Covid-19 Exclusives: Saving SMEs is Key to Economic Recovery


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TO FLATTEN THE recession curve, and to save SMEs and preserve jobs, the organisation Research for Social Advancement (REFSA) convened policy experts and industry players in a webinar last April to examine at length the challenges posed by the Covid-19 crisis.

According to REFSA’s Covid-19 fiscal stimulus trackers, Malaysia’s first stimulus package is, at face value, one of the largest. However, putting aside the RM100bil borne by banks and RM40bil borne by EPF savings, the stimulus effects are in fact much smaller.

Keeping Businesses Afloat

According to Datuk Michael Kang, the president of SME Association of Malaysia, 98% of Malaysia’s businesses are SMEs, of which the hardest hit are the micro-SMEs. These micro businesses make up 76.5% of the country’s total SMEs, and most of these business owners had just enough to keep them afloat for a fortnight longer.


He warns that 70% of SMEs are highly susceptible to the negative effects of MCO and urges the government to provide more financial assistance, to ease loan processes and to allow SMEs in green zones to partially resume business operations – in compliance with the Health Ministry’s SOPs. It is worth mentioning that the stricter the social distancing measures, the more the economy will suffer. Hence, stimulus packages should be greater in size for places with stricter measures.

Malaysia is highly dependent on trade and tourism; in fact, the nation is the third most connected to global supply chains in Asia. The pandemic has therefore had devastating consequences on Malaysia’s economy.

At the domestic level, businesses have lost much revenue and workers face significant job losses, especially in the services sector.

As the crisis progresses, there is a need for the government to continually assess its goals and responses. Therefore, a two-stage economic policy response for Malaysia is proposed.1 Measures in Stage 1 include liquidity support for both individuals and businesses. Individuals can be protected via an expansion of unemployment benefits, along with temporary increases in the Bantuan Sara Hidup benefits. Businesses will need low-interest concessionary lending, along with wage assistance and cost-alleviation measures.

Stage 2 measures work to stimulate the economy after the MCO is lifted, helping affected individuals and businesses rebound. Key proposed measures under this stage include an expansion of infrastructure spending in underdeveloped areas and a one-off cash injection for Malaysian households.2

Preserving Jobs and Livelihoods

According to Smita Kuriakose, senior economist at the World Bank, during the pandemic, the government must shield businesses against financial losses. It should prioritise and provide urgent financial relief to firms, e.g. by alleviating cash flow and working-capital constraints, and minimising bankruptcies and layoffs that would durably undermine economic recovery.

The key principles for support are that it should be rapid, broad-based, transparent and time-bound. Many policy instruments and trade-offs should be available, such as loans, tax relief and other measures to “keep the lights on”.

Kuriakose stresses that for the next 18 months, SMEs should build an online presence as e-commerce is expected to become the normal way of doing business from now on. She adds that even though the government had allocated substantial resources in response to the outbreak, recovery is likely to take years.

To build resilience in our economy and to help businesses and workers adapt to the “new normal”, it is important to create conditions for the safe resumption of business operations and for activities to resume in low-risk; the recalibrating of tax incentives; the digitalisation of SMEs and e-commerce; and the improving of broader investment climate.3


The Covid-19 crisis will eventually be conquered through vigorous public health efforts, but without a sufficiently large and forceful fiscal response, the economic scars it leaves behind will be long-lasting.

Government budget deficit targets will need to be surpassed and political determination will be required. Even with comprehensive and valiant efforts at cushioning the blow for the rakyat and businesses, a fair amount of job losses and business closures will be unavoidable.4

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