the workforce (see Figure 31). Furthermore, greater difficulties, with greater work disruptions, more 25 percent of those who were employed in February pronounced income shocks, or both. Low-income 2020 had stopped working by June 2021, whereas earners, those with secondary education or below 35 percent who continued working had experienced experienced, and youth, were more likely to experience reduced incomes (see Figure 32). Hence, while the work stoppages (see Figure 33). Older persons, that churning in employment suggests a certain level of is, those aged 65 and older, were also more likely to resilience within the economy, it may also indicate the experience work stoppages. Moreover, these groups of greater need for some households to have multiple workers were also more likely to change jobs in order to members earning an income, mainly to compensate for be able to continue to work throughout the pandemic. the income losses as experienced by the breadwinner Among those who were working since March 2020, 24 or other household members. percent of low-income earners (RM 2,000 and below) FIGURE 31 FIGURE 32 Throughout the pandemic, 26 percent of ...while some of those who worked at the onset respondents experienced employment changes... of the pandemic had stopped working or faced income losses Change in employment status between February 2020 and May–June 2021, Employment changes and income shocks, Percentage of adults Percentage of adults In Feburary 2020 In May–June 2021 Working both periods 25% Stopped Exited employment working 69% Worked 35% pre-pandemic Reduced income Entered employment 75% Continued working 65% Stable or Not working both periods increased income 0 20 40 60 Source: World Bank. 2021c. High-Frequency Phone Survey on COVID-19 Source: World Bank. 2021c. High-Frequency Phone Survey on COVID-19 Impact & Recovery Among Malaysian Households (Round 1). Impact & Recovery Among Malaysian Households (Round 1). 33 World Bank. 2021a. The Short-Term Impacts of COVID-19 on Households in Developing Countries: An Overview Based on a Harmonized Data Set of High- Frequency Surveys. MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 49 PART TWO - Staying Afloat FIGURE 33 Low-income, less educated, youth, and older workers are more likely to stop working during the pandemic Stopped working at any time since March 2020, Percentage of adults working in March 2020 80 60 40 20 0 RM2,000 and below RM2,001-RM4,000 RM4,001-RM10,000 More than RM10,000 No formal education Primary Secondary Post-secondary Vocational/Technical Male Female 18-24 25-34 35-44 45-54 55-64 65 and above Pre-pandemic individual income Education level Gender Age group Source: World Bank. 2021c. High-Frequency Phone Survey on COVID-19 Impact & Recovery Among Malaysian Households (Round 1). had changed jobs by June 2021, compared to 6 percent 40, the share of informally employed workers was 37 of high-income earners (more than RM 10,000).34 Similarly, percent. The HiFy survey found that, overall, 39 percent 23 percent of workers with only primary education of informally employed workers had stopped working had held a number of different jobs by June 2021, as at some point since March 2020. The share of job losses compared to 14 percent of those who completed post- among informally employed workers was particularly secondary education. Furthermore, 49 percent of youth high in the sales, mining and manufacturing, and aged 18-24 had changed jobs by June 2021, compared construction sectors, where a high level of physical to only 17 percent of persons aged 25-34, and even presence is typically required, with these sectors being lower shares of persons aged 35 and older. It is also among the hardest hit during the first MCO (see Figure worth noting that both men and women experience 34). Furthermore, low-income informally employed similar degrees of work stoppages and job changes. workers, who were already vulnerable prior to the crisis, were also relatively more likely to experience job loss Informally employed workers were relatively more (see Figure 35). susceptible to loss of employment and reductions in income during the pandemic than formal workers. During the period in question, new entrants to the The HiFy survey found that apart from low-income and labor market appear more likely to have entered less educated workers, informally employed workers the informal workforce. Those who were not working (defined as those who do not receive contributions at the onset of the pandemic were more likely to have to either the Employees’ Provident Fund, EPF, 35 or obtained informal jobs, rather than formal jobs, during Social Security Organization, SOCSO,36 from their the May-June 2021 period (see Figure 36). Moreover, current employer) were also more severely impacted women are more likely to have entered the informal by the pandemic. Based on this definition, the rate of workforce during the crisis compared to men (see informal employment in Malaysia in 2016 is estimated Figure 37). This suggests that for those outside the at 33 percent.37 Moreover, informally employed workers labor force during a crisis, it may be easier to access accounted for 44 percent of households in the bottom informal jobs than formal jobs, particularly for women. 20 percent of income distribution. Among the bottom As such, informal jobs have served an important role of 34 Due to limitations on time and the need to be concise, the HiFy did not ask for detailed information on incomes as in a conventional survey (i.e., asking each household member, and each type of labor and non-labor income, either cash or in kind). As a result, incomes reported in the HiFy are likely to be lower (under- reported) than those in a conventional survey. This therefore also affects the share of households in each income category, particularly in the lowest category (RM2,000 and below), making that share higher than the share of households for the same category obtained from a conventional survey, such as the Household Income Survey (8 percent). 35 EPF is the retirement savings institution with the largest coverage in Malaysia, which provides the country’s main private sector retirement savings scheme. 36 SOCSO is a government agency under the Ministry of Human Resources that provides social security protection for all employees and self-employed insured persons against employment-related injuries in Malaysia. 37 Public sector workers are excluded. World Bank staff calculations using Household Income Survey 2016 (DOSM). 50 MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 PART TWO - Staying Afloat FIGURE 34 Informally employed workers were more susceptible to job losses during the pandemic, particularly those working in sectors requiring high levels of physical contact... Share of those who stopped working at some point in the period from March 2020 to June 2021, Percentage of wage workers 80 80 60 60 40 40 20 20 0 0 -20 Sales, hotels & Mining, Construction Agriculture, Personal Transport, Electricity, gas, Professional: restaurants manufacturing hunting, services, driving, post, water supply nance, legal, shing education, travel agencies analysis, health, etc computer, real estate Total Formal Informal Difference Source: World Bank. 2021c. High-Frequency Phone Survey on COVID-19 Impact & Recovery Among Malaysian Households (Round 1). FIGURE 35 ...and those with the lowest level of income Share of those who stopped working at some point since March 2020, Percentage 80 60 40 20 0 RM1,000 and below RM1,001 - RM2,000 RM2,001 - RM4,000 RM4,001 - RM6,000 RM6,001 and above Formal Informal Source: World Bank. 2021c. High-Frequency Phone Survey on COVID-19 Impact & Recovery Among Malaysian Households (Round 1). providing these new entrants with the means to earn an October-November 2021, the proportion of formally income, and therefore as a shock absorber during this employed workers to total employment increased time of crisis.38 Nonetheless, informal jobs do not offer slightly. This suggests that the economic recovery is adequate protection and may not be ideal in the longer translating into relatively higher growth of formal jobs term. The shift toward informal employment and lower- (see Figure 38), with men benefiting only marginally paying jobs means that the nature of employment more than women (see Figure 39). has become more precarious and less remunerative. However, it was also found that between May-June and Informally employed workers were more likely to 38 McCaig and Pavcnik. 2021. Entry and Exit of Informal Firms and Development. MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 51 PART TWO - Staying Afloat experience income reductions and irregular wage (24 percent). This is particularly pronounced among payments, resulting in higher food insecurity informally employed men (see Figure 41). As discussed and limited ability to pay rent. As seen in Figure earlier, people who had lost their jobs – both men and 40, informally employed workers were more likely women – may have had to accept lower paying, informal to experience a reduction in income during the jobs. Given the higher share of men than women in pandemic (46 percent) than formally employed workers the labor force, and the gender gap in earnings prior FIGURE 36 FIGURE 37 Informally employed workers are more likely to ...with women being more likely to have entered have entered employment during the pandemic informal employment compared to men Employment changes among wage workers, between February 2020 and Employment changes among wage workers, between February 2020 and May–June 2021, Percentage May–June 2021, Percentage 100 100 8 9 7 25 22 30 80 80 60 60 92 91 93 40 40 78 75 70 20 20 0 0 Formal Informal Male Female Male Female Formal Informal Worked both periods Entered employment Worked both periods Entered employment Source: World Bank. 2021c. High-Frequency Phone Survey on COVID-19 Source: World Bank. 2021c. High-Frequency Phone Survey on COVID-19 Impact & Recovery Among Malaysian Households (Round 1 and Round 2 Impact & Recovery Among Malaysian Households (Round 1 and Round 2 forthcoming). forthcoming). FIGURE 38 FIGURE 39 The share of formally employed workers slightly ...with men being marginally more likely to be increased in the past few months, in tandem with formally employed the reopening of the economy... Employment status among wage workers, Percentage Employment status among wage workers, Percentage 90 90 80 80 70 70 60 60 50 50 40 40 30 30 20 20 10 10 0 0 Formal Informal Male Female Male Female Formal Informal May-June 2021 October-November 2021 May-June 2021 October-November 2021 Source: World Bank. 2021c. High-Frequency Phone Survey on COVID-19 Source: World Bank. 2021c. High-Frequency Phone Survey on COVID-19 Impact & Recovery Among Malaysian Households (Round 1 and Round 2 Impact & Recovery Among Malaysian Households (Round 1 and Round 2 forthcoming). forthcoming). 52 MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 PART TWO - Staying Afloat to the pandemic,39 this effect was more pronounced more likely to have faced food insecurity and were less among men. In addition, informally employed workers likely to be able to pay rent than formally employed were less likely to have received normal payments in workers (see Figure 42). These effects were especially the past 30 days than were formally employed workers, pronounced among informally employed workers and more likely to have received no payment at all. from low-income households, and for those who had Consequently, informally employed workers were experienced decreased income (see Figure 43). FIGURE 40 FIGURE 41 Informally employed workers were more likely to ...a phenomenon which is most apparent among have experienced a reduction in income... informally employed men Income changes among wage workers, between March 2020 and Income changes among wage workers, between March 2020 and May–June 2021, Percentage May–June 2021, Percentage 100 100 24 22 28 34 80 80 46 54 60 60 64 64 40 40 63 54 46 40 20 20 12 14 10 11 8 5 0 0 Formal Informal Male Female Male Female Formal Informal Income increased Income unchanged Income decreased Income increased Income unchanged Income decreased Source: World Bank. 2021c. High-Frequency Phone Survey on COVID-19 Source: World Bank. 2021c. High-Frequency Phone Survey on COVID-19 Impact & Recovery Among Malaysian Households (Round 1). Impact & Recovery Among Malaysian Households (Round 1). FIGURE 42 FIGURE 43 Food insecurity was more prevalent among ...who were also much more likely to have faced informally employed workers... difficulties paying rent Food insecurity among households with wage workers, May-June 2021, Share of households with wage workers, Percentage Percentage 40 Income shock Income increased or unchanged 30 Income decreased RM2,000 and below Household income 20 RM2,001-RM4,000 10 RM4,001-RM6,000 RM6,001 and above 0 Any adult eaten less Household ran out of food 0 10 20 30 40 50 60 70 in past 30 days in past 30 days Formal Informal Formal Informal Source: World Bank. 2021c. High-Frequency Phone Survey on COVID-19 Source: World Bank. 2021c. High-Frequency Phone Survey on COVID-19 Impact & Recovery Among Malaysian Households (Round 1). Impact & Recovery Among Malaysian Households (Round 1). 