Malaysian Economy: Is the Party Over?


April 26, 2013

Malaysian Economy: Is the Party Over?

By Azeem Ibrahim from the Huffington Post

Dr Azeem IbrahimWith an election in the near future, scheduled for May 5th, Malaysia’s economy is under scrutiny. Is it really as good as the present government says it is in its campaign propaganda? The usual indicators look good — growth is 5 percent this year, inflation is low at around 2.5 percent and unemployment is low and stable at about 3 percent. Malaysia has enjoyed vigorous growth and change in the 50 years since it became independent and it is now the 37th largest economy in the world.

But after more than 50 years of one-party administration, the country is now at a crossroads with the ruling coalition facing formidable opposition. The economy is a major campaign issue as the country has been running considerable budget deficits since 1998, with the government offering subsidies and cash handouts to maintain itself in power. Since 2008 the government’s debt has escalated exponentially and is projected to be RM 779 billion by 2017 — creating a major problem of domestic debt for future governments to face.

Government borrowing, excessive spending on huge infrastructure projects, the flight of capital overseas, and a downturn in gas and palm oil prices are combining to create concern about a potential economic dislocation, prompting warnings from financial analysts in the region.

Malaysia’s rising ratio of household debt to its GDP reached 80.5 last year, as the country’s middle class has taken advantage of easy credit. Now there is the risk of being caught in a credit bubble, similar to the sub-prime crisis in the U.S. in 2008 which forced foreclosures and the collapse of several major financial institutions.

With 30 percent as the acceptable debt service ratio, it is a matter of increasing concern that people are using more than half of their disposable income to pay off household debts. The ratio of household debt to disposable income in Malaysia is 140 percent, one of the highest in the world and above that of the U.S. at 123 percent and Thailand at 52 percent. Unless there is a rise in productivity and household incomes for Malaysia’s five million working population, this trend is not sustainable.

Prime Minister Najib Abdul Razak’s policies of short term gains andNajib latest generous corporate welfare to maintain popular support contrast with the long term vision of the Pakatan coalition led by Anwar Ibrahim. Noting that “Malaysia’s fiscal space has shrunk considerably since the 2008 global financial crisis”, policies need to be put in place to spare the people the austerity measures being adopted by several of the troubled Eurozone countries.

The need is to curb household debt, to broaden the tax base, repeal subsides gradually, trim certain expenditures and generally bring the fiscal house in order without creating the pain of a sudden adjustment. Instead of raising the debt ceiling again and again, Malaysia needs to grow government revenue and rein in sovereign debt, as Malaysia’s debt to revenue ratio is approaching that of Italy’s.

In all the government’s campaign promises there is nothing to address the growing problem of blatant corruption in high places and the widening income disparities since taxes were lowered for the wealthy. Malaysian taxes are the second lowest in South East Asia, with Singapore lowest with personal income tax capped at 20 percent. Singapore has since instituted a tax on services and consumption, the Goods and Services Tax (GST) at 7 percent, a move currently under discussion in Malaysia.

To ensure that growth is sustained, Malaysia needs to implement numerous reforms which have already been outlined in the Government’s New Economic Model. Unfortunately, many of these proposals remain simply paper promises and Malaysia can no longer afford business as usual. Criticisms are common about the lack of transparency of government statistics which are skewed in favor of the incumbent regime. A retired Malaysian international banker recently described official government reports as “Alice in Wonderland statistics.”

Anwar with Hadi and Kit SiangThis would change with a victory for Pakatan Rakyat. Anwar Ibrahim’s vision of good governance, based on fairness and justice and free of race considerations is reinforced by World Bank studies that compare Malaysia with more successful countries such as China, Indonesia and Vietnam. The latest IMF report card on Malaysia indicates the need for fiscal and structural reforms and an ambitious consolidation plan, with tax reform and expenditure rationalization.

Malaysians want an end to stagnant wages and earning levels and an end to the Malaysia being caught in the Middle Income Trap with little hope of higher productivity and wages. Malaysia’s dream of joining the league of high income developed nations as envisaged in its Vision 2020 will not happen on its current course.

Anwar Ibrahim will bring about the necessary changes based on the needs of the people of Malaysia, not be deferring to the bankers, corporations or profiteering capitalists. He understands that is time for more egalitarian policies to put an end to the stifling of initiative and competition through the old affirmative action policies favoring Malays. Preferential treatment for ethnic Malays and some indigenous groups, collectively known as Bumiputra, have led to inequalities in awarding government jobs and contracts and also the provision of education and cheaper housing.

It is also time to end the practice of using low-cost foreign labor for assembly work and to invest instead in a research and development base for new industries. This would help reverse the much-discussed phenomenon of the migration of talent out of Malaysia, and would turn the brain drain into an economic gain. Productivity and inclusiveness lie at the heart of Malaysia’s transformation programs and according to the latest Malaysia Economic Monitor Report, this is an historical opportunity for change.

