Introduction
The COVID-19 pandemic has had significant social and economic effects across the world. Lockdowns and infections have affected the supply and demand channels of domestic economies. On the supply side, reduced labour supply and productivity was present, while business closures and social distancing also caused supply disruptions. On the demand side, layoffs, loss of income and worsened economic prospects reduced household consumption and firms’ investment. The uncertainty over the pandemic’s path, duration, and impact could result in a vicious cycle where reduced business and consumer confidence, in turn, increases job losses.
The sustained recovery of economic activities in ASEAN requires a successful containment of COVID-19. Some have argued that until the authority has complete control of the community transmission of the virus, economic recovery will be uncertain, and attempts at returning to pre-COVID-19 levels of normality may not be sustainable. However, several major economies and some ASEAN countries have struggled to contain the community spread of COVID-19. The United States, India, the United Kingdom, France, Germany, and Japan face high numbers of daily COVID-19 infections and deaths. As of 30 January 2021, these countries had reported 46.5 million infections and 838,380 deaths, which accounted for 46 per cent of global infections and 38 per cent of global deaths, respectively.
The pandemic has so far been managed relatively well in half of the member countries of ASEAN. Indonesia and The Philippines struggled to contain community spread almost from the start, while Myanmar and Malaysia, and more recently Thailand, are now trying to control new waves of infection. The Philippines’ average number of daily infections has declined from about 4,135 cases in August 2020 to 1,648 cases in January 2021. The average number of everyday infections in countries that have controlled community transmission – Brunei, Cambodia, Laos, Singapore and Vietnam – have also shown a downward trend, dropping from 170 to 44 cases over the same period. In contrast, the average number of daily infections in Indonesia has increased from 2,123 cases to 10,771 cases over the same period. The resurgence of infections in Malaysia and Myanmar since September 2020 is also concerning; in January 2021, Malaysia had the highest number of infections in ASEAN per 1 million people.
Figure 1
Figure 2
Economic growth for most ASEAN countries appears to have bottomed out during the second quarter of 2020, and recovery seems to be underway in the third quarter. The scenario is true for both the countries that were unable to avoid a technical recession (the original ASEAN five members) or those with negative annual growth (Cambodia). It is also true for the countries with positive quarterly change (Brunei and Vietnam) or forecast positive annual growth (Laos and Myanmar). More high-frequency data such as trade flows, usually available monthly, suggest that most countries may have reached the bottom in or around May 2020 for most countries.
For the countries that managed to control community transmission of the virus, a V-shaped recovery with the trough bottoming out in the second quarter with a strong rebound after that currently appears to be the most likely outcome. For countries still struggling to contain community spread, the shape of recovery is more difficult to predict since much depends on how long the containment measures are in place. The possibility of delayed or W-shaped healing gains likelihood the longer the reintroduced containment measures are in place.
What is Pump-Priming?
Pump priming is the action taken to stimulate an economy, usually during a recessionary period, through government spending and interest rate and tax reductions. The term pump-priming is derived from the operation of older pumps – a suction valve had to be primed with water so that the pump would function properly. Pump priming assumes that the economy must be primed to work correctly once again. In this regard, government spending is supposed to stimulate private spending, leading to economic expansion.
These initiatives were often large-scale, with huge investments and hopefully the attendant widespread, trickling effects that kept the economy going. They were to make us more competitive, but at the end of the day, help put food on many tables.
The Use of Pump-Priming in the United States
The term “pump-priming” was coined by President Herbert Hoover in his creation of the Reconstruction Finance Corporation (RFC) in 1932, designed to make loans to banks and other industries. It was taken one step further in 1933 when President Franklin Roosevelt felt that pump-priming would be the only way for the economy to recover from the Great Depression. The pump-priming has spent billions of dollars encouraging economic growth through the RFC and other public works organisations.
The phrase was rarely used in economic policy discussions post-World War II, even though similar programs were developed and used since then. Unemployment insurance and tax cuts, may be considered forms of automatic pump primers. However, during the financial crisis of 2007, the term came back into use, as interest rate reduction and infrastructure spending were considered the best path to economic recovery, along with tax rebates issued as part of the Economic Stimulus Act of 2008.
Pump-Priming in the Japanese Economy
Similar to the measures implemented in the United States, Japan’s prime minister, Shinzo Abe, and his associated cabinet once approved an emergency stimulus package worth ¥3.5 trillion ($29.1 billion) on December 27th to pep up the recession-hit economy. The government hopes that its meagre package will boost Japan’s real GDP by as much as 0.7% in 2015-16. The measures included handing out shopping vouchers to the poor and subsidies for heating oil.