39 World Bank. 2019b. Breaking Barriers: Toward Better Economic Opportunities for Women, September 2019. MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 53 PART TWO - Staying Afloat Although the economy is gradually recovering, the progress is uneven, leaving low-income households and informally employed workers more vulnerable Over one year into the pandemic, the impact of Indonesia, and Thailand in terms of coverage of public pandemic-related shocks on Malaysia has been policy response. less severe than in the case of a number of regional peers, with a lower incidence of income loss and food However, there are indications that low-income insecurity and with a higher incidence of government households were relatively less resilient. With assistance received (see Figure 44).40 The HiFy survey the gradual re-opening of the economy, half of the suggests that 41 percent of Malaysian households people who had worked prior to the pandemic but had had experienced income losses by June 2021, with stopped working by around June 2021 had returned to 26 percent having members who ate less than they work by November 2021. Also, one-quarter of workers thought they should. At the same time, 58 percent of no longer reported experiencing income losses by surveyed households reported receiving some form November 2021. These improvements to the financial of government support during the pandemic. These situation also translated into improvements in terms of findings put Malaysia roughly on par with Indonesia in some socioeconomic indicators, with a lower reported terms of household resilience, but lower than Mongolia, prevalence of food insecurity, with this returning to pre- FIGURE 44 Malaysia has fared slightly better in terms of income resilience, food security, and government support during the pandemic than its regional peers Households who experienced shocks during the pandemic, Percentage based on each country survey 100 80 58 60 41 40 26 20 0 Malaysia Cambodia Indonesia Lao PDR Mongolia Philippines Thailand Vietnam Income decreased Food insecurity Received government assistance Source: World Bank. 2021. COVID-19 High-Frequency Household Monitoring Survey. Notes: 1. Survey periods differ across countries, with most conducted between March and June 2021. Some exceptions include: The variable “Food insecurity” in Vietnam is obtained from July 2020. 2. “Food insecurity” refers to the question wording, “At any time in the past 30 days, have you, or any other adult in your household, eaten less than you thought you should because of a lack of money or other resources?” 3. “Received government assistance” refers to household coping strategies that involve any government aid during the crisis, except for Cambodia, Lao PDR, and Vietnam, which use data specifically from those receiving COVID-19-related government assistance. 40 World Bank. 2021a. The Short-Term Impacts of COVID-19 on Households in Developing Countries: An Overview Based on a Harmonized Data Set of High- Frequency Surveys. 54 MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 PART TWO - Staying Afloat pandemic levels. However, while signs of improvement 46). This suggests different degrees of resilience can be seen across most income groups (see Figure 45), across income groups, with low- and middle-income the adverse impacts of the pandemic on employment, households relatively more likely to remain vulnerable income, food security, and education continue to and potentially at a disadvantage into the future. linger among lower-income households (see Figure FIGURE 45 FIGURE 46 While signs of improvements are observed across ...the adverse impacts of the pandemic remain most income groups... higher among low-income households Stopped working at any time or experienced income loss during the Ran out of food in past 30 days or children cannot participate in online pandemic, Percentage of individuals learning, Percentage of households 50 50 40 40 30 30 20 20 10 10 0 0 RM2,000 and below RM2,001-RM4,000 RM4,001-RM10,000 More than RM10,000 RM2,000 and below RM2,001-RM4,000 RM4,001-RM10,000 More than RM10,000 RM2,000 and below RM2,001-RM4,000 RM4,001-RM10,000 More than RM10,000 RM2,000 and below RM2,001-RM4,000 RM4,001-RM10,000 More than RM10,000 Stopped working Income reduction Food insecurity Children can't participate online Between March 2020–June 2021 Between June 2021–November 2021 February 2020 May-June 2021 October-November 2021 Source: World Bank. 2021c. High-Frequency Phone Survey on COVID-19 Source: World Bank. 2021c. High-Frequency Phone Survey on COVID-19 Impact & Recovery Among Malaysian Households (Round 1 and Round 2 Impact & Recovery Among Malaysian Households (Round 1 and Round 2 forthcoming). forthcoming). FIGURE 47 FIGURE 48 Low-income households are more likely to have ...and they are also more likely to be very worried limited savings and financial constraints to cover about their household finances in the near future their basic needs... Financial adequacy in October–November 2021, Percentage of households Very worried about household nances in the next 30 days (by income in the same category group), Percentage of households 70 70 60 60 50 50 40 40 30 20 30 10 20 0 10 RM2,000 and below RM2,001-RM4,000 RM4,001-RM10,000 More than RM10,000 RM2,000 and below RM2,001-RM4,000 RM4,001-RM10,000 More than RM10,000 RM2,000 and below RM2,001-RM4,000 RM4,001-RM10,000 More than RM10,000 0 RM2,000 and below RM2,001-RM4,000 RM4,001-RM10,000 More than RM10,000 Total household Household savings Household partially or savings lower now can last 3 months not able to cover compared to or less current monthly basic pre-pandemic needs May-June 2021 October-November 2021 Source: World Bank. 2021c. High-Frequency Phone Survey on COVID-19 Source: World Bank. 2021c. High-Frequency Phone Survey on COVID-19 Impact & Recovery Among Malaysian Households (Round 1 and Round 2 Impact & Recovery Among Malaysian Households (Round 1 and Round 2 forthcoming). forthcoming). MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 55 PART TWO - Staying Afloat The employment and income disruptions Informally employed workers were more likely to experienced during the pandemic have resulted in rely on harmful coping strategies that may reduce increases to the level of financial vulnerability of their households’ long-term productive potential in low-income households. In the HiFy survey, the most the aftermath of the pandemic. Informally employed frequently mentioned household coping mechanism workers relied more heavily on harmful coping during the early stages of the pandemic was withdrawal strategies, such as reduction in food consumption of personal savings. Consequently, nearly half of and sale of assets (see Figure 49), even among those all households reported having lower savings by who received government assistance. This reflects October–November 2021 than prior to the pandemic. the inadequacy of government transfers to fully offset This carries greater implications for lower-income the effects of shocks among low-income households, households than for wealthier households. More than particularly among informally employed workers. These 40 percent of households that earned RM 2,000 or strategies are deemed more harmful because they less in the pre-pandemic period reported that they can affect the ability of households to participate in had only three months or less of savings by October– productive activities as the economy recovers, and can November 2021 (see Figure 47). Moreover, 66 percent have long term effects on human capital development. of households in the low-income group reported that Even during the recovery period by November 2021, they were unable or only partially able to cover their informally employed workers were still more likely to monthly basic needs using their own resources and have depended on these harmful coping strategies (see the government assistance they had received. As a Figure 50). result, low- and middle-income households expressed a high level of concern regarding their financial well- Conversely, formally employed workers were more being in the immediate future (see Figure 48). This likely to draw on formal entitlements and cash high level of concern among low-income households reserves to smooth consumption. This includes is reasonable, given their limited savings and the through the EPF, government pension funds (KWAP), or relatively greater work interruptions and income losses other pension savings, and personal savings (see Figure they had experienced since the onset of the pandemic 49 and Figure 50). Withdrawals from pension savings, compared to high-income households. particularly EPF, proved to be an important coping FIGURE 49 FIGURE 50 Harmful coping strategies, such as reducing food ...even during the recovery period consumption and selling assets were more likely to be adopted by informally employed workers... Household coping strategies between March 2020–June 2021, Household coping strategies between June 2021–November 2021, Percentage of households with wage workers Percentage of households with wage workers Relied on personal savings Relied on personal savings Received assistance from Received assistance from government government Reduced non-food consumption Reduced non-food consumption Reduced food consumption Reduced food consumption Relied on EPF/KWAP/other Relied on EPF/KWAP/other pension savings pension savings Took loan moratorium/ Took loan moratorium/ delayed payments delayed payments Engaged in additional income Engaged in additional income generating activities generating activities Borrowed from friends & family Borrowed from friends & family Sale of assets Sale of assets Received assistance from Received assistance from NGO/other institutions NGO/other institutions Took a loan from a nancial Took a loan from a nancial institution institution 0 20 40 60 80 0 20 40 60 80 Formal Informal Formal Informal Source: World Bank. 2021c. High-Frequency Phone Survey on COVID-19 Source: World Bank. 2021c. High-Frequency Phone Survey on COVID-19 Impact & Recovery Among Malaysian Households (Round 1 and Round 2 Impact & Recovery Among Malaysian Households (Round 1 and Round 2 forthcoming). forthcoming). 56 MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 PART TWO - Staying Afloat mechanism as EPF withdrawals totaled RM 101 billion by community recognition of the higher vulnerability of October 2021, disbursed to over 7.4 million members.41 informally employed workers, which may have resulted As a result of not having these formal entitlements, there in greater flows of altruistic loans toward them in the was a slightly higher reliance on informal borrowing context of the crisis. Furthermore, a higher share of in the earlier part of the pandemic among informally informally employed workers stated that they were employed workers. This could also indicate their limited very worried about their finances than did formally access to loans from financial institutions – compelling employed workers (see Figure 51). them to seek informal loans more intensively – and FIGURE 51 Financial distress is apparent more among informally employed workers Concerns about household nances, May–June 2021, Percentage of households with wage workers 100 8 9 80 20 27 60 26 27 40 45 20 38 0 Formal Informal Very worried Somewhat worried Not too worried Not worried at all Source: World Bank. 2021c. High-Frequency Phone Survey on COVID-19 Impact & Recovery Among Malaysian Households (Round 1). 