Archive for category Economics

Managing Malaysia’s Public-Sector Debt

By R. Chander


This note, in three parts, focuses on the public sector debt in Malaysia. Part I presents a brief overview of the manner in which the Najib administration approached the issue of public sector debt. Part II presents a summary view of the assessment made by the International Monetary Fund (IMF) in the course of the annual Article IV Consultations completed earlier this year. The IMF Report was critical of the manner in which debt reporting was conducted by the previous administration. Part III looks to the future and makes a number of observations concerning the most appropriate manner in which the new Pakatan Harapan government could better manage Malaysia’s public sector debt.
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Reports of the World Bank and IMF

In past week the World Bank and the IMF have issued reports and statements concerning the Malaysian economy. The IMF released a brief statement entitled IMF Staff Completes 2018 Article IV Visit to Malaysia while the World Bank published its report in the Malaysia Economic Monitor.

The IMF note highlighted in highly nuanced language, in summary form, the outcome of the Annual Article IV Consultations with the Government.

The highlights made reference to recent economic performance and revised forecasts for the current year and expected growth in 2018. The revisions in the estimated and projected GDP growth rates for Malaysia are thus in step with revisions that the IMF has made for almost all countries since it issued its earlier estimates and forecasts.

Beyond the reference to growth prospects the statement took up a number of other policy concerns. It made veiled statements about the need for “higher revenues”—alerting all and sundry that taxes will have to be raised; it reminded the need to implement the adjustment programs outlined in the 11th Five Year Plan; etc. meaning that reform policies are not being implemented. The statement is thus a rap on the Government’s knuckles .

It is not inappropriate to read between the lines from the following:

“In the medium term, fiscal policy should follow a gradual consolidation path, and the composition of adjustment could be improved to make it more revenue based and to make room for the structural reforms and increased social spending for inclusive growth. Medium term fiscal targets should be better communicated.“

The statement contains cautionary remarks that urge the Government to pay heed to the downside risks it faces for which it is ill prepared. Read the rest of this entry »


Instead of a meaningless “hero’s welcome home” in KLIA last night, is Najib prepared to convene a special Parliament on 1MDB scandal to clear and cleanse Malaysia of the infamy and ignominy of a global kleptocracy?

The Prime Minister Datuk Seri Najib Razak returned to “a hero’s welcome” at Kuala Lumpur International Airport (KLIA) last night after his recent visit to White House and meeting with US President Trump.

What was the “hero’s welcome home” for?

Was it for representing Malaysia bearing gifts like a vassal state to the White House in the meeting with US President Donald Trump, with three “value propositions” to strengthen the US economy to make America great again – as stated in the White House transcript of the 5-minute 58-second exchange between Najib and Trump in their meeting?

Although the Finance Ministry Secretary-General Tan Sri Irwan Sregar has denied that Najib was bearing gifts to Washington to “strengthen the US economy”, the Prime Minister himself has not made any denial in the past four days.

I do not think Najib could deny what was clearly stated in the transcript of the Najib-Trump 5-minute 58-second exchange at the White House meeting, as the transcript was released by White House itself.
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Where Crony Capitalism Rose and Prosperity Fell (and Vice Versa)

Matthew A. Winkler
FEB 20, 2017

With populists emulating autocrats from Azerbaijan to Zimbabwe, free markets are being forced to confront crony capitalism.

One response is visible in the reversal of fortunes of Malaysia and Indonesia. The two nations still wrestle with the politics of ethnicity and religion at odds with the capitalism of market competition. In Indonesia, Basuki Tjahaja Purnama, a Chinese Christian who is the governor of Jakarta, is running for office while defending himself against charges of blasphemy against Islam in a country of predominantly Muslim voters. Malaysia’s embrace of an ideology of Malay supremacy and the low interest rates that invite a debt bubble are impediments to a dynamic economy.

But the historic advantage that Malaysia, with just 30 million people, has enjoyed over its Southeast Asian neighbor of 250 million is disappearing amid a barrage of corruption allegations challenging Prime Minister Najib Razak. Read the rest of this entry »

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Malaysia starting the new year not just with double whammy but a multitude of whammies!

