21-Day Countdown to 13GE – The empty drumbeats from Pemandu (Part 2)
The Pemandu Claims and a Reality Check
We used a credible global yardstick – the World Bank’s approach to define our high income target. The World Bank’s current GNI per capita threshold for a high income economy is US$12,476. We factored in the World Bank’s published historical global inflation figure of two per cent until 2020 to arrive at a high-income threshold of US$15,000.
Each year on July 1, The World Bank revises the classification of the world’s economies based on estimates of gross national income (GNI) per capita for the previous year. As of 1 July 2012, the World Bank income classifications by GNI per capita are as follows:
- Low income: $1,025 or less
- Lower middle income: $1,026 to $4,035
- Upper middle income: $4,036 to $12,475
- High income: $12,476 or more
COMMENT: The calculations are done annually and are not comparable from year to year and cannot therefore be projected. Thus the figure of US$ 15,000 projected by PEMANDU is wholly meaningless.
The numbers cited by the Prime Minister earlier and now repeated in the Report are a fabrication and deviate widely from the GNI per capita numbers for Malaysia published by the World Bank on its web site : http://data.worldbank.org/indicator/NY.GNP.PCAP.CD/countries/MY-4E-XT?display=default
The World Bank website shows that the numbers were:
The World Bank data sets NEVER show growth rates of GNI per capita in US dollars OVER TIME in the way Najib and PEMANDU have done. Thus, the 49% figure is based on an inappropriate calculation and the number is pure fabrication and therefore intentionally misleading.
The true measure of a country’s performance is shown by the GDP growth rate expressed in constant prices. On that basis the Malaysian economy grew at approximately 5.0 percent per annum over the three year time span cited in the Report. This is also based on fabricated statistics.
They also deviate from numbers published by Bank Negara Malaysia. The much lower base figure estimated by PEMANDU for 2009 enables it to exaggerate its so-called erroneous growth rate.
|Year||RM GNI per capita||Exchange Rate to US $||GNI Per Capita in US$ (BANK NEGARA)||GNI Per Capita US$ (PEMANDU)|
Source: Bank Negara Monthly Bulletin of Statistics Tables: 2.6 and 3.3. and PEMANDU Report
Three claims are being made: namely, that Malaysia had achieved a GNI per capita level of US$ 9,970 in 2011. This is incorrect. The World Bank reported a figure of US$8,770. The overstatement by almost US$ 1,000 is sizable. Second, the growth rate based on current price terms (see above) is wholly misleading. Per capita GNI growth in constant price terms was of the order of 3 percent per annum. Third, implied inter-country comparison of erroneous growth rates is misleading. The bottom line is that the PEMANDU report overinflates numbers in a disgraceful manner. It appears that PEMANDU is more interested in serving its client Najib than providing a credible assessment of the Malaysian economy.
By 2020, it is hoped that private investment would make up 92 per cent of total investments in the country, with public sector investment to account for the remainder.
This hope is wishful. The current shares are: Public: 43 percent Private: 57 percent. The recent private sector surge has been due to a number of large infrastructure type projects of a lumpy nature and cannot be sustained. Private investment only grew by 6.7 per cent between 2000 and 2010. Much of the growth can be attributed to GLCs and a sizable part of the investment has been overseas. The sad reality is that the investment numbers too are a fabrication.
Private consumption on the rise: Domestic private consumption hit 7.7 per cent in 2012 compared to 7.1 per cent in 2011, reflecting growing consumer confidence in our economic transformation journey.
Private consumption over the period under review was fueled by cash transfers (BR1M and other handouts), salary increases to 1.4 million public servants, the rapid increase in private household debt to finance over – priced homes, education loans, and over-priced transport equipment.
The recently released IMF Report, following the annual consultations, pointed with some concern to the rapid increase in loans extended to households by the banking sector. Thus, sustained growth in private household consumption is unlikely particularly if the Government introduces measures to broaden the tax base via the introduction of the GST and the withdrawal of consumer subsidies. Furthermore, slower growth in global trade will impact incomes of commodity producers. These developments will have a negative overall impact on incomes and consumption. Given, the limited head room, it will be virtually impossible to take counter-cyclical measures. PEMANDU is intentionally ignoring the realities of problems with incomes and consumption and disingenuously crediting their client Najib with consumer confidence that has been politically constructed through Najib’s vote buying measures.
External parties continue to recognise Malaysia’s tremendous progress
This assertion is based on rather selective choice of external parties. The PEMANDU Report fails to refer to the most recent IMF Report following the Fund’s annual review of the Malaysian Economy. It is possible to highlight quotes from the Report which can be downloaded from: http://www.imf.org/external/pubs/ft/scr/2013/cr1351.pdf
- Consumption growth has also been vigorous, supported by a strong labor market, credit to households, and government transfers.
- Net exports, on the other hand, have declined. This has led to a significant external rebalancing, with the current account surplus moderating by about 5 percentage points of GDP relative to 2011.
- Domestically, elevated housing prices and growing household debt may pose risks for the financial sector.
- The Federal Government debt is projected to rise to about 53 percent of GDP in 2012−13, close to the authorities’ self-imposed ceiling of 55 percent of GDP. On the other hand, the overall public sector deficit is projected to have risen to 5.1 percent of GDP in 2012 (from 3.3 percent in 2011), partly reflecting higher investments by nonfinancial public enterprises (NFPEs), and is expected to widen to 6.3 percent of GDP in 2013.