41 EPF Media Desk (October 31, 2021). Accessed through https://www.kwsp.gov.my/en/-/epf-focused-on-rebuilding-members-retirement-savings-following- exceptional-withdrawal-facilities. MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 57 PART TWO - Staying Afloat A large share of those not covered by social insurance, such as informally employed workers, were also excluded from government assistance In response to the pandemic, the government incentivize registration with SOCSO’s Self-Employment broadened the coverage of its social assistance Social Security Scheme (SESSS).44 The uptake as of programs, increasing the income eligibility December 2020 was poor, reaching only 2.06 percent threshold of its flagship cash transfer program of the target.45 Subsequently, the SPS Lindung program and establishing mechanisms to deliver the was introduced as an upgrade to the PenjanaGig benefits swiftly. Specifically, the main emergency program to protect delivery riders and other specific cash transfer program, Bantuan Prihatin Nasional groups of informally employed workers, with a 100 (BPN), was extended to households earning up to percent of the contribution for one year being subsidized RM 8,000 (US$ 1,887)42 per month and to individuals by the government.46 While the uptake for this program earning up to RM 4,000 (US$ 943) per month.43 With fared better, particularly since Grab and FoodPanda this revision to the threshold, a much larger group of registered all of their delivery partners47, it remains beneficiaries became eligible for assistance than for the to be seen whether registered workers will continue pre-pandemic flagship cash transfer program, Bantuan making contributions once the subsidy is phased out. Sara Hidup (BSH), which covered households earning To determine the effectiveness of these programs in up to RM 5,000 (US$ 1,179) per month. The delivery protecting gig workers, they should be studied more of benefits was rapid, with beneficiaries of BSH being carefully to assess their impact, and subsequently to automatically enrolled for BPN. Individuals who were provide inputs to inform any necessary changes to identified as being eligible for benefits under the new design and outreach. One of the stated reasons for income threshold on the basis of their tax records were the specific focus on gig workers, particularly delivery also automatically enrolled, while the manual enrolment riders, is that they have played a vital role during the of new beneficiaries could also be completed relatively pandemic, often referred to as ’front liners.’ They are easily through the Inland Revenue Board’s (Lembaga also at high risk of contracting the virus and sustaining Hasil Dalam Negeri, LHDN) website. The first payment injury in the course of their employment, with a sizeable of the BPN benefits was made 10 days after its number of accidents occurring at the beginning of the announcement. pandemic48, thus making their protection especially pertinent. Another possible reason for the focus on The government also implemented measures to gig workers is because a high proportion of displaced protect informally employed workers, particularly workers may have resorted to gig work to earn an gig workers. The protection of gig workers income during the crisis.49 (defined as workers employed through digital labor platforms, without standard employment conditions Despite the government’s introduction of these and protection, often working for multiple clients) household-level financial support interventions, a was incentivized through the PenjanaGig program significant share of those who are eligible have not introduced in June 2020, which provides a 70 percent received any assistance. Findings from both rounds matching contribution from the government to of the HiFy survey show that about a third of lower- 42 At exchange rate US$1 = RM 4.24. 43 An additional cash transfer program, Bantuan Khas COVID (BKC), which is being implemented between September and December 2021 was extended to an even larger group of beneficiaries, that is, households earning up to RM 9,000 per month and individuals earning up to RM 5,000 per month. 44 The PenjanaGig program specifically targets workers who are actively working on digital labor platforms registered with the Malaysia Digital Economy Corporation (MDEC) or other government agencies. 45 MalaysiaKini. (December 9, 2020). Accessed through https://www.malaysiakini.com/news/554530 46 The other groups of workers include volunteers from the military, police, public defense and maritime sectors, mosque workers ( guru takmir, noja, siak, imam, bilal, and merbut ), and public sector workers employed under contracts for service. 47 New Straits Times. (July 16, 2021). Accessed through https://www.nst.com.my/news/nation/2021/07/709033/grab-foodpanda-delivery-partners-now-covered- socso. 48 New Straits Times (June 24, 2021). Accessed through https://www.nst.com.my/news/nation/2021/06/701880/socso-over-150-accidents-involving-delivery- riders-march-june-last-year. 49 There has also been an effort to upskill workers to become gig workers through the Global Online Workforce (GLOW) Penjana program, with RM 25 million allocated to MDEC’s existing GLOW training program. 58 MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 PART TWO - Staying Afloat FIGURE 52 In recent months, higher shares of households have received cash transfers from the government Received government cash transfers, Percentage of households within each income group 80 70 60 50 40 30 20 10 0 RM2,000 and below RM2,001-RM4,000 RM4,001-RM10,000 More than RM10,000 Since March 2020 Since June 2021 Source: World Bank. 2021c. High-Frequency Phone Survey on COVID-19 Impact & Recovery Among Malaysian Households (Round 1 and Round 2 forthcoming). income households (income RM 4,000 and below) error in the targeting of government assistance at a had not received any benefits from these assistance time of heightened vulnerability, when such support programs during the crisis.50 This level of exclusion error may be especially important for these households. This is higher than that estimated by using administrative may be due to the initial reliance on the BSH beneficiary and traditional survey data, and hence provides an database and tax records to target the cash transfer indicative figure.51 Government assistance programs program, BPN. It is already known that BSH suffers from introduced in response to the pandemic include those issues of exclusion, and the usage of tax records only that provide direct cash transfers, wage subsidies, EPF incrementally covers those who are formally employed withdrawals, micro-credit financing schemes, tax relief, and who have on average higher levels of income.53 In and loan moratoriums through the stimulus packages. a time of restricted access and mobility, there may also Focusing on cash transfers only, more households be limitations in the implementing agencies’ abilities reported receiving transfers since June 2021 than prior to conduct outreach and intake among the poorest to that point (see Figure 52). This reflects the increased households. This exclusion may further exacerbate the provision of support to low- and middle-income vulnerabilities experienced by informally employed groups, with the additional Bantuan Prihatin Rakyat workers, who account for a large proportion of low- (BPR) and Bantuan Khas COVID-19 (BKC) programs income households. implemented between June and September 2021 under the PEMERKASA+ and PEMULIH packages.52 Nonetheless, the current social assistance system shows only limited effectiveness in providing sufficient support to households to manage economic shocks and risks, particularly for those not covered by social insurance. There is exclusion 50 Referring to the period from the onset of the pandemic until early November 2021. 51 One possible reason for the difference between the findings from the HiFy survey and the administrative and traditional survey data could be because of the way the question is asked in the HiFy (given the space and time constraints), which only asks whether households receive benefits from certain programs, without detailing how many recipients in the household received benefits from the same programs. 52 PEMERKASA+ stands for “Program Strategik Memperkasa Rakyat dan Ekonomi Tambahan” and PEMULIH package stands for “Pakej Perlindungan Rakyat dan Pemulihan Ekonomi ”. These stimulus packages were introduced between May and June 2021 and adds up to RM 190 billion worth of allocation to continue the public welfare agenda and support the country’s recovery from the crisis. 53 World Bank (2020d) analyzes the coverage of the different social assistance programs. MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 59 PART TWO - Staying Afloat The more severe impact faced by the poor and informally employed workers underscores gaps in the social protection system Even prior to the COVID-19 pandemic, Malaysia’s does not have any retirement savings in the form of social assistance system did not provide a EPF, or employment disability and injury insurance by guaranteed minimum level of protection to all those SOCSO (see Figure 54). A large proportion of those who in need. In its comprehensive analysis of Malaysia’s are covered by the EPF also have low balances. Almost social protection system, using pre-pandemic data, the half of EPF members have balances of RM  10,000 or World Bank highlights shortcomings of the system in less, while almost 30 percent of EPF members have protecting the most vulnerable.54 The report found that balances of RM  1,000 or less.55 All these factors — due to low benefit levels or adequacy, Malaysia’s social low adequacy, fragmentation in program intake and assistance programs have had only modest impacts delivery, non-standardized targeting, and the limited on poverty and inequality (see Figure 53). While these reach of social insurance, especially among the poor impacts are in line with the average for upper-middle — have limited the government’s ability to extend income countries, it lags that of aspirational peers in assistance to the poor and vulnerable, particularly high income countries. Furthermore, the delivery of those in informal employment, during the pandemic. social assistance is marred by a lack of coordination, The exclusion among the poor and vulnerable in the with fragmented institutional arrangements and no receipt of COVID-19 assistance is therefore partly a standardized targeting mechanism for social assistance consequence of these long-standing weaknesses in programs, affecting the efficiency and effectiveness of Malaysia’s social protection system, underlining the the system in reaching the most vulnerable households. need for Malaysia to develop a more robust and shock- In addition, a substantial share of Malaysia’s labor force responsive social safety net. FIGURE 53 FIGURE 54 Even prior to the pandemic, social assistance in ...and about one third of private sector workers Malaysia only had modest impacts on poverty were covered by any form of social insurance and inequality compared to its high income aspirational peers... Impacts of social assistance programs on poverty and inequality, Percentage Share of employment, Percentage 30 25 20 33% 18 Informal 15 10 10 67% Formal 5 2 0 Malaysia Low Lower middle Upper middle High income income income income Inequality reduction Poverty Headcount Reduction (B20) Poverty Gap Reduction (B20) Source: World Bank staff calculations using Household Income and Basic Source: World Bank staff calculations using Household Income and Basic Amenities Survey 2016 (DOSM). Amenities Survey 2016 (DOSM). Note: Public sector workers are excluded from this calculation. Note: Public sector workers are excluded from this calculation. 54 World Bank. 2020d. Malaysia Economic Monitor, June 2020, Surviving the Storm. 55 There has been a significant decline in EPF balances in 2020 and 2021, due to early withdrawals from EPF balances through the i-Lestari, i-Sinar, and i-Citra programs, which are part of the Government’s response to the COVID-19 pandemic (see Nuradzimmah Daim, 2021). 60 MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 PART TWO - Staying Afloat The substantial share of informally employed income. The share of informally employed workers workers in the economy, with higher rates of amongst households in the lowest income decile is 52 informal employment in the lower-income groups, percent, compared to 38 percent for households from underscores the urgent need to address the gaps in the second-lowest income decile and to 18 percent Malaysia’s social protection system. Compared with for households from the highest income decile (see high-income countries such as Finland and the United Figure 56). Furthermore, while a majority of informally Kingdom, Malaysia’s rate of informal employment (33 employed workers are own-account workers (50 percent) is relatively high, although it comparable to percent of total), employees constitute the second- that of some other upper middle-income countries, largest share, at 38 percent of total informally employed and lower than its Southeast Asian peers (see Figure workers (see Figure 57). About a fifth of all employees 55). However, more worryingly, this rate is relatively are not covered by any form of social insurance (see high among households with the lowest levels of Figure 58). MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 61 PART TWO - Staying Afloat FIGURE 55 FIGURE 56 The rate of informal employment in Malaysia is ...but the poorest Malaysian households are comparable to that of its upper-middle income more likely to be employed under precarious peers, and lower than its Southeast Asian conditions neighbors... Rate of informal employment, Percentage Rate of informal employment, Percentage 100 60 80 50 60 40 40 33 30 20 20 0 10 Finland United Kingdom Chile Brunei Darussalam South Africa Malaysia Mexico Thailand Vietnam Indonesia 0 1 2 3 4 5 6 7 8 9 10 Household income decile Source: ILOSTAT based on latest available data, ILO (2018) and World Bank Source: World Bank staff calculations using Household Income and Basic staff calculations using Household Income and Basic Amenities Survey 2016 Amenities Survey 2016 (DOSM). (DOSM). FIGURE 57 FIGURE 58 While own account workers make up the majority ...with 19 percent of employees being informally of informally employed workers, employees employed also make up a substantial share of informal employment... Share of informal employment, Percentage Share of employees, Percentage 100 Unpaid family workers, 6% Employers, 6% 90 80 70 60 50 Employees, 38% 40 Own account workers, 50% 30 20 10 0 Formal Informal Source: World Bank staff calculations using Household Income and Basic Source: World Bank staff calculations using Household Income and Basic Amenities Survey 2016 (DOSM). Amenities Survey 2016 (DOSM). Note: Public sector workers are excluded from this calculation. Note: Public sector workers are excluded from this calculation. 