The Prime Minister, Datuk Seri Najib Razak’s hint to the first Cabinet meeting of the year on Wednesday that 2017 is going to be an “interesting year” has already been more than fulfilled in the first five days of the year.

The new year in the past five days started not just with a double whammy but a multitude of whammies, including:

  1. The Malaysian ringgit currency starting the new year with a new record low of RM4.5002 against the US dollar since the 1998 Asian financial crisis, signifying very tough economic year for Malaysians;

  2. The gutting of the Malaysian Anti-Corruption Commission (MACC) although it was already quite impotent to fighting grand corruption. No “tiger” or “crocodile” had been caught by the MACC,but there seems a “devil’s bargain”: that the MACC is given the green light to go after civil servants so long as they leave the politicos and their “favourite” civil servants alone.

  3. Read the rest of this entry »


Don’t just think of our grandkids, but think of the grandkids of all Malaysians

I must thank the Minister for Tourism and Culture, Datuk Seri Nazri Abdul Aziz for his being so solicitous over my welfare, suggesting that I should be caring my grandchildren in my twilight years.

But Nazri cannot be more wrong, for we should not just think of our grandchildren, but also about the grandchildren of all Malaysians.

In fact, I call on all Malaysians, regardless of age, to transcend race, religion or region, to be solicitous of the national welfare and should involve themselves in ensuring that the country is a better place of our grandchildren and their children.

I put Nazri’s suggestion on my Facebook yesterday, asking whether I should listen to his advice.

The overwhelming majority, almost unanimous, view was in the negative, and some of the comments are as follows: Read the rest of this entry »


Trump Tantrum Puts Malaysia in Spotlight

November 24, 2016

It’s time the nation’s embattled leader looked in the mirror and examined his role in the ringgit’s recent plunge.

No country in Asia plays the blame game like Malaysia. When the economy crashed in 1997, it faulted speculators and Jews. When it stumbled in 2013, it fingered the Federal Reserve. When Prime Minister Najib Razak tried to explain away an ongoing corruption scandal, he talked of overseas conspirators. Malaysia’s latest scapegoat? Donald Trump.

Granted, this last deflection isn’t as fanciful as the others. Malaysia has as much, or more, to lose from the president-elect killing the Trans-Pacific Partnership as any nation engaged in the deal. And Trump’s shock victory on Nov. 8 has emerging markets running scared about the direction of American economic and foreign policy.

But blaming Trump for the ringgit’s dismal performance is just shameless. Valid reasons for the currency’s 5% plunge over the last 17 days include an outsized dependence on oil revenue, the failure by a succession of leaders over the last 20 years to restructure the economy and the scandals overwhelming Najib’s government and his party. Read the rest of this entry »


Malaysia’s Running Out of Trump Cards

By Andy Mukherjee
Nov 13, 2016

Amid a deepening emerging-market rout, three of Donald Trump’s seven promises to American workers are making Asia particularly nervous.A U.S. withdrawal from the Trans-Pacific Partnership would kill the 12-nation deal, while labeling China as a currency manipulator is set to provoke a tit-for-tat response. If the president-elect delivers on those two threats, the export-led region will wait for Trump to make good on his vow to end “all foreign trading abuses.”Although no Asian nation would relish the prospect of an all-out trade war, Malaysian investors are perhaps most at risk.

Why Malaysia? China, Japan, South Korea, India and Singapore are among America’s 15 biggest trading partners; Malaysia is not. And while it’s a TPP member, the accord’s demise is the least of Kuala Lumpur’s worries. It might even be a short-term boon. After all, the Southeast Asian country is an energy and palm-oil exporter. It’s not terribly competitive at much else.

Opening up Malaysia’s consumer economy of 30 million people as part of the free-trade bargain could turn a fast-vanishing current-account surplus into a permanent deficit. That would weigh on the ringgit, scare away investors in Malaysian bonds, and lead to a spike in companies’ cost of capital.

