Decision to reopen country’s borders on April 1 lauded

Decision to reopen country’s borders on April 1 lauded

09 Mar 2022

The decision to reopen the country’s borders on April 1, 2022 is lauded given Malaysia’s readiness to transition into the Covid-19 endemic stage, and that the end of pandemic-related expenditure could be a precursor for Malaysia’s fiscal debt ceiling to be reset lower to 55% of gross domestic product (GDP) from a temporary ceiling of 65%, according to PublicInvest Research.

The research house estimated that total pandemic-related expenditure from 2020 to 2022 amounted to RM100 billion.

“Note that the government’s Covid-19-related expenditure reached RM38 billion and RM39 billion in 2020 and 2021 respectively, though coming to an end in 2022 with a final allocation of RM23 billion,” PublicInvest said in a report yesterday.

Borders reopening will also address the issue of labour shortage for key sectors such as manufacturing and agriculture, which have been a major impediment to their full recovery.

“Overall, the transition to an endemic stage is a cue for the government to consolidate its fiscal condition. This will also be a driver to push the unemployment rate lower, currently targeted at 4.0% in 2022.”

PublicInvest Research perceives the decision to reopen international borders as a signal for Malaysia to transition into a Covid-19 endemic stage with almost 98% of the adult population being fully vaccinated and more than half having completed their booster shots.

“Though the daily Covid-19 cases are still elevated with a seven-day moving average of almost 30,000, 99% of the daily confirmed cases are either asymptomatic or experiencing mild to moderate illnesses, suggesting a relatively safe transition from pandemic to endemic stage for Covid-19,” said PublicInvest Research.

Furthermore, the vaccination progress suggested the country’s healthcare system should not be overburdened with a high number of new cases, particularly into intensive care units, thereby easing strains on healthcare expenditure.

The move will help revive the tourism sector, which has been hardest hit by the two-year international border closure since March 2020 and it will also spur economic activities in the country.

PublicInvest Research pointed out that the closure resulted in a sharp drop in international traveller arrivals which eased to 4.3 million tourists in 2020 from 26 million in pre-pandemic 2019. Consequently, tourist expenditure in 2020 halved to RM40.4 billion from RM86.1 billion in the year before.

“More importantly, tourism is one of the largest industries in Malaysia, contributing almost 6% of GDP and employs close to a quarter of the Malaysian workforce.

“Pockets of closure facing several sectors especially services have also contributed to the sharp rise in unemployment which reached a peak of 5.3% in May 2020 as a result of the pandemic.”

However, PublicInvest Research remains cautious on the near-term outlook given disruptions from the current Russia-Ukraine conflict. Its GDP forecast of 6.1% for 2022 remains unchanged.

Similarly, CGS-CIMB listed the ongoing Russian-Ukraine war as a concern along with rising inflation, labour shortage concerns, and political uncertainty.

“The decision to no longer limit operation hours for businesses will also help to generate higher sales,” it said.

The research house believes the sectors that will benefit from higher foreign tourist arrivals are hotels and retail (via REIT sectors), consumer, gaming, transport, brewery and healthcare.

CGS-CIMB has maintained its end-2022 KLCI target of 1,622 points and named Hong Leong Bank, Petronas Chemicals and Malaysia Airports as its top three stock picks.

Meanwhile, Citi analysts forecast Malaysia’s 2022 GDP growth at 6.5% on optimism with the country’s imminent reopening of borders. The forecast incorporates additional boost to capital expenditure from reconstruction after the floods in mid-December, adding to earlier drivers from supply chain diversification and cyclical capacity tightness.

Although dampened by floods in the Klang Valley in mid December, Malaysia’s fourth-quarter 2021 GDP rose a stronger-than-expected 3.6% year-on-year, which should continue into 2022 despite Omicron uncertainties and external demand headwinds.

“While Omicron delays reopening momentum, it does not derail it, both domestically and internationally. Despite the recent surge in daily infections since the start of 2022, the proportion of severe cases has declined drastically, with ICU capacity utilisation rates still low,” said Citi economist Kit Wei Zheng.

Source: The Sun Daily