62 MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 PART TWO - Staying Afloat The pandemic has widened existing learning gaps between children in Malaysia Even prior to the pandemic, issues related to There were significant learning gaps between disparities in outcomes in the Malaysian education students from socioeconomically advantaged and system were already present. According to the disadvantaged households in Malaysia, with these World Bank’s Human Capital Index for 2020, although gaps widening over time. According to PISA 2009, the expected years of schooling in Malaysia were 12.5 socioeconomically advantaged58 students in Malaysia years, when adjusted for the quality of learning, they outperformed their disadvantaged peers in reading by receive only 8.9 learning-adjusted years of schooling 53 points. By 2018, this gap had widened to 89 points, (LAYS).56 This suggests that prior to the pandemic, meaning that advantaged students’ performance Malaysian students only received the equivalent of improved while disadvantaged students’ performance 8.9 years of schooling in real terms, despite attending declined over this period (see Figure 59). A similar trend school for 12.5 years, reflecting barriers to learning is observed in the fields of mathematics and science and quality issues (World Bank, 2020c).57 In contrast, (OECD, 2019a). In fact, those who score in the top 10 students who spend 13.9 years in the educational percent for mathematics belong almost exclusively to system in Singapore can, on average, expect high- relatively wealthier families, while four out of every five quality learning outcomes, at 12.8 LAYS. top scoring students in reading and science come from FIGURE 59 Significant learning gaps exist between students from socioeconomically advantaged and disadvantaged households in Malaysia even before the pandemic Malaysia’s mean performance in reading in PISA 2018 by quarter of socioeconomic status, Pro ciency levels and score point Reading Mathematics Science 600 Level 4 Level 5 550 Level 4 500 490 485 Level 3 Level 3 Level 4 466 450 445 440 Level 2 427 425 417 Level 2 Level 3 401 400 401 400 377 350 Level 2 Level 1 Level 1 Level 1 300 Bottom quarter Second quarter Third quarter Top quarter Source: OECD (2019b). Notes: Advantaged students in Malaysia scored 466 points in reading on average, putting them on Level 2 proficiency, compared to disadvantaged students on Level 1a proficiency with a mean score of 377 points. This 89-point gap between students from the top and bottom quarter of socioeconomic status in the country amounts to more than 1 proficiency level difference. 56 https://databank.worldbank.org/data/download/hci/HCI_2pager_MYS.pdf?cid=GGH_e_hcpexternal_en_ext 57 Unlike the quantity-based standard education metric of human capital - the average number of years of schooling, Learning-Adjusted Years of Schooling (LAYS) combines both quantity and quality of schooling into a single measure, attempting to integrate access and learning outcomes to a metric of progress (Filmer et al. 2018). 58 For PISA, students at the bottom quarter of the PISA index of economic, social and cultural status within the country are classified as disadvantaged and students at the top quarter are classified as advantaged. For TIMSS, schools where more than 25 percent of the student body comes from economically affluent homes and not more than 25 percent from economically disadvantaged homes are categorized as ‘more affluent’ and vice versa. MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 63 PART TWO - Staying Afloat relatively prosperous families. Similarly, in TIMSS 2019, computers and smart phones (UNESCO, 2021). Malaysian students from schools where most students came from high socioeconomic backgrounds performed These school closures could result in additional better on average in mathematics than students from learning losses for Malaysian students. A simulation schools with low socioeconomic backgrounds by 101 study to assess the impact of pandemic-related school score points, and in science by 96 score points. The closures estimates up to 1.3 years of additional learning performance gap associated with socioeconomic status losses for Malaysian students (see Figure 61) (Cloutier is also larger in Malaysia than other TIMSS participating et al. 2021). The study analyzed different scenarios countries on average, with the average gap standing at (intermediate and pessimistic) based on Malaysia‘s 52 score points for mathematics and 50 score points for estimated school closure periods and the effectiveness science (Ministry of Education Malaysia, 2020). of mitigation measures: (i) the intermediate scenario assumes that schools are closed for 40 weeks from The period for which schools were closed in January 2020 to February 2022 and that the mitigation Malaysia due to the pandemic was among the measures have an intermediate level of effectiveness; highest in the region, potentially exacerbating pre- and (ii) the pessimistic scenario assumes schools are existing learning issues and gaps. As of October closed for 43 weeks and that the mitigation measures 2021, Malaysia’s pandemic response had resulted in 42 have low levels of effectiveness. weeks of school closures, one of the longest periods in the region and amongst its peers (see Figure 60). This, The impact of the pandemic on LAYS in Malaysia together with the economic difficulties caused by the could also result in future earning losses. Under the pandemic, has heightened the risks of learning loss and intermediate and pessimistic scenarios, the average drop-out among students, particularly among those annual earning losses per student are estimated to from disadvantaged socioeconomic households. While be US$ 1,922 and US$ 2,320, respectively, with the the government introduced remedial measures, such average earnings at US$ 21,782 prior to the pandemic as remote learning, this is often relatively ineffective (see Figure 62). Under the intermediate scenario, the for children in low-resource settings who do not present value loss in the lifetime earnings of a student is have access to the required learning tools, including expected to stand at around US$ 35,070, considerably 64 MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 PART TWO - Staying Afloat higher than the average loss in the EAP region (US$ the United States, have experienced similar trends 17,620). related to student learning loss as a result of the pandemic, with the impacts unequally distributed While there are multiple long-term drivers, Malaysia’s among students from different income and academic educational gap is likely to be exacerbated by the achievement groups (Yarrow et al., forthcoming). The pandemic-related school closures and the use of online recent HiFy survey also indicates the magnitude of the learning, increasing existing inequalities. Forthcoming learning challenges faced by children from low-income research shows that many other high-income countries, households during the pandemic. These challenges are including Switzerland, Germany, the Netherlands and discussed in detail in the next section. FIGURE 60 Malaysia saw one of the highest periods of school closure in the region and amongst its peers Weeks of school closures 70 60 50 42 40 30 20 10 0 Vietnam China Chile Lao PDR Indonesia Colombia Peru Malaysia Cambodia Myanmar Source: UNESCO Institute for Statistics FIGURE 61 FIGURE 62 LAYS simulations estimate additional learning ...which could translate into average annual losses for Malaysian students... earning losses Simulation for the impact of COVID-19 school closures on LAYS Impact on the average annual earning per student (2017 PPP US$) 1.10 1.33 $1,922 $2,320 8.90 $21,782 7.80 7.57 $19,860 $19,462 Baseline Intermediate Pessimistic Baseline Intermediate Pessimistic Source: Cloutier et al. (2021) Source: Cloutier et al. (2021) MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 65 66 MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 PART TWO - Staying Afloat Children from low-income households face different realities pre- and during COVID-19, casting a clearer light on issues in the education system Several studies show that parental educational skills have at least one white-collar parent. levels and occupation are correlated with students’ development of cognitive and socioemotional skills. In addition, disadvantaged students in Malaysia Based on PISA 2018 data, a recent study found that both have different opportunities in school than do their family wealth and the provision of emotional support more advantaged peers. Their teachers are more are positively correlated with students’ development likely to be absent and unable to meet their learning of cognitive and socioemotional skills, although the needs. They have a significantly weaker sense of contribution of family wealth is greater for cognitive skills belonging to their schools, and this is associated with (World Bank, forthcoming).59 Students with college- weaker performance in reading in particular60 (OECD, educated parents also have greater advantages over 2019c). Nonetheless, some disadvantaged students those with less educated parents in terms of cognitive can excel academically, despite the odds stacked skills, with this correlation apparently mediated almost against them. The PISA 2018 data showed that 9.8 entirely through the family’s wealth. Moreover, the percent of disadvantaged students in Malaysia were analysis found that students whose parents held white- academically resilient despite their socioeconomic collar occupations score better in cognitive tests, even circumstances, a somewhat lower proportion than the after controlling for the contribution of their school. OECD average of 11.3 percent (see Figure 63). Their Around four out of every five students that score in the academic resilience was positively related to parental top 10 percent in mathematics, reading and science have support, school disciplinary climate, and having a at least one white-collar parent. Similarly, three out of growth mindset (OECD, 2019b). Significant efforts to every five students in the top decile of socioemotional develop conducive environments should be made to FIGURE 63 Disadvantaged students can be academically resilient despite their socioeconomic circumstances Disadvantaged students who scored in the top quarter of reading performance in their own country, Percentage 20 15 9.8 10 5 0 Indonesia Korea, Rep. Thailand Japan Chile Colombia Malaysia Singapore Philippines Peru Source: OECD (2019b). 59 On the other hand, the opposite is true for the development of socioemotional skills, where parental emotional support plays a much more significant role than family wealth (World Bank, forthcoming). 