- The Federal Government’s relatively high debt level affords limited space for a fiscal response in a downside scenario.
- Housing prices are running ahead of household incomes and housing rents. Household debt is high, as is bank exposure to households (55 percent of bank credit) growth in credit to households’ remains in double digits, the supply of low cost housing is tight, and prices are still rising strongly in some housing segments.
- Malaysia’s fiscal space has shrunk considerably following the global financial crisis. The FG debt to GDP ratio has increased by 12 percentage points since 2008, reflecting both substantial discretionary fiscal stimulus and declining growth and oil prices in the aftermath of the crisis. This debt ratio is elevated compared to countries with similar credit ratings. The structural fiscal position has also deteriorated, as evidenced by the persistent decline in the nonoil primary balance and the current balance. The significant increase in operating expenditures in recent years may put at risk the FG’s golden rule of maintaining a positive current fiscal balance. A weak structural fiscal position and a relatively high debt ratio reduce the ability to mount countercyclical fiscal responses in the future.
- The FG’s revenue base is narrow and overly reliant on volatile oil and gas receipts, which account for about a third of the total. The planned introduction of the GST would help broaden the revenue base. In addition, the authorities should streamline fiscal incentives for investment, with their budgetary costs made more transparent.
- The public sector deficit is rising, reflecting a large increase in NFPE spending.
- Contingent liabilities for the Federal Government are also growing from the rise in government’s statutory guarantees (which increased to 15 percent of GDP, partly reflecting borrowing by special purpose vehicles set up to finance large public infrastructure projects), and from public-private partnerships (PPPs) more generally.
What is stark is that the PEMANDU Report makes no mention of the fact that the Government has indicated to the IMF that:
- The authorities stressed their commitment to fiscal consolidation, tax reform and expenditure rationalization. They reiterated the government’s commitment to implement the GST, rationalize energy subsidies, and strengthen public financial management, including through a medium term budget framework. They also highlighted their intention to address long term spending pressures, including through reforms to the public pension scheme, to housing and student loan programs, and to the civil service.
The omission of these facts from the PEMANDU Report is telling. It is a brazen concealment of the challenges that the nation now faces because of weak and incompetent economic management in the recent past under Najib’s tenure. Equally, alarming is the fact that no attempt has been made to lay out the difficult policy options that will need to be exercised. What is particularly galling is that the Prime Minister in introducing the Report added insult to injury by promising the reckless extension of the BR1M handouts as a permanent feature. This is a desperate measure by a premier who is fighting for his political survival rather than a leader who shows sound economic management that genuinely prioritizes a vibrant economy.
Consistent reduction in fiscal deficit: Moving forward, the aim is to reduce the fiscal deficit to 4.0 per cent and 3.0 per cent in 2013 and 2015, respectively.
The Prime Minister has publicly announced that the Government will continue to pursue fiscal prudence and keep its debt below the self-imposed ceiling.
The numbers cited only relate part of the story. The reality is that public debt has almost doubled to RM 504 billion (approximately 54 percent of GDP) over the short space of four years while Dato Najib has been at the helm as Prime Minister and Minister of Finance. This figure does not include the contingency liabilities which are estimated at 15 percent of GDP. Against this background, the promises now being made ring hollow.
While the PEMANDU Report chooses to remain silent and evasive, the Government has acknowledged in its deliberations with the IMF that the circumstances will demand measures to broaden the tax base, repeal subsidies, trim certain expenditures and adopt tighter policies to control operating expenditures. These policies will translate into the introduction of the long delayed GST, removal of subsidies covering consumer goods. There is no indication that there is any intention to withdraw subsidies currently extended to Independent Power Producers or toll road operators or other recipients of “corporate welfare”. Attempts to curb the growth in household debt will directly impact on the ability of households to borrow in order to finance housing and transport equipment.
Taken as a whole, the impact of the above policy package will largely be felt by the household sector. The measures taken could push the country on an austerity path not too dissimilar to that adopted by several of the EUROZONE countries. Would this scenario unfold, Malaysians will feel the pain of adjustment even harder than they are feeling the high cost of living now. Against this background, Najib’s announcement about making BR1M permanent is irresponsible and his leadership endangers Malaysia’s future.
The Prime Minister made a number of unsubstantiated and false claims in his characterization of the economy. His claims concerning per Capita GNI levels are pure fabrications drawn from consultants that are more interested in pleasing their client Najib than looking out for Malaysia’s future.
PEMANDU in its Report has outreached itself and in the process undermined the credibility of any of its reports. The Report is a total disappointment as it repeats clichés, half-truths and “feel good” statements concerning the state of the economy.
The Report has dismally failed to present an objective portrait of achievements, prospects and future policies and misleads the Malaysian people. The audience is left to drown in a tankful of an alphabet soup. Not only have the Prime Minister and his minions misled the Malaysian public, this report has provided no indication of any of the policies a BN Government under his leadership, if re- elected, would offer.
Thus, the Report offers no vision. It gives little confidence that the current Government is on top of its job. It fails even as an electioneering document.