APRIL 29 — The Covid-19 pandemic has caused a global crisis on an unprecedented scale. While Malaysia has been able to control its infection levels better than most countries with early exposure to the virus, the movement control order (MCO) has required major economic sacrifices from the people living in this country. This, in addition to a Covid-19 global economic slowdown, threatens a budget crisis for Malaysian households, which often carry a great deal of debt — in 2019, Malaysia’s household debt reached 82.7 per cent of GDP — and often hold little savings. Without a steady source of income, many households could quickly lose access to necessities such as food and housing. Particular segments of the population are feeling the burden of this pandemic more than others — for example, a single mother operating a roadside food stall recently told us: "boleh korek korek mana yang boleh kita makan.” This resilience, however, may dampen throughout time, especially if the hard times get worse, and persist. 

As in many other countries, the Malaysian government has recently launched a series of economic stimulus packages designed to cushion the economic effects of the pandemic, with a great deal of relief for businesses, households and individuals. These policies include moratoriums on loan repayments, restructuring of credit card payments, and one-time cash transfers. However, the question remains: how have these stimulus packages affected the cash-flow issues of individuals brought on by the Covid-19 crisis, at least in the short term?

To understand this issue, we ran a survey from the 20th to 27th of March, right at the beginning of the first round of MCO as well as in-depth interviews with a sample of survey respondents before and after the announcement of the Prihatin Rakyat Economic Stimulus Package. We partitioned the survey respondents into income categories, focusing on the B40 and M40 groups.

Without the stimulus package to support them, we found that, over the week of the survey in late March, nearly 20 per cent of B40 households and 10 per cent of M40 households could not afford to sustain their necessary expenditures and ran on negative cash flows due to lost income. However, the stimulus package was able to offer immediate relief to nearly all households grappling with income shortfalls — in fact, in our survey sample, more households had positive cash-flow with the stimulus package than did under their pre-Covid-19 incomes. B40 households benefit roughly equally from the debt holiday provisions and cash transfers. However, very few M40 households flipped from negative to positive cash-flow due to transfers. Instead, almost all the benefits to M40 households come from debt relief, as their debts are much larger than B40 households.

However, even with the stimulus packages, a significant fraction of households are cash-flow negative–for example, more than 10 per cent of B40 respondents are still cash-flow negative. How severe is this income shortfall? We find that not only does the stimulus packages move many B40 respondents into a positive cash-flow situation, but it dramatically decreases the rate of loss for those who are still in the red. Without relief, most negative cash-flow households owed more than RM1,000 a month more than their income, and many were losing RM3,000 or RM4,000 a month. Under the stimulus packages, less than half are losing more than RM1,000 a month, and almost none lose more than RM2,000 a month.

We also collected data on savings and saw that, without relief, almost all B40 households with negative cash-flow would last only a month or less on accessible savings. With relief, including access to EPF funds, most B40 households that remain cash-flow negative even under the stimulus can last more than a month, and many can last for the foreseeable future. Roughly 67 per cent of B40 households can last more than three months under the stimulus packages, while only about 14 per cent can last more than three months without the packages.

We also found that the stimulus packages improved the situation for M40 households that were still cash-flow negative under the stimulus. While only a quarter of cash-flow negative M40 households could survive more than three months without the stimulus packages, nearly 80 per cent of those still cash-flow negative can survive more than three months with the stimulus packages.

Even though the stimulus packages dramatically decrease the rate of short-term insolvency in our simulation, there are still a significant number of respondents who may deplete their savings in the next few months, particularly among members of the B40 with no savings. Most of the transfers offered in the stimulus are only for April, so if the economic situation does not quickly improve, the government might consider additional cash transfers. For that reason, we also evaluated which households are in most dire need of additional funds once the one-time transfers run out. We looked at the four categories the government used for their primary cash transfers: single individuals with low income monthly income (less than RM2000) and middle-income (RM2000-RM4000) and married households with low income (Less than RM4000) and middle income (RM4000-RM8000). We considered a cash transfer of RM400 for single individuals and RM1000 for married households to account for the larger size of married households and found that low income households were far more likely to rise from negative cash-flow to positive cash-flow. The transfers increased the percentage of households with positive cash-flow by 14 per cent and 18 per cent for single and married low-income households, respectively, while middle-income households saw gains of only 2 per cent whether married or single. In other words, additional cash transfers targeted specifically at B40 groups will be more impactful and cost-effective.

Our research has many limitations: our sample was not random, and income and expenditures are measured imprecisely to preserve respondent confidentiality. We also ran the survey at the beginning of the MCO, so job losses that have happened since the 27th of March are not reflected in our data. In summary, the figures above should not be taken as scientific fact, but as rough estimates. This being said, we believe that there are some takeaways that may be relevant for policymakers going forth in these uncertain economic times.

There are two clear implications from our study — the first is that the stimulus packages are in fact sufficient to address most short-run problems faced by individuals and households in Malaysia. However, if the MCO continues for more than another month or if economic activity is slow to pick up in the coming months, many households will struggle, especially in the B40. If policymakers are concerned with household budget constraints but cannot afford to continue the large April transfers indefinitely, our study suggests that transfers to lower income households are dramatically more cost effective.

To read more on the details of the study and our methodology, the reader may refer to our report titled "The Covid-19 Hardship Survey: An Evaluation of the Prihatin Rakyat Economic Stimulus Package”, which is available online.

*This is the personal opinion of the writers or publication and does not necessarily represent the views of Malay Mail.