60 Disadvantaged students have a lower sense of belonging at school index (-0.25) than advantaged students (-0.09). Every unit increase in the index of sense of belonging at school was associated with an increase of more than 20 score points in reading performance among students in Malaysia, a much stronger association across OECD countries at 4 score points. MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 67 PART TWO - Staying Afloat ensure equal opportunities for these disadvantaged gaps in education due to uneven access to learning students to prevent the further widening of learning infrastructure, particularly to online learning. The HiFy gaps and hence the entrenchment of socioeconomic survey found that although there had been an increase inequality in the long run. in online learning participation in the past few months, children from the lower-income households still remain During the school closure period, children from low- slightly less likely to engage in online learning activities income households were less likely to continue with than those in wealthier households (see Figure 66). With at-home learning activities. The majority of Malaysian extended school closures and the phased reopening children who attended school before the pandemic of schools, it is likely that students from vulnerable have continued at-home learning activities during the households will experience diminished learning periods when the schools were closed, although the opportunities, with disparities between advantaged and proportion is lower among children from low-income disadvantaged students widening further. Moreover, households. The World Bank’s HiFy survey found that economic pressures may exacerbate this negative among all of the children in the surveyed households, impact on learning, with the financial difficulties 94 percent continued to engage in at-home learning confronting vulnerable households potentially leading activities between October and November 2021. to an increase in the student dropout rate. However, low-income households reported a lower rate of school attendance even in the pre-pandemic period The constraints faced by children engaged in at- (see Figure 64), with children from these households home learning included lack of stable internet also less likely to continue learning from home during connections and lack of access to the necessary the pandemic (see Figure 65). devices, including computers and smartphones. Children employed various modes to facilitate their While most Malaysian children have had access to learning activities from home (see Figure 67), with online classes or mobile learning applications, 23 completing assignments provided by the teacher, using percent of children from lower-income households mobile learning apps, and having lessons with teacher in Malaysia have been unable to participate or or tutor being the most common activities, regardless have participated only to a limited degree. Thus, of the socioeconomic status of the students involved. the pandemic has potentially exacerbated the existing However, a small proportion of children was not able to FIGURE 64 FIGURE 65 Before the pandemic, children from low-income ...and were also less likely to continue learning households reported lower attendance in school... from home during the pandemic Attended school before the pandemic, by household income, Percentage Engaged in at-home learning activities, by household income, Percentage among households with children aged 7 to 17 among households with children attending school in-person in March 2020 100 100 90 90 80 80 70 70 60 60 RM2,000 and below RM2,001-RM4,000 RM4,001-RM10,000 More than RM10,000 RM2,000 and below RM2,001-RM4,000 RM4,001-RM10,000 More than RM10,000 May-June 2021 October-November 2021 Source: World Bank. 2021c. High-Frequency Phone Survey on COVID-19 Source: World Bank. 2021c. High-Frequency Phone Survey on COVID-19 Impact & Recovery Among Malaysian Households (Round 1 and Round 2 Impact & Recovery Among Malaysian Households (Round 1 and Round 2 forthcoming). forthcoming). 68 MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 PART TWO - Staying Afloat FIGURE 66 Children from low-income households remain less likely to engage in online learning activities Engaged in online classes or used mobile learning apps, by household income, Percentage of households with children engaged in at-home learning 100 90 80 70 60 50 RM2,000 and below RM2,001-RM4,000 RM4,001-RM10,000 More than RM10,000 May-June 2021 October-November 2021 Source: World Bank. 2021c. High-Frequency Phone Survey on COVID-19 Impact & Recovery Among Malaysian Households (Round 1 and Round 2 forthcoming). FIGURE 67 Children used various approaches for their home-learning activities Participation in at-home learning activities by household income in October–November 2021, Percentage of households with children engaged in at-home learning 100 80 60 40 20 0 Completed Participated in Used mobile Had lesson with Watched Studied with other Listened to assignments online classes learning apps teacher/tutor educational TV students/peers educational provided by the organized by the programs programs on teacher school radio/podcasts RM2,000 and below RM2,001-RM4,000 RM4,001-RM10,000 More than RM10,000 Source: World Bank. 2021c. High-Frequency Phone Survey on COVID-19 Impact & Recovery Among Malaysian Households (Round 2 forthcoming). MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 69 PART TWO - Staying Afloat FIGURE 68 FIGURE 69 During the pandemic, no devices and unstable ...but more recently, more children did not connection were the main reasons for not participate due to lack of interest and adult engaging in home-learning activities... supervision Reasons children are not learning in past 30 days, Percentage of Reasons children are not learning in past 30 days, Percentage of households with children not engaged in at-home learning households with children not engaged in at-home learning May-June 2021 October-November 2021 No internet/lack of stable connection No device Child not interested in online classes No internet/lack of stable connection No parental/adult supervision Not sure School didn't offer School didn't offer No suitable programs for child No device with disability No access to teacher or tutor Child not interested in online classes No suitable programs for child with disability 0 10 20 30 40 0 10 20 30 40 Source: World Bank. 2021c. High-Frequency Phone Survey on COVID-19 Source: World Bank. 2021c. High-Frequency Phone Survey on COVID-19 Impact & Recovery Among Malaysian Households (Round 1 and Round 2 Impact & Recovery Among Malaysian Households (Round 1 and Round 2 forthcoming). forthcoming). use any of these modes. Findings from the first round initiative, government-linked companies funded and of the HiFY survey showed that amongst households in distributed laptops, tablets and internet data packages which children did not participate in at-home learning to students from the bottom 40 percent (B40) of the activities, constraints related to access to internet household income group. As of April 2021, 13,000 connections and devices were the most frequently devices had been distributed. The initiative picked up reported reasons for children’s failure to engage in at- as the pandemic intensified in the following months and, home learning at the height of the pandemic during by the end of October 2021, 150,000 devices had been May-June 2021 (see Figure 68). distributed to students in need, reaching approximately 5 percent of B40 households.61 In partnership with More recently, findings from the second round major telecommunication companies, the Malaysian of the HiFy show a decline in the proportion of Communications and Multimedia Commission has households with children reporting constraints also provided free internet access since April 2020 to related to access to devices, although a greater enable students to access educational sites and apps.62 proportion reported constraints related to their children The phased reopening of schools since October lacking interest in online classes, and to lack of parental 2021, following the winding down of the nationwide or adult supervision as reasons for their children’s non- lockdown, further reduced constraints associated with participation in at-home learning activities (see Figure access to devices and internet connections, especially 69). The increased access to devices is consistent with a in households with multiple school-going children. number of initiatives implemented by the government, such as CERDIK, which was intended to address constraints related to lack of devices and internet access among disadvantaged households. Under the 61 Yayasan Hasanah. 2021. Status Agihan. Retrieved from https://www.cerdik.org/ms/deployment-tracker/ on July 27 and November 7, 2021. 62 Malaysian Communications and Multimedia Commission. 2021. Soalan-soalan Lazim (FAQ) 1GB Data Internet Percuma bagi Rakyat Malaysia. 70 MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 PART TWO - Staying Afloat The pandemic will potentially further contribute to socioeconomic inequalities, besides slowing future growth While the impacts of the pandemic during the early employment in the future. According to the International stages were relatively widespread, its adverse Labour Organization (ILO), people who have completed consequences are expected to be more severe and secondary and tertiary education are less likely to engage longer among the poor and vulnerable. Findings from in informal employment than those with only primary HiFy survey highlight that the pandemic hit and set education or with no formal education.64 As previously back progress in many aspects of households’ socio- discussed, informally employed workers are among the economic condition. The survey confirms that the most severely affected by the crisis. Therefore, urgent negative economic shock among households is often action is needed to ensure continued access to quality accompanied by a deterioration in other non-economic education, as efforts to remedy learning losses may aspects. Despite gradual recovery in the economy, mitigate the widening of socioeconomic inequality that lower-income households have already started showing may occur as a result of this loss in the long run. reduced resilience, given a higher share reporting employment shocks, income losses, and depleted Malaysia’s dream to become a high-income savings throughout the pandemic. They are also more nation by 2028 may not be realized under these likely to adopt coping strategies that will lead to worse circumstances, unless appropriate policies longer-term outcomes, for example reduced food are put in place. As Malaysia is on the verge of consumption leading to undernutrition, sale of assets transitioning from an upper-middle-income to high- resulting in loss of productive future income, and more. income economy (World Bank, 2021d), the prolonged Furthermore, while an increase of informally employed impact from COVID-19’s “triple shock”65 may constrain workers during the pandemic gives a positive sign of economic growth in the future, mainly due to slow the shock-absorbing ability within the labor market, it private consumption growth and modest recovery implies potentially more precarious situation as these to wage growth in the labor market. Malaysia has workers are likely to remain with limited or no social also been growing slower than many other countries protection as they continue to be informally employed that achieved high-income status recently, with lower in the longer term. These factors suggest not only share of high-skilled employment and higher level of widening income and wealth inequalities among inequality. As discussed in detail in Part 1, the upside Malaysians, but also highlight the reduced resilience risks to the growth outlook depends largely on and capabilities among the poor and vulnerable to effective management of the pandemic, with minimal cope with any future shocks. disruptions to domestic socioeconomic activities. To ensure Malaysia fulfills its growth potential within the Learning losses that may have occurred as a next five years, it is a very critical, and opportune, result of the pandemic will potentially exacerbate time for the country to address pre-existing fault socioeconomic inequality in the longer term. One of lines as well as newly emerged scars from the crisis. the most damaging effects of the COVID-19 pandemic Given the rapidly evolving situation, policy makers may only become visible in the longer term, with these continue to need timely information on the dynamics effects resulting from the impact of the widespread of households’ welfare during the pandemic, as well and unprecedented disruption to learning due to the as on effectiveness of the government’s substantial prolonged school closures. Although the net impact relief and stimulus measures. Such information is key of school closures will depend on the effectiveness of to facilitate greater evidence-based decision-making remote learning, generally, closures are likely to result for an inclusive and sustainable recovery for Malaysia. in a slowdown and loss of learning and to the increased The following sections will highlight a range of policy likelihood of school dropouts, particularly among the recommendations to achieve the intended recovery most disadvantaged children and girls.63 At the same from the crisis, particularly through enhancing both the time, there is no doubt regarding the importance of social protection and education systems in Malaysia. educational attainment in obtaining good and secure 63 Azevedo et al. 2020. EAP country tool for simulating the potential impacts of COVID-19 school closures on schooling and learning outcomes. 