A further ¥600 billion has also been invested trying to rev up local economies, including drawing people away from the capital to the countryside. The remaining ¥1.7 trillion went to the public-works spending. Outlays on infrastructure, including reconstruction after the tsunami-cum-nuclear meltdown of 2011, have boosted the GDP more directly than handouts to households and small firms since businesses may pocket the cash rather than embark on new spending.
In April 2020, the Japanese government announced an updated version of the economic emergency relief package in response to coronavirus disease (COVID-19) ‘s growing impact on Japan’s economy. The planned stimulus package reached a value of approximately 117 trillion Japanese yen, more than twice the amount of the economic measures taken by the government in 2009 when the global economic recession occurred. The plan added roughly nine trillion yen to the last version released on April 7th.
Figure 3
China Pump-Priming Measures: One Belt One Road (OBOR)
The One Belt One Road (OBOR) Initiative, the brainchild of Chinese President Xi Jinping, is an ambitious economic development and commercial project that focuses on improving connectivity and cooperation among multiple countries spread across Asia, Africa, and Europe. Dubbed as the “Project of the Century” by the Chinese authorities, OBOR spans about 78 countries.
Initially announced in 2013 to restore the ancient Silk Route that connected Asia and Europe, the project’s scope has been expanded over the years to include new territories and development initiatives. Also called the Belt and Road Initiative (BRI) involves building an extensive network of roadways, railways, maritime ports, power grids, oil and gas pipelines, and associated infrastructure projects.
OBOR is of prime significance to China as it aims to boost its domestic growth and is also a part of the country’s strategy for economic diplomacy by connecting the less-developed border regions like Xinjiang with neighbouring nations. OBOR is expected to open up and create new markets for Chinese goods. It would also enable the manufacturing powerhouse to gain control of cost-effective routes to export materials easily.
Any excess capacity in terms of production can be channelised effectively to regions along the OBOR routes. China has announced over $1 trillion in various infrastructure projects and is funding them by offering low-cost loans to the participating countries.
An Overview on Malaysia’s Economic Performance
Figure 4
Malaysia is one of the most open economies in the world with a trade to GDP ratio averaging over 130% since 2010. Openness to trade and investment has been instrumental in employment creation and income growth, with about 40% of jobs in Malaysia linked to export activities. Since the Asian financial crisis of 1997-1998, Malaysia’s economy has been on an upward trajectory, averaging growth of 5.4% since 2010, and is expected to achieve its transition from an upper middle-income economy to a high-income economy by 2024.
Malaysia’s near-term economic outlook will be more dependent than usual on government measures to sustain private sector activity as the shock of COVID-19 reduces export-led growth, and as a depleted fiscal space limits public investment-led expansion. Over the longer term, as Malaysia converges with high-income economies, incremental growth will depend less on factor accumulation and more on raising productivity to sustain higher potential growth. While significant, Malaysia’s productivity growth over the past 25 years has been below that of several global and regional comparators. Ongoing reform efforts to tackle key structural constraints will be vital to support and sustain Malaysia’s development path.
Malaysia’s Budget to Pump-Prime the Economy hit by Covid-19
Mega Projects, if done right, should contribute to the growth and competitiveness of the country and will have a significant economic impact that lasts for a long time. There is a need to re-look at restarting the multibillion-ringgit MRT3 project or bring forward the High-Speed Rail Link to Singapore or extend the light rail transit networks and new mass lines for Penang, Johor and Kuching. New road and rail links would offer better infrastructure for the people and are also significant economic enablers and would serve us well into the future.
Furthermore, the expansion of airports and seaports, highways, telecommunications and power capacities, sewerage, and water services, for instance, are infrastructure projects that could put the country in good stead for decades to come. Also worth considering are new large-scale ventures into renewable energy and sustainable developments that would have a significant long-term and positive impact on the country. They have improved the country’s infrastructure, made us more competitive and improved our quality of life. Most important of all, these projects would alleviate some of the pressures on unemployment arising from Covid-19. Reports state that Malaysia could have unemployment rates as high as 15 per cent — or two million people without work. Currently, 500,000 had lost their jobs due to Covid-19.
During the pandemic, among initiatives to ease the public burden are cash handouts to 8.1 million recipients worth RM6.5 billion ringgit, compared to Budget 2020’s RM5 billion for 4.3 million beneficiaries. Also, a new RM3.7 billion jobs scheme to subsidise up to 40 per cent of wages will create 500,000 new opportunities. Malaysia’s government intends to proceed with the Rapid Transit System linking Johor Baru and Singapore. The authority wish to continue constructing the High-Speed Rail Project or HSR to generate a positive multiplier effect on the country’s economy. However, it is subject to further discussion with Singapore.
Six mega projects may be rolled over into Budget 2021
Six mega-projects worth RM143.06 billion, announced under Budget 2020, may potentially be rolled over into the upcoming budget given the delays and tender disruptions caused by the Covid-19 pandemic and the Movement Control Order.