But TPP being dead doesn’t help either. For one, dollars are in short supply in the banking system, and therefore a flight to safety among investors jittery about a Trump presidency makes Malaysia a particularly vulnerable emerging market. Read the rest of this entry »

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No Break for Worst Asian Currency as Clouds Gather Over Malaysia

Y-Sing Liau
August 4, 2016

The bad news just doesn’t stop for Asia’s worst-performing currency.

Already reeling from a renewed slump in oil prices and a political scandal that just won’t go away, the Malaysian ringgit is now facing the prospect of another cut in interest rates. It’s the region’s biggest loser in the past month and analysts still see scope for it to drop more than 2 percent by year-end.

The currency’s slide highlights all is not well as the nation’s economy heads for its worst performance this decade. Crude oil’s plunge to a four-month low this week undermines the finances of net oil exporter Malaysia, while the appeal of its relatively high bond yields is being tempered by the scandals surrounding a troubled state investment fund. Rabobank Group and UBS Group AG both predict Bank Negara Malaysia will add to its first rate cut in seven years in coming months. Read the rest of this entry »


Is the TPP really a leap forward for Malaysia?

Shankaran Nambiar
East Asia Forum
13 February 2016

Malaysia’s leadership must be extremely satisfied on two counts: their success in negotiating the Trans-Pacific Partnership (TPP) agreement and the parliament’s favourable position on the agreement.

It is amazing that Malaysia has negotiated to preserve the Bumiputera agenda, obtain a minimum five-year grace period to reform state-owned enterprises (SOEs), and gain exemption for Khazanah from investor-state dispute settlement (ISDS) provisions for two years after the deal comes into force.

There were fears that the TPP would necessitate the dismantling of SOEs, prise open the government procurement market and cause the whittling down of the Bumiputera agenda. Those anxieties are unfounded. The TPP has turned out to be an agreement where the Malaysian government can have its cake and eat it too.

While maintaining the Bumiputera agenda may be a victory of sorts in the short term, it reduces the impetus for drastic economic reforms. The push towards greater private sector participation, in particular, will be further postponed. Economic efficiency may have been sacrificed in an effort to appease a significant domestic political constituency. The TPP negotiations presented a trade-off between obtaining political support for the agreement and striving to achieve efficiency and greater social welfare gains. It seems that the end result tilted in favour of the former. Read the rest of this entry »

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IMF report on Malaysia, politically correct but revealing

– Ramon Navaratnam
The Malaysian Insider
9 February 2016

The preliminary International Monetary Fund (IMF) staff report on the Malaysian economy was published by the press on February 5.

The report followed intense IMF annual consultations held between January 11 and 22 in Kuala Lumpur and Kuching. Pity Sabah was left out.

The IMF report was too politically correct but nevertheless revealing.

IMF mission chairman Dr Alex Mourmouras in his press release subtly suggested that the Malaysian economy faced multiple shocks including “political developments and capital outflows”.

Both these factors reveal that in addition to external problems, there are also serious internal issues within our power to control and overcome.

But how much have we done to overcome these critical domestic issues? Read the rest of this entry »

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Why Malaysia’s 1MDB scandal is denting growth

Leslie Shaffer
29th January 2016

Thought the long-running political scandal over Malaysia’s deeply indebted sovereign fund was over?

It isn’t and the festering scandal is likely to weigh on the economy and may eventually spur a ratings downgrade, Oxford Economics says.

That’s bad news for Malaysia, which is already suffering from a slide in the price of commodities, an important chunk of the economy and a key source of revenue for the government. The currency has tumbled and the government’s debt levels have climbed, fueling investor concerns.

“Just as it appeared that the long-running scandal over state investment company 1MDB had been satisfactorily resolved, the issue has reignited with an appeal against the ruling exonerating the prime minister,” Christine Shields, lead economist at Oxford Economics, said in a note Friday. “The issue is a real worry as it is eroding confidence and contributing to risk aversion about the country.” Read the rest of this entry »


Malaysia’s hollow economy, flaws of high income nation ambition

– Anas Alam Faizli
The Malaysian Insider
18 January 2016

Allow me to share with you a blindspot moment here; not many took note that in 2014, 29.1% of our total imports were from electrical and electronic (E&E) products. The same year, 35.7% of our total exports were also E&E products.

What is actually going on here?