64 ILO. 2018. Women and men in the informal economy: a statistical brief. 65 The triple shock refers to the (1) direct health impact of the Coronavirus, (2) economic impact of movement restrictions within Malaysia, and (3) growth impact of a global recession (see World Bank, 2021d). MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 71 PART TWO - Staying Afloat BOX 5 Better Child Care to Increase the Participation of Poorer Urban Families in Labor Markets Women in Malaysia, particularly those from lower- provided. Those in this group that do participate in the income urban families, face stark barriers on their labor market very often work part-time in informal jobs; participation in the labor force participation, are self-employed; or have their own micro-businesses. largely due to their social obligations to serve as home makers and care providers. Focus group Interestingly in 2020, 13 percent of men who were discussions, conducted for the recent World Bank out of the labor force reported housework as the (2019b) report, Breaking Barriers: Toward Better main reason, which is a substantial growth from Economic Opportunities for Women in Malaysia show the figure of 4 percent recorded in 2019 (see Figure that women from lower-income families, including those 70). For women, housework remains the principal living in poor urban areas such as Projek Perumahan reason cited for not participating in the labor force, Rakyat (PPR) public housing developments, often at 61 percent in 2020 (see Figure 71). The increase in struggle to participate in the labor market because the proportion of men citing housework as a reason for of the lack of accessible, affordable and quality child- not participating in the labor force coincided with the care.66 Women see their primary role as being the advent of the pandemic, with lockdowns throughout family caregiver, responsible for the growth and the country, school closures, businesses affected and socialization of their children. From this perspective, both women and men having to work largely from the need to safe, quality child-care is directly related home. It will be important to analyze the data for 2021 to the self-identity as a good mother and wife. This to determine if the factor has moderated or remains the leaves relatively little room for women to take up formal same over time. sector jobs unless the right supporting environment is 66 World Bank. 2019b. Breaking Barriers: Toward Better Economic Opportunities for Women, September 2019. 72 MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 PART TWO - Staying Afloat FIGURE 70 FIGURE 71 In 2020, more men reported housework as the Housework remains the number one reason cited main reason for being out of the labor force for women to not participate in the labor force Share of persons, Percentage Share of persons, Percentage 100 100 80 80 60 60 40 40 20 20 0 Male Female Male Female Male Female 0 2010 2019 2020 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 (pre-Covid) Schooling Housework Further studies Disabled M Schooling M Housework Not interested Retired Other F Schooling F Housework Source: Labor Force Survey, Department of Statistics Malaysia Source: Labor Force Survey, Department of Statistics Malaysia FIGURE 72 Mapping of Government incentives, policies and programs for women and childcare across different household incomes, under Budget 2011–2022 B20 B30-40 M40 T20 Childcare (0-6 years) Childcare (for 0-6 years old) centers in the workplace (public and private sector) centers at workplace1 Childcare (0-6 years) centers in Community Centers2 Personal Income Tax reliefs for child care Career Comeback Programs and Flexible work arrangements Women Leadership Skills training, entrepreneurship and nancing programs by various Ministries and agencies Programs Gaps Available Source: World Bank staff interpretation. Notes: 1. Women from B40 may commute to work on public transport or on motorbikes, hence it is not an ideal situation to bring children to work 2. In Budget 2021, it is noted that there was an allocation of RM 170 million for early childhood education programs (ages 0 to 6 years) for the Community Development Department or KEMAS. In addition, in Budget 2021, there was a provision of RM20 million to establish Community Centers as transit centers for children to attend after school for urban B40 working parents. However, similar provision for after-school care did not continue in Budget 2022. 3. Job types in Career Comeback Programs may not be applicable to women from the B40. MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 73 PART TWO - Staying Afloat While policymakers have increasingly discussed B40 urban families may live in small, confined spaces, provision of childcare incentives, with a number of resulting in more acute learning losses than among such incentives included in Budget 2022, current those in more conducive circumstances, particularly initiatives largely fail to meet the childcare needs when this is compounded with a lack of adequate of the B40, especially the urban poor (see Figure 72). access to learning devices or internet connectivity. Government initiatives continue to focus on the care of children at the ages of 0 to 6 years, with measures to provide income tax reliefs for early childhood development and kindergarten fees; to encourage the Providing care and establishment of childcare centers at workplaces; to support infrastructure incentivize businesses to offer flexible forms of work; and to amend guidelines to facilitate childcare facilities for children should be to operate above the first floor of office buildings. These contextualized to meet are unquestionably important measures. However, most of these measures disproportionately benefit the varying needs of women from M40 or T20 families, with relatively little different welfare groups relevance for women from B40 families. Parents from B40 families may commute to work on public transport to ensure the effective, or on motorbikes, making it difficult for them to bring well-targeted support children to childcare centers at the workplace, or they may be working in informal jobs. In either case, they are for families unlikely to pay personal income tax and therefore will not benefit from tax relief measures. Multiple modalities could be deployed to provide In a tight fiscal environment, it is crucial to childcare, possibly involving enhancements to prioritize the allocation of public resources to existing public facilities such as schools, libraries, address the most pressing constraints on women’s and community centers. For example, tax incentives participation in the labor force, including alleviating could be introduced to encourage public-private- the burden of housework for the B20 urban families. community collaboration, in line with employers’ Providing care and support infrastructure for children environmental, social and corporate governance should be contextualized to meet the varying needs of agenda for their employees and for wider community different welfare groups to ensure the effective, well- stakeholders. An example of this approach can be targeted support for families. found in Singapore, where, in line with the country’s changing demographics, community centers and clubs It is also necessary to expand the age bracket have evolved to become multi-generational facilities for childcare from 0 to 17 years, rather than the for recreation, sports, library, after-school studies, current bracket of 0 to 6 years, with the provision and healthy aging activities. These centers are easily of after-school care. Feedback from the focus group accessible, with facilities available at minimal costs. discussions with urban poor families shows that there There are 370 community study centers throughout is a perception of a lack of support for school-going Singapore, with many of them managed by residents, children.67 Participants expressed the opinion that the retirees and volunteers. In Malaysia, it would be social environment in PPRs does not encourage the possible to deliver localized models by leveraging on development of teenagers, with a lack of facilities for the existing public facilities offered by the Ministry learning and playing. The impact of the pandemic has of Education; the Ministry of Women, Family and exacerbated the impact on children due to the closure Community Development; the Ministry of Housing and of schools and the shift to online learning. Children from Local Government; and state and local governments. 67 Findings from qualitative surveys focus group discussions conducted between January to March 2019, for the World Bank Breaking Barriers Report: Towards Better Economic Empowerment for Women 74 MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 PART TWO - Staying Afloat In the near-term, support for the poor and vulnerable, including informally employed workers and children, should remain in place In the short term, policy measures should be The pandemic-relief cash transfers currently geared towards maintaining financial support for provided to target groups should be continued the poor and vulnerable and establishing a more at least for the first half of 2022. There is an inclusive social insurance framework. Despite some ongoing need to provide support to a broad range of promising signs of incipient economic recovery, the households, particularly low-income and vulnerable findings from the HiFy surveys indicate that low-income households, through cash assistance transfers at and vulnerable households, particularly informally least until economic growth, job creation, and wage employed workers, will continue to face hardships and growth resume, after which this cash assistance can deprivations resulting from the pandemic in the short be focused more narrowly on the chronically poor. run. To address this, the current social safety net system The government’s various cash assistance programs should continue to provide support to these groups, throughout the crisis have provided important support with intensified efforts to address the gaps in coverage to households, despite evidence of insufficient coverage of the vulnerable (see Figure 73). In 2020 and 2021, and benefit adequacy. Given this, cash transfers Malaysia spent approximately RM 60 billion (US$ 14 beyond the flagship cash transfer program, Bantuan billion) on social protection-related programs.68 This Keluarga Malaysia (BKM), may need to be continued combined spending over two years represents roughly for at least the next six months. These transfers would 2.1 percent of the annual GDP in these two years, continue supporting households as economic growth considerably higher than the proportion in the pre- gains momentum, and provide some form of safety net pandemic, which stood at approximately 1.0 percent of in the face of any further shocks, including one that GDP.69 could arise in the emergence the Omicron variant of the COVID-19 virus. FIGURE 73 Short-term measures should maintain financial support, achieve greater inclusivity, and facilitate children’s learning 1 | Continue existing income relief measures 6 | Support teachers, schools and district of ces Current COVID-relief cash transfers to Strategies to help students with their target groups should be continued at least socioemotional wellbeing and cope with for the next six months learning dif culties 2 | Introduce targeted wage subsidies 5 | Create remedial interventions This includes youth and women, who Enable disadvantaged students to traditionally suffer from dif culties in receive more support through entering the labor market face-to-face instructions and hybrid learning modules 3 | Pilot and evaluate social insurance measures 4 | Assess learning losses among children Learn from the experience of other countries Measure students’ current level of to pilot initiatives to increase the coverage knowledge and skills to make necessary and adequacy of social insurance programs adjustments to the existing curriculum and among informally employed workers mitigate learning losses Source: World Bank staff elaboration 68 Roughly half of this was through cash assistance programs. 