Saturday, February 25, 2012

Is Malaysia Running into Serious Economic Problem?

Every time we hear the PM dishing out hundreds and thousands of ringgit to millions of people and creating million ringgit funds for this and that almost every other day, the question: Does Malaysia have the money?, comes to mind. People know that Malaysia had been borrowing a lot of money from oversea sources, but the government had always said that our economy is strong and is getting stronger all the time. It also denies that the cash payments to families with income below RM3k and the creation of many special funds are done through borrowing.

All countries have debts and borrow lots of money from many sources to finance their development. . The US for instance had national debts running into trillions. So does Japan and the debts of other EU countries keep rising. The situation of the debt is often stated as a percentage of the national debt to the GDP of the country. In this regard the percentages as estimated by one source for many countries in 2010 are as follows: USA 62%, Japan 198%, Italy 198%, India 52%, China 19%,France 82%, UK 76%, Brazil 59%,Canada 84%, Spain 64%, Mexico 37%, Greece 143%,Eqypt 80%, Singapore 106%, and Taiwan 51%.

How does Malaysia stand in this regard? A bank Negara Financial report in 2012 stated that the Gross External Debt for Malaysia was RM295,908 million (i.e..295 billion) while the GDP stood at RM216,864 ( or 216 billion). As a simple minded person and not an economist, i can already see that we already record an above 90% debt to GDP percentage. But that's no where near the Japanese or the Singapore level. Or the level in Greece for that matter. But another report puts it at just 54.2% The level reached 79.5% in 1990 but fell to 31.8% in 1997. Has it already risen up to above 90% in 2012? I wish some of our economic experts can answer that question, truthfully.

But what does such a level of debt to GDP ratio imply? An European Central Bank study in 2010 stated that a debt level of above 90-100% can have a negative effect on economic growth and the trust of outside countries on the ability of a country to pay up its debt. That's bad, right? And Malaysia could be approaching that point. BUT THERE ARE OTHER FACTORS which can offset the negative impact. They include the level of private savings, public investment, total factor productivity, and foreign investment. Let's not get to muddled up in thinking about those factors.

The main thing we should be concerned with is the productivity level of the country. If the increase in productivity does not exceed the increase in expenditure and consumption, we could be living beyond our means and heading for trouble like most of the European countries. What say the economists?

(basic Data)
Public Debt Top 20, 2010 estimate (CIA World Factbook 2011)[6]
USA $ 9,133 62% $ 29,158 ($ 5,415, 38%)
Japan $ 8,512 198% $ 67,303 ($ 7,469, 172%)
Germany $ 2,446 83% $ 30,024 ($ 1,931, 66%)
Italy $ 2,113 119% $ 34,627 ($ 1,933, 106%)
India $ 2,107 52% $ 1,772 ($ 1,863, 56%)
China $ 1,907 19% $ 1,427 ($ 1,247, 16%)
France $ 1,767 82% $ 27,062 ($ 1,453, 68%)
UK $ 1,654 76% $ 26,375 ($ 1,158, 52%)
Brazil $ 1,281 59% $ 6,299 ($ 775, 39%)
Canada $ 1,117 84% $ 32,829 ($ 831, 64%)
Spain $ 823 60% $ 17,598 ($ 571, 41%)
Mexico $ 577 37% $ 5,071 ($ 561, 36%)
Greece $ 454 143% $ 42,216 ($ 335, 97%)
Netherlands $ 424 63% $ 25,152 ($ 392, 58%)
Turkey $ 411 43% $ 5,218 ($ 362, 40%)
Belgium $ 398 101% $ 38,139 ($ 350, 90%)
Egypt $ 398 80% $ 4,846 ($ 385, 87%)
Poland $ 381 53% $ 9,907 ($ 303, 45%)
South Korea $ 331 23% $ 6,793 ($ 326, 24%)
Singapore $ 309 106% $ 65,144
Taiwan $ 279 34% $ 12,075
Public Debt is total of all government borrowings less repayments that are denominated in a country's home currency.
* CIA's World Factbook list only percentage of GDP, the debt amount and per capita is calculated with GDP (PPP) and population figures of same report.


rambomadonna said...

Dear Norzah, I raised this in my comment on your BR1M entry if I am not mistaken. I raised this concern to one of my friends the other day but he commented ... this is one way government pump in money to boost the industry.

I would rather we focus on the impact of government spending and investment/funding in those NKEA projects and entry point projects (EPP). I am not sure about you but tourism NKEAs don't seems to move anywhere ... oppssss

I am concern, macroeconomic is not my strong points but when banks start to increase their interest rates starting with credit cards outstanding balance, something is wrong somewhere.

abdulhalimshah said...

Akhi Norzah,
I am not an economist but plain common sense tells us that we should not spend more than what we earn. And going by the figures which you have quoted, we are just doing that. From what we see happening in Greece, we could repeat the same scenario where corruption and lack of accountability is rampant.This is not a case of shouting "Wolf" but a reality bites. We are subsidising essential commodities to a dangerous level of more than RM70 billion and probably will climb to RM 90 billion soon. Instead of being tightening our belts, we are going the opposite. Now the Government is considering a scheme of national insurance for healthcare, which means the public has to pay first before they receive treatment at government hospitals. Probably we might have to pay for educating our future generations since we are going on a spending spree regardless of the ominious signs of economic dperession.

norzah said...

Rambomadonna, yes indeed we must spend money to make money. But who is spending and whose money is being spent and who is making money by the millions in terms of commissions and kickback rather than straight, honest trading? Prices for infrastructural and military equipment are skyrocketing because of so many cuts to be catered for and included in the total cost born by the govt, the public coffer.

If tourism NKEAs are not making impressive progress, then we are hearing the wrong things from the govt, which make us believe that we are reaping a bumper crop. Even in this sector we might be spending more than we earn and that's bad business by any measure.

But we're hearing a lot of good things about the tourism progress in Penang and we know who the lady
in the driver's seat is. I only wish that she can take charge of N9 and turn PD into an international holiday resort. Thanks for the response.

norzah said...

Akhi Halim, in as much as the seventy billion ringgit subsidy worries us we're more anxious to know how much of that really benefits the needy and how much goes to the bloodsuckers. It was once reported in a study of how development funds get distributed that out of Rm1000 issued by covet, only about RM100-200 reached the people. The rest went into various pockets.

Govt keeps saying that out debt ratio is nowhere near the danger zone. Even Singapore reached 106%. But Singapore's total factor productivity is very high, being totally service and industrial. What more Japan with a debt-GDP ratio of 198%. Malaysia's ratio should remain at Taiwan's or India's level (51 -52%). Above 90-100%, economic growth will certainly be affected.

You're certainly right in saying that we night have to pay for future services and facilities not yet provided.
That's what we are already doing in buying the touch n go and smart cards. We pay first before getting the service at a future date. There are many other services using this approach to ensure a big profit or cover up losses through poor management.

Well, what can we do? Let's collect the relevant figures and spread them around to arouse awareness. Salam.