Well, simply put, our economy is kind of hollow. Read the rest of this entry »


Moody’s Cuts Malaysia Credit-Rating Outlook on Weaker Finances

by Shamim Adam
January 11, 2016

Moody’s Investors Service lowered its credit-rating outlook for Malaysia, citing an external environment that has crimped government revenue despite Prime Minister Najib Razak’s efforts to improve the country’s finances.

The ratings company cut the outlook on the A3 sovereign rating to stable from positive, it said on Monday in a statement. The move brings its outlook into line with that of Standard & Poor’s and Fitch Ratings, with all three companies ranking Malaysia at their fourth-lowest investment grades.

Since Moody’s assigned a positive outlook in November 2013 the government has sought to improve its finances, rationalizing fuel subsidies and putting in place a goods and services tax, the ratings company said. But the impact on the government’s balance sheet has been limited and will remain so, in part due to changes in the external environment, it said.

“Those environmental changes have also undermined Malaysia’s external position, with large capital outflows, a falling current account surplus, sharp exchange rate depreciation and falling reserves,” Moody’s said.

The ringgit, which was already weaker prior to the Moody’s announcement amid general risk aversion related to China, was 0.6 percent lower at 4.4120 a dollar as of 2:05 p.m. in Kuala Lumpur. The yield on the 10-year government bond was up three basis points to 4.25 percent. Read the rest of this entry »

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More pain ahead seen for Malaysia economy

By Pauline Ng
Singapore Business Times
Dec 29, 2015

Slumping ringgit, oil prices, business and consumer sentiment add up to a pessimistic 2016 outlook

Currency analysts predict further devaluation in the ringgit in 2016 with projections ranging from 4.49 to 5.00 to the greenback from about 4.30 at year end.

Kuala Lumpur –

“KU” or bitter was the Chinese character most picked by Malaysian Chinese businesses to characterise 2015 which saw the introduction of a consumption tax, public transport hikes and numerous other cost increases made worse by a tanking ringgit that has lost nearly a fourth of its value against the US dollar over the year after dropping 8 per cent in the previous year.

Sadly, the signs are pointing to an even more tumultuous 2016.

With global oil prices slumping below US$40 a barrel – bad news for oil producers such as Malaysia – and business and consumer sentiment stuck at lows last seen during the global financial crisis of 2008, the reality of a diminishing ringgit is expected to hit businesses even harder in the new year because of price adjustments for new stocks.

In truth, there have been a number of price revisions in the past year, especially in April when a 6 per cent Goods & Services Tax (GST) kicked in. Read the rest of this entry »

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Retail sector hit as Malaysians cut spending to cope with rising prices

by Ida Lim
The Malay Mail Online
December 14, 2015

KUALA LUMPUR, Dec 14 — Retail outlets here are reporting a drop in business as Malaysians cut spending to cope with the rising cost of living.

For many of those who spoke to Malay Mail Online about their lifestyle changes, cutting out unnecessary purchases and making prudent spending choices are the order of the day.

Fadzilla Hernani, 29, a post-graduate student whose monthly household spending has gone up by around 20 per cent after the introduction of the Goods and Services Tax (GST), said she has switched to hypermarkets’ house brands to get non-food items of equal quality at a cheaper price.

“Milk has no price controls, I choose the cheapest (baby) milk powder. Last time, I chose Anmum, but now it has increased by RM5, RM6, one week one box is RM60, but because it is expensive, I am forced to find a cheaper brand… Dutch Lady at RM25, the quality is slightly lower,” said Fadzilla, who has a three-year-old toddler.

Every sen saved counts for Fadzilla who now buys paper of slightly lower quality at 70gsm just to save RM1 and purchases pens in bulk without caring for the brand. Read the rest of this entry »


Solving Malaysia’s economic crisis

New Mandala

Ahead of the Government’s 2016 budget, Malaysia is staring down fiscal challenges unlike any that it has faced over its history as an independent nation.

In this special in-depth report, Datuk Ramesh Chander and Bridget Welsh examine whether Malaysia can resolve its economic woes, and offer several key reforms to get the nation back on track.

