Malaysian Economy: What say you...

Saleh Mohammed | .

The few good news on the Malaysian economy lately, brought some hope and helped to dispel the negative perceptions of a failed state painted by some section of the populace.

Striving to be a true-blue citizen of a country making its way to be developed nation, I did some reading on the economy as a whole. We need to see the whole picture rather than bits and pieces coming from various parties.

In his National Day 2016 message, the prime minister said, "For the NKRA under the Economic Transformation Programme (ETP), we had succeeded in achieving 111% KPI. Through the Strategic Reform Initiatives, the KPI had surpassed the target of 108%... according to the World Economic Forum Global Competitiveness Ranking 2015-2016, Malaysia was ranked at ninth position”.

The International Trade and Industry (MITI) minister said he hoped some RM30 billion worth of foreign direct investments (FDI) into manufacturing sector will be approved by end of this year.

The Malaysian economy grew 4% in the second quarter of 2016. The Bank Negara Malaysia (BNM) governor said despite uncertainties in the global environment, BNM maintained its 4-4.5% growth forecast for 2016.

Earlier, Khazanah Research Institute (KRI) report on The State of Households II, showed Malaysian households appeared to be doing better in 2014 compared to 2012. Household income has improved by an average of RM1,141 monthly to RM6,141 per month and median household income was RM4,585. The Gini coefficient improving to 0.401.

The Ministry of Finance said the federal debt which is close to 55% of GDP is still manageable.

Perusing various relevant reports, I found the following details.

PEMANDU was established to support the implementation of Malaysia’s National Transformation Programme (NTP), aimed to turn Malaysia in to a high-income economy by 2020.

There may have been a few successes for the NTP. But exceeding KPIs should not be a measure of its success because the main aim is high-income by 2020. Pemandu have to focus on things that matter. It said we have become unstuck from the middle income trap with GNI at US$10,570/capita in 2015 which is only 15% away from the benchmark. The World Bank adjusted the threshold to US$12,475 in 2015. 

I have to caution that statement. In May, Pemandu’s response to my concerns in an article published on April 28 titled “Be Inclusive to Achieve Vision” states that in arriving at the threshold of US$15,000, the government took the 2009 World Bank’s high-income threshold of US$12,195 and factored the historical global inflation rate of 2%. This time around, it is silent on the inflation rate. Assuming the rate is still at 2%, we have a long way of about 30% to reach the threshold.

It is true that USA has 45.4 million people who survive on the Supplemental Nutrition Assistance Program, or SNAP, the program formerly known as food stamps. But the recipients, 44% are children (age 18 or younger) and by demography, close to 40% are African-American, Hispanics and Asians. By the way, do we want to follow weaknesses in the American economic model?

Noticed the MITI minister said he “hoped” the RM30 billion to be approved.

On the economic growth of 4%, there is a continued decline in net exports and import growth exceeded exports. Import of intermediate goods have been steadily declining. The Industrial Production Index (IPI) was hovering around 2 - 3% since november 2015 but did a bit better in June 2016 mainly driven by positive growth in manufacturing, mining and electricity. Bear in mind it was a hot month in June. The IPI along with export performance are primary high-frequency variables for gauging economic growth.

About 68% of establishments forecast either same or declining gross revenue for the 3Q of 2016. Liquidation of companies is steadily increasing. There were 18,457 bankruptcy cases reported last year.

Unemployment is now around 3.4% (2014 - 2.9%).

My neighbour is a small-time trader hawking his wares at a morning market, have been complaining of reduced business for more than a year. Even Datuk Raja Nong Chik professed to enjoying “more business” previously.

The income of the bottom 40% of the population has risen, albeit due more to a bigger share of the BR1M. The median salary is RM1,600. There is concern that many will not be able to save enough for retirement. Close to 90% of EPF members earn less than RM5,000/month. The bigger issue is that food prices have risen higher than overall inflation. Bank Negara’s “Financial Inclusion and Capability Study”, found that only 6% of Malaysians can survive more than six months after losing their main source of income.

The other concern is Malaysians are borrowing too much and not saving enough. Household savings stood at 1.4% of adjusted disposable income. By comparison, USA household savings rate is much higher at 5%.

Sadly, in KRI’s previous State of Households report, it had proposed several measures to reform household debt but these proposals have yet to be implemented.

The Federal Government’s latest debt figure for June 2016 is RM656 billion and guarantees around RM178 billion. The size of debt is not the issue here, but more to what it is spent on and who the debt is owed to. If the debt is held by citizens, the taxes raised to pay for maturing debt comes from citizens and the debt payment goes back to citizens. It is something like changing from the right to left pocket and possibly some redistribution of wealth, but not a net burden on taxpayers. That’s how Japan raised public debt to over 200% of GDP. It is in effect lending to their government so the government can spend it on them, of course, prudently.

The question here is whether spending about 33% of the operating budget on emoluments and the budget for the prime minister’s department is about double the budget for the Ministry of Rural & Regional Development, is prudent.

Quoting Mr Donald Trump, "President Obama has almost doubled our national debt to more than $19 trillion, and growing, yet what do we have to show for it? Our roads and bridges are falling apart, our airports are in third-world condition”.

It is heartening to note that Pemandu is aware of the problems we are facing now like unclear direction, lack of leadership commitment, high-level plans not translated into practical three-feet programmes, rigid implementation, silo mentality and work approach, public demands and input not adequately heard/obtained, poor accountability as well as lack of transparency.

I trust somebody, somewhere is taking action.

As the Pemandu chief says, “Rather than kicking an empty can up the road, we need to keep our focus on the road”.

What say you...

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