69 World Bank. 2020d. Malaysia Economic Monitor, June 2020, Surviving the Storm. MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 75 PART TWO - Staying Afloat Policymakers could also consider piloting be more focused to youth and women, instead of the additional targeted wage subsidies for workers broader group of inactive workers. The part of the who face structural barriers in the labor market, initiative that is focused on women (specifically women particularly youth and women, and to carefully who have been unemployed for more than 365 days, monitor and evaluate existing wage subsidies. single mothers, and housewives) can actually be made As the economy and employment recover, resources more inclusive to cover more women. To ensure that could be directed to those who may continue to need they meet the intended recipients, wage subsidy support to obtain a job and who may not benefit from programs need to be carefully designed, time-bound, the existing wage subsidy program. This includes youth well-targeted, and properly tested through piloting. and women, and those from poor households, who The implementation of the JaminKerja initiative also traditionally suffer from difficulties in entering the labor presents an opportunity comparable to piloting for market, and particularly the formal labor market. Wage careful monitoring and evaluation, to provide insights subsidies can reduce the cost of hiring for firms and for future implementation.70 incentivize them to hire employees from disadvantaged groups, who will then have an opportunity to build Measures to strengthen and extend the social their skills and thereby to improve their future insurance system to provide better coverage for employability. Wage subsidies can also potentially be informally employed workers could also be piloted channeled to jobs that can be filled by less educated and evaluated. While recent collaborative efforts to workers. It would also be possible to target specific extend the coverage of the EPF and SOCSO programs sectors, depending on the extent of their exposure to informally employed workers through voluntary to COVID-19 and their prospects for growth and contributions are step in the right direction, they have revival. As part of COVID-19 recovery, wage subsidies had relatively low take-up rates. The SOCSO schemes focused on new hires have been adopted by several for informally employed workers introduced during countries. For example, the Boosting Apprenticeship the crisis (i.e., PenjanaGig and SPS Lindung) come at Commencements wage subsidy program in Australia is a substantial fiscal cost and only provide protection aimed towards employers who take on new apprentices for workers for one year. There is room to learn from or trainees, and would be eligible to receive a subsidy the experiences of other countries to pilot initiatives of 50 percent of the apprentices’ gross wages until 31 to increase the coverage and adequacy of these social March 2022. Furthermore, Singapore has introduced insurance programs. Potential initiatives could include the Jobs Growth Incentive to encourage firms to automatic enrollments with the possibility of opting out expand local hiring, with greater financial incentives (such as with the KiwiSaver scheme in New Zealand), for hires from specific vulnerable groups such as older testing various models for matching contributions (such persons, persons with disabilities and ex-offenders. as in China and South Korea), and providing targeted The JaminKerja initiative, as presented in Budget 2022, reminders to contribute, together with measures is a step towards this direction, but can be made to to socialize the benefits of contributing (such as in 70 Almeida, Rita, Orr, Larry and Robalino, David. 2014. Wage subsidies in developing countries as a tool to build human capital: design and implementation issues. 76 MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 PART TWO - Staying Afloat Germany and New Zealand).71 International evidence who are less educated or in blue collar jobs may have suggests that these related interventions, when a limited ability to engage or assist their children at carefully designed, can work together to increase the home due to challenges related to a lack of information coverage and adequacy of social insurance programs. and resources, time constraints, and limited work-from- home options, among other factors. To mitigate these Within Malaysia’s education space, measures are constraints, schools could consider a hybrid learning required to improve learning processes, especially model that enables disadvantaged students to receive for socioeconomically disadvantaged children. With more face-to-face instruction and individualized prolonged school closures, it is likely that disparities learning support. Engagement between schools and between the socioeconomically advantaged and disadvantaged families could also be strengthened to disadvantaged households have widened existing facilitate the collaborative development of solutions learning gaps. The short-term focus should be to that generate optimal outcomes for each student. conduct a comprehensive assessment to determine For example, parents could work with teachers to the magnitude of the learning loss that has occurred; to define what “progress” is for each student and to co- mitigate these losses through remedial interventions; create more realistic, personalized learning goals for and to support students’ wellbeing when they return to their children. Building shared expectations between school to prevent potential dropouts. educators, parents, and students could incentivize families and boost parents’ confidence in working with As a crucial first step, the government could their children towards achieving their goals. Establishing conduct an assessment of the pandemic-related clear feedback loops between families and educators learning loss to determine the specific needs could also enable teachers to better determine feasible of students as they re-engage in face-to-face workloads for each family given their specific constraints, learning. A comprehensive assessment of this sort and to provide guidance to parents to enable them to would enable more accurate decision-making related to effectively support their children’s learning. To facilitate curriculum and other necessary adjustments. Following the involvement of working parents in home learning, this assessment, the government could also consider policies to encourage employers to provide family leave developing accelerated learning programs that include opportunities or time-off from work could also help a condensed curriculum, tailored teaching and learning parents to effectively engage while maintaining their resources, and frequent formative assessments of jobs. This approach has been adopted by a number of learning progress to enable students to overcome the OECD countries, including Slovenia, Germany, Canada loss of learning. A condensed curriculum focuses on and France (OECD, 2020). prioritizing outcomes instead of covering all content knowledge and includes essential skills and knowledge Teachers, schools, and district offices should be that are common across all subject areas. An evaluation provided with support to implement strategies to of the current curricula to determine the prioritization help students to achieve socioemotional wellbeing of necessary outcomes and core subjects could also and to cope with learning difficulties. In the two mitigate learning loss for entire cohorts, not just for rounds of the HiFy survey, a significant proportion disadvantaged students. Furthermore, disadvantaged of respondents reported that their children had lost students who are most affected by the school closures interest in learning during the school closures, which can also benefit from additional mentoring sessions may lead to some of them dropping out or failing and intensive remedial programs to catch up on lessons to return to school. Given that the challenges that that they were not able to participate in at home. students face vary depending on their circumstances, a one-size-fits-all intervention is unlikely to be effective In the event of future school closures, measures in supporting their wellbeing. Thus, school leaders and should be implemented to provide support to teachers, with a greater awareness of the specific needs enable disadvantaged students and parents to of their students, could play a critical role in fostering a meaningfully and actively engage in home-based positive environment that promotes a stronger sense of learning. Apart from the issues of access to learning belonging and a growth mindset, contributing to better devices and internet connections, the HiFy survey learning outcomes and performance. The MOE can also shows that a number of other key issues also constrain consider working with the MOH to increase the number the participation of disadvantaged students in online of health professionals and counselors allocated to learning, including lack of interest on the part of schools as a short-term measure to support students‘ students and limited parental supervision. Parents socioemotional wellbeing. 71 Hinz, Richard, Holzmann, Robert, Tuesta, David and Takayama, Noriyuki. 2013. Matching Contributions for Pensions: A Review of International Experience. MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 77 78 MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 PART TWO - Staying Afloat In the medium- to long-term, policies should look into addressing shortcomings and managing impact of the pandemic Over the medium term, policymakers should work the Department of Social Welfare (Jabatan Kebajikan to address the shortcomings in the current social Masyarakat, JKM), as well as registries of known safety net and education systems and to manage vulnerable groups like informally employed workers, the long-term impacts of the pandemic. As the for instance using the registry of enrolment to SESSS. previous sections show, the pandemic has exposed a Improvements in targeting could also potentially number of gaps and limitations in the ability of Malaysia’s free up resources to increase the benefit levels of existing social safety net system to fully protect poor and cash transfers, resulting in better coverage of the vulnerable households in crises. Similarly, the pandemic currently excluded poor households and in a stronger has also cast a clearer light on disparities and quality impact on reducing poverty and inequality, without a issues in the educational system. Policymakers should commensurate increase in costs. seize the opportunity to implement measures to make improvements in these areas, not just as a response to Malaysia could develop a modern, integrated, the pandemic, but to ensure the achievement of more efficient and shock-responsive social assistance equitable and sustainable growth more generally (see system that effectively protects low-income Figure 74). and vulnerable households by consolidating and rationalizing a range of existing programs. The targeting and adequacy of Malaysia’s cash Reforms to the social protection system should transfer systems should be improved to provide focus on ensuring the provision of adequate and better coverage and protection. There may also be tailored benefits; sufficient coverage of the poor and space to improve the targeting of cash transfers to vulnerable; progressive targeting; dynamic assessment ensure the inclusion of poorer and more vulnerable and responsiveness to shocks; and integrated and households, including the informally employed. This efficient delivery. By consolidating the current range can involve outreach programs, and leveraging existing of programs, including their beneficiary registries, registries for cash transfer programs that focus on and retaining the best practices and systems of each, the most vulnerable, such as those implemented by policymakers could reduce under-coverage, achieve a FIGURE 74 Long-term policies should address shortcomings in the social safety net and education systems and manage the pandemic’s long-term impact Improve targeting Invest in skills and adequacy of cash Fiscal policy to Strengthen active enhancement transfer including play bigger labor market training for teachers vulnerable groups redistributive role policies (ALMP) and principals Consolidate Extend social Improve resilience of the fragmented programs insurance to better education system including within the social cover informally enhancing accessibility of assistance system employed workers digital learning Source: World Bank staff elaboration MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 79 PART TWO - Staying Afloat higher impact with available resources, and improve countries, the average value of social assistance efficiencies in social protection delivery. This could play spending accounts stood at 2.0 percent of GDP.72 In a strong role in building household-level resilience to addition, the bulk of Malaysia’s social expenditure future economic shocks. is on fuel subsidies, which are highly regressive and disproportionately benefit high-income households. Over time, the Malaysian government may need However, in 2020 and 2021, in the context of the to increase its expenditure on social assistance to pandemic, Malaysia’s expenditure on social protection ensure a robust social protection system and to programs increased to an average of 2.1 percent of GDP, promote equitable outcomes. Prior to the pandemic, with roughly half of this allocated to cash assistance Malaysia’s social assistance spending lagged behind programs. In the post-pandemic context, Malaysia’s other aspirational or high-income countries. In 2018, fiscal policy could play a greater redistributive role, with Malaysia’s social assistance spending accounted for increases to the government’s revenue through the about 1.0 percent of GDP. By contrast, in high-income imposition of a more progressive taxation framework, 72 World Bank. 2020d. Malaysia Economic Monitor, June 2020, Surviving the Storm. 