2015 – a year of economic decline
This year has seen tumultuous changes across the entire spectrum of the Malaysian body politic and economy. Unlike in earlier years of Prime Minister Najib Tun Razak’s six-and-a-half year tenure, Malaysia’s economy is now seen to be in trouble, with contracting growth, rising inflation, continued high levels of capital flight, declining consumer and investor confidence, and a depreciating currency.
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Malaysia’s woes illustrate emerging market malaise

by Gillian Terzis
Australian Business Review
5 OCT, 2015

Markets around the world have endured a wild ride in recent times, as global events conspire to spook investors into rash decision-making. Nowhere is this phenomenon more pronounced than in emerging economies.

Take, for instance, Malaysia’s economic struggles. The Malaysian ringgit has been one of the poorest performing currencies in the world, shedding 26 per cent against the US dollar this year and plumbing to a 17-year low of 3.9 ringgit against the greenback. An analyst note from Merrill Lynch illustrates that in some respects, Malaysia appears in weaker shape than it was in 1997 at the time of the Asian financial crisis. For instance, household debt as a share of GDP is now at 86 per cent, compared with 46 per cent in 1997; public debt as a percentage of GDP has climbed from 31 per cent in 1997 to 54 per cent today.

The steep correction in commodity markets hasn’t helped the country either. The commodities upon which Malaysia is heavily reliant (palm oil, petroleum, and rubber) have endured precipitous declines, with little reprieve in sight. The probable downward trajectory of crude oil prices in the short to medium term is certain to inflict even more pressure on the beleaguered currency.

Moreover, the rhetoric and actions undertaken by Malaysia’s federal government are likely to disabuse one of any optimism, no matter how cautious, for the country’s economic outlook. It has been alleged by the Wall Street Journal that RM2.6 billion ($840 million) had been transferred into the personal accounts of Prime Minister Najib Razak from companies connected to 1Malaysia Development Berhad, a heavily indebted state-owned strategic development company. Razak has since shut down an investigation into his administration’s alleged graft and mismanagement of state funds.

Unsurprisingly, these revelations have weighed on investor sentiment, with foreign investors withdrawing some RM11.7bn out of equities markets to date. The country’s bond markets are also a source of vulnerability, with big moves recorded in the lead up to the maturation of RM8.2bn of government debt on October 15. (Commentators have expressed concerns about the country’s rapidly waning currency reserves.) Read the rest of this entry »

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Najib misses opportunity in 11MP

– Ramesh Chander and Bridget Welsh
The Malaysian Insider
29 June 2015

As debate in Malaysia’s Parliament draws to a close on the 11th Malaysia Plan (11MP) that lays out targets for the country to achieve “developed” nation status by 2020, the focus has primarily centred on the unrealistic assumptions contrived for the macro-economic framework for the blueprint.

Little attention has concentrated on the consistency of the assumptions and how the 11MP compares with previous policy frameworks. A close look at the 11MP reveals serious gaps and shortcomings, raising questions about whether the proclaimed milestones of development by 2020 can indeed be achieved. Read the rest of this entry »

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An open letter to Bloomberg

— Idris Jala
The Malay Mail Online
June 20, 2015

JUNE 20 — When I read William Pesek’s latest commentary on Bloomberg View, I barely recognised the country he was writing about. He starts by referring to Malaysia’s “underlying economic distress” and “prolonged slow growth”, which he says are caused by “race-based policies that strangle innovation, feed cronyism and repel multinational companies.”

The facts, however, are these:

1. Between 2009 and 2014, Malaysian Gross National Income grew by 47.7 per cent.

2. Growth last year was six per cent, and over the next four years the OECD predicts Malaysia will enjoy annual growth of 5.6 per cent. It would be perverse to characterise this as “slow”. By contrast, the Economist reported last month that “The European Commission is forecasting growth in 2015 of 1.5 per cent, which would be the euro area’s best outcome since 2011.” A growth rate nearly four times that of some of the most advanced economies in the world hardly suggests “distress”.

3. Prime Minister Najib Tun Razak launched Malaysia’s ‘Economic Transformation Programme’ in 2010. Let me highlight some key achievements: Read the rest of this entry »