Figure 5
Kuala Lumpur-Singapore High Speed Rail (HSR)
Kuala Lumpur-Singapore High Speed Rail (HSR) is a proposed high-speed railway line between Malaysia’s capital city Kuala Lumpur and Singapore. The HSR is expected to become the first high-speed railway in South East Asia, and the fastest point-to-point mode of public transport between the two urban agglomerations. The line will connect Bandar Malaysia in Kuala Lumpur with Jurong East in Singapore over a length of approximately 350km. It will facilitate seamless travel between the two fast-growing economic engines and reduce travel time to 90 minutes.
The HSR line will have a total of seven stops, including the two terminus stations at Bandar Malaysia and Jurong East, and five transit stations at Seremban, Ayer Keroh, Muar, Batu Pahat and Nusajaya. Train services, including a non-stop service from Malaysia to Singapore, are planned to run four times an hour.
Penang Transport Master Plan
Penang has a small area for development and has a high level of vehicle ownership which exacerbates traffic conditions. The Penang Transport Master Plan was drawn up by the Penang state government to address these issues by encouraging greater use of public transport through more rail-based systems throughout Penang at a cost of RM46 billion.
PTMP is a comprehensive and efficient transportation strategy plan, which will have an integrated and modern transportation system that includes land and sea transportation for the benefit of the people of Penang. This transportation plan consists of various modes of transport such as LRT, BRT, tram, taxis and ferries.
Serendah-Port Klang Rail Bypass
In 2021, Keretapi Tanah Melayu Bhd (KTMB) has welcomed the government’s decision for approving the Serendah-Port Klang Rail Bypass project that can resolve the bottleneck and freight congestion faced by the rail service. KTMB said the project would also boost the competitiveness of direct rail cargo transportation to Port Klang. Besides offering an alternative solution to resolve the bottleneck, the Serendah Bypass project will also enhance safety of commuters in KL Sentral since cargo trains carrying dangerous commodities will no longer pass through Kuala Lumpur.
KTMB is targeting 500,000 twenty-foot equivalent units (TEUs) of cargo per year to be transported through Serendah Bypass, and this number will continue to increase in the coming years with customers’ growing confidence to switch to KTMB cargo services
Johor Bahru-Singapore Rapid Transit System
The Johor Bahru–Singapore Rapid Transit System is a cross-border rapid transit system that will connect Woodlands, Singapore and Johor Bahru, Johor, Malaysia, crossing the Straits of Johor. The rapid transit system will have two stations, with the Singapore terminus located at Woodlands North station and the Malaysia terminus at Bukit Chagar station. Both stations will have co-located Singaporean and Malaysian customs, immigration and quarantine facilities.
When built, the RTS Link will be the second rail link between the two countries after the KTM Intercity Shuttle Tebrau. The RTS Link is expected to replace the railway line and shuttle train services between JB Sentral and Woodlands Train Checkpoint. The construction started on the Malaysian section on 22 November 2020 and on the Singaporean section on 22 January 2021.
Pan Borneo Highway
Pan Borneo Highway also known as Trans-Borneo Highway or Trans-Kalimantan Highway, is a road network on Borneo Island connecting two Malaysian states, Sabah and Sarawak, with Brunei and Kalimantan region in Indonesia. The highway is a joint project between both governments which started as soon as the formation of Malaysia in 1963 which comprised Malaya, Sabah, Sarawak and Singapore. The lack of a road network system in Sarawak was the main factor of the construction.
The length of the entire highway is expected to be about 2,083 kilometres for the Malaysian section, 168 kilometres (104 mi) for the Bruneian section and 3,073 kilometres for the Indonesian section. The Indonesian sections of the Pan Borneo Highway is known as the Trans-Kalimantan Highway. The western route connects the city of Pontianak to Tebedu.
Mass Rapid Transit Line 3
The MRT3 or MRT Circle Line will be the thirteenth rail transit line, the fifth fully automated and driverless rail system in Klang Valley area. When completed, this line will form a part of the Greater KL/Klang Valley Integrated Transit System. The line is expected to be numbered 13 and coloured grey on transit map.
It is one of three planned rail lines under Klang Valley Mass Rapid Transit Project by MRT Corp. The line is currently under final planning and evaluation. The MRT Circle Line is expected to cover the hotspots surrounding the Bandar Malaysia, KL Ecocity, Bukit Kiara and Sentul. Interest in building the line resurfaced in early 2015.
Conclusion
The lockdown measures introduced to contain the COVID-19 pandemic have severely affected all the economies of ASEAN, some more so than others. The worst of the economic slowdown appears to have peaked sometime during the second quarter of 2020, but the turnaround has been uneven across ASEAN countries. Therefore, it is crucial for every countries’ authority to introduce economic recovery plans via pump-priming to expand the overall size of the economy and strengthen fiscal conditions.