80 MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 PART TWO - Staying Afloat a higher level of social assistance spending that can experience with digital learning create opportunities alleviate exclusion errors, and with greater spending to improve the resilience of the system by enhancing efficiency achieved by shifting away from blanket the digital learning environment, smoothening the subsidies to a more targeted system. transition to home-based learning, and minimizing the risk of disadvantaged students being left behind, Policymakers should strive to extend social in cases where school closures are required in the insurance coverage to a greater range of informally future. The government and schools need to ensure employed workers, with the establishment of a the adequacy of ICT infrastructure; to improve the system that distributes benefits according to the skill levels of teachers, principals, and students in the workers’ needs and abilities. These reforms should use of digital tools and platforms; and to review the be based on lessons learned from pilot measures that instructional content and material available for digital can be implemented in the short term. Depending delivery. Overall improvements in the quality of digital on factors such as their levels of education, income, learning and the development of better hybrid learning sector of activity and geographical location, informally environments could also mitigate issues that constrain employed workers may face varying constraints on at-home learning participation, such as the lack of access to social insurance coverage. These could relate interest amongst children in online classes and the to both the ability and the willingness to make social need for parental supervision. security contributions and their knowledge of and ability to access social insurance programs. Each of To further develop the resilience of the education these factors may need to be addressed separately, with system, the government could strive to improve the different approaches for different groups of informally provision of training and support to teachers and employed workers, to enable better protection, and principals to enable them to be more responsive to develop resilience in preparation for future crises. and adaptive to future shocks. This includes Extending social insurance coverage is likely to adding skills at the school level to assess not just the require amendments and additions to existing legal immediate impact of the pandemic on learning losses, instruments, together with sound systems to ensure but students’ learning needs and outcomes more their full implementation and enforcement. generally, followed by measures to enhance their skills and abilities to provide more individualized and Active labor market policies (ALMPs) should be differentiated instruction. The remedial interventions strengthened to increase their responsiveness outlined in the short-term recommendations could to economic shocks. Following the example from be expanded further to meet varying learning needs, the OECD (2021), an effective set of ALMPs should especially among the more disadvantaged groups of ensure the effective use of resources reach the people students. In the context of the pandemic, schools have in need, especially those most at risk of permanent been forced to make more localized and individualized detachment from the labor market. The set of ALMPs decisions regarding how to support their students and offered should be flexible and responsive to allow meet their needs. Policymakers should build on this to swift and appropriate responses to economic shocks. improve this contextualized support and thus to ensure Policies should support labor demand, labor supply, that Malaysia’s education system plays an effective and the intersection between the two. A strong set role in building human capital and facilitating the of training initiatives, particularly those that leverage achievement of equitable, sustainable growth. digital technologies, is also required to facilitate the reallocation of workers across sectors and occupations as needed, such as during economic crises. Measures to address the duplication and fragmentation that currently exist in Malaysia’s ALMPs would also make them more accessible to potential beneficiaries and more cost effective for the government. Looking ahead to the post-pandemic period, policymakers could strive to improve the accessibility and quality of digital learning in preparation for other shocks that may occur in the future. The lessons learnt from the past 18 months MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 81 References References Almeida, Rita, Orr, Larry and Robalino, David. 2014. Wage subsidies in developing countries as a tool to build human capital: design and implementation issues. IZA Journal of Labor Policy, 3:12. BERNAMA. (April 15, 2020). Accessed through https://www.kkmm.gov.my/en/public/news/16859- bernama-15-april- 2020-kpm-serah-kepada-guru-tentukan-kaedah-pengajaran-dan-pembelajaran- menteri. Cloutier, Marie-Helene; Azevedo, Joao Pedro; Goldemberg, Diana. 2021. EAP country tool for simulating the potential impacts of COVID-19 school closures on schooling and learning outcomes, Version 8. World Bank, Washington DC. Department of Statistics Malaysia. 2021a. Labour Market Review Q3 2021. Department of Statistics Malaysia. 2021b. Household Income Estimates and Incidence of Poverty Report 2020. Department of Statistics Malaysia. 2021c. Labour Force Survey Report 2020. Department of Statistics Malaysia. 2021d. Salaries and Wages Survey Report 2020. EPF Media Desk (October 31, 2021). Accessed through https://www.kwsp.gov.my/en/-/epf-focused- on-rebuilding- members-retirement-savings-following-exceptional-withdrawal-facilities. Filmer, Deon; Rogers, Halsey; Angrist, Noam; Sabarwal, Shwetlena. 2018. Learning-Adjusted Years of Schooling: Defining A New Macro Measure of Education. Policy Research Working Paper;No. 8591. World Bank, Washington, DC. https://openknowledge.worldbank.org/handle/10986/30464 Gentilini, Ugo; Almenfi, Mohamed Bubaker Alsafi; Blomquist, John D.; Dale, Pamela; De La Flor Giuffra, Luciana; Desai, Vyjayanti Tharmaratnam; Fontenez,Maria Belen; Galicia Rabadan, Guillermo Alfonso; Lopez, Veronica; Marin Espinosa, Ana Georgina; Natarajan, Harish; Newhouse, David Locke; Palacios, Robert J.; Quiroz, Ana Patricia; Rodriguez Alas, Claudia P; Sabharwal, Gayatri; Weber, Michael. Social Protection and Jobs Responses to COVID-19: A Real-Time Review of Country Measures (May 14, 2021) (English). COVID-19 Living Paper Washington, D.C.: World Bank Group. http://documents.worldbank.org/curated/en/281531621024684216/Social-Protection-and-Jobs- Responses- to-COVID-19-A-Real-Time-Review-of-Country-Measures-May-14-2021 Hinz, Richard, Holzmann, Robert, Tuesta, David and Takayama, Noriyuki. 2013. Matching Contributions for Pensions: A Review of International Experience. World Bank, Washington D.C. ILO. 2018. Women and Men in the Informal Economy: A Statistical Picture (Third Edition). International Labour Organization, Geneva. MalaysiaKini. (December 9, 2020). Accessed through https://www.malaysiakini.com/news/554530. Malaysian Communications and Multimedia Commission. 2021. Soalan-soalan Lazim (FAQ) 1GB Data Internet Percuma bagi Rakyat Malaysia. Retrieved from https://www.mcmc.gov.my/skmmgovmy/media/General/pdf/FAQ_BM_1GB_24HRS_ PEMULIH.pdf Miguel, E. and Mobarak, A. M. 2021. The Economics of the COVID-19 Pandemic in Poor Countries. Annu. Rev. Econ. 14: Submitted. DOI: https://doi.org/10.1146/annurev-economics-051520-025412. Ministry of Education Malaysia. 2020. Laporan Kebangsaan TIMSS 2019 - Trends in International Mathematics and Science Study. Putrajaya. Retrieved from https://www.moe.gov.my/muat- turun/penerbitan-dan-jurnal/rujukan- akademik/3918-buku-laporan-timss-2019/file. Munoz-Najar,Alberto; Gilberto Sanzana,Alison Grace; Hasan,Amer; Cobo Romani,Juan Cristobal; Azevedo,Joao Pedro Wagner De; Akmal, Maryam. 2021. Remote Learning During COVID-19 : Lessons from Today, Principles for Tomorrow. Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/160271637074230077/Remote- Learning-During-COVID- 19-Lessons-from-Today-Principles-for-Tomorrow New Straits Times. (July 16, 2021). Accessed through https://www.nst.com.my/news/nation/2021/07/709033/grab- foodpanda-delivery-partners-now- covered-socso. 82 MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 References Nuradzimmah Daim. 2021, October 3. EPF Savings: Half have less than RM10,000. New Straits Times. Retrieved from: https://www.nst.com.my/news/nation/2021/10/733139/epf-savings-half-have-less- rm10000. OECD. 2019a. Malaysia - Country Note - PISA 2018 Results. Retrieved from https://www.oecd.org/pisa/publications/ PISA2018_CN_MYS.pdf. OECD. 2019b. PISA 2018 Results (Volume II): Where All Students Can Succeed. Paris: OECD Publishing. Retrieved from https://doi.org/10.1787/b5fd1b8f-en. OECD. 2019c. PISA 2018 Results (Volume III): What School Life Means for Students’ Lives. Paris: OECD Publishing. Retrieved from https://doi.org/10.1787/acd78851-en. OECD. 2020. Strengthening online learning when schools are closed: The role of families and teachers in supporting students during the COVID-19 crisis. Retrieved from https://www.oecd.org/coronavirus/policy-responses/ strengthening-online-learning-when-schools-are- closed-the-role-of-families-and-teachers-in-supporting-students- during-the-COVID-19-crisis- c4ecba6c/. OECD. 2021. Designing active labour market policies for the recovery. Retrieved from https://www.oecd.org/ coronavirus/policy-responses/designing-active-labour-market-policies-for-the- recovery-79c833cf/#figure-d1e195 World Bank. 2019a. Making Ends Meet. Malaysia Economic Monitor (December), World Bank, Washington, DC. World Bank. 2019b. Breaking Barriers: Toward Better Economic Opportunities for Women in Malaysia. World Bank, Washington, DC. World Bank. 2020a. Aspirations Unfulfilled: Malaysia’s Cost of Living Challenges. World Bank, Washington, DC. World Bank. 2020b. Poverty and Shared Prosperity 2020: Reversals of Fortune. World Bank, Washington, DC. World Bank. 2020c. The Human Capital Index 2020 Update: Human Capital in the Time of COVID-19. World Bank, Washington, DC. World Bank. 2020d. Surviving the Storm. Malaysia Economic Monitor (June), World Bank, Washington, DC. World Bank. 2021a. The Short-Term Impacts of COVID-19 on Households in Developing Countries: An Overview Based on a Harmonized Data Set of High-Frequency Surveys. World Bank, Washington, DC. World Bank. 2021b. Weathering the Surge. Malaysia Economic Monitor (June), World Bank, Washington, DC. World Bank. 2021c. High-Frequency Phone Survey (Rounds 1 and 2 forthcoming) on COVID-19 Impact & Recovery Among Malaysian Households. World Bank, Washington, DC. World Bank. 2021d. Aiming High – Navigating the Next Stage of Malaysia’s Development, Country Economic Memorandum. World Bank, Washington, DC. World Bank. 2021e. Global Economic Prospects (June). World Bank, Washington, DC. World Bank. Forthcoming. Global Economic Prospects (January 2022). World Bank, Washington, DC. World Bank. Forthcoming. Working Paper for the Malaysia Skills Report. UNESCO. 2021. UNESCO map on school closures. Retrieved from https://en.unesco.org/covid19/educationresponse. Yarrow, Noah, J. Yoo and H. Kim. Forthcoming. EdTech in COVID Korea: Learning with Inequality. Yayasan Hasanah. 2021. Status Agihan. Retrieved on July 27 and November 7, 2021, from https://www.cerdik.org/ms/ deployement-tracker/. MALAYSIA ECONOMIC MONITOR | DECEMBER 2021 83 CONNECT WITH US wbg.org/Malaysia @WorldBankMalaysia @WB_AsiaPacific http://bit.ly/WB_blogsMY