It remains to be seen whether Anwar Ibrahim’s message will reverberate sufficiently among the voters next month, to bring about a change in direction and a change in leadership for Malaysia, bringing with it the opportunity for the country and its people to realize their full democratic potential.

Dr. Azeem Ibrahim is the Executive Chairman of the Scotland Institute and a Fellow at the Institute of Social Policy and Understanding

28 thoughts on “Malaysian Economy: Is the Party Over?

  1. wow……80%. and just yesterday, popular PROPERTYGURU.com said prop prices are expected to rise 15-20pc next year.

    Are we trying to compete with HK, Spore or what?

    Recently, some PRC asked me about 2nd home scheme. PRC now flush with mani and grab prop in Aust, Spore and now Msia….The prices in Spore are pushed up by PRC bcs they get a PR doing that. ………… looks like right to abode is back in new form…………but Spore is boring…….food prices in Msia and others are attractive…………the havoc create by PRC had destablized Spore society…..husbands are being grabbed by PRC single again gals….not long back….mani msian wives complained of similar moves…….but the flood in Spore now are rich Spore single again gals in their 40s-50s

    So when we inflate, we cannot afford our own prop and have to invite PRC to buy. Msia Prop show in Xiamen attest to that; Malacca prop was showcased there last month for 1m rgt a piece. compare to Sg or HK, we are very cheap…..

  2. The party has to stop and the only way to do this is to dump once and for all the present evil regime. We can only pray and hope the good survive the post GE13 and with DSAI leads, insyaAllah its not going to be business cum party as usual, but real business and survival.

  3. PR is going to win. Not the issue. The issue is what happens after a period of ‘reform’..Truth is the promise is ALREADY too populist. There is no way Anwar can forever provide subsidized fuel, free education AND DELIVER QUALITY HEALTH CARE for long..All three are cost are escalating rapidly ALL OVER THE WORLD and even with savings from corruption is NOT affordable subsidized for long..

    UMNO/BN is not a choice but PR? Its only the choice for now..

  4. Malays in rural areas are simple folks. They don’t care about deficit, stagnant wages, etc2. If they are handed out money, they take it. That’s the only thing they care. If they do think about the future, it the Chinese take over Malaysia what will happen to them.

  5. The fundamental problem of Malaysia is that it is a country town apart by racial tension. If you can have those issues resolved, your economy will improve by leaps and bounds. If not, it will deteriorate further.

  6. UMNO has been behaving like a drunken sailor with a credit card. The party can never be over. It is over when it is over.

  7. The party was over a long long time ago when Mahathir distributed all the largees to his family,friends & cronies, we the Rakyat were in a drunken stupor to realize, being fed cooked figures on just about everything, the process to enslave us started in the early 80’s.What else can I say, rest assure that all shall be reveal soon, Insha Allah…Amin….Oouch!!!

  8. Sigh..! This is depressing, like the weather.
    UMNO and cronies deal with Mass Rapine Macroeconomics, while distributing micro-credit to brain-washed cretins who make up a large proportion of the population.

    PR and cronies concentrate on Hopeful Microeconomics, hoping that the cretins suddenly wake up. Which goes to show that idiots will always be idiots, as long as their stomachs are filled and their basal lusts are fulfilled.

    Anyway, who really reads an article from a Scottish Muslim Academic posted in Huffington Post, except idiots like us?

  9. Here is the thing. Its alraedy clear that this GE, the Chinese will vote overwhelmingly for PR. IF PR cannot win, EVERY CHINESE will have a long term plan to leave this country sooner or later. Meaning their investments will never be long term. Financially we are talking about capital flight of several HUNDRED BILLIONS, over possible in not that long a period, even at a slow pace its in the billions per year..

    There is no way economic prospect will be good under such a scenario not matter what ‘Transformation’ plan..

  10. Transform? What is there to transform..! Jibs & Co are alchemists who transmutate base metals into gold and iridium. Heck – they’re are so adept at magic that they can even transfigure from Bangsat-One to Bangsawan! That’s why we have all these myths of werewolves, vampires and other supernatural beings.

    We need reform, not transform – cuz those well fed, fat mamas will continue on their wayward ways of pithy sloganeering and acronymed hogwash if UMNO wins. Imagine seeing the stretched jowls of bikmama day in, day out? Yucks..!

    Btw didi, is the average kampung Malay enamored by gross obesity and stumpy trotters?

  11. Of course the property sector is looking good said the developers enmasse. It’s akin to lorong hj taib mamasan promising sweet young badan sehat nymphs when marketing their aging sistas… will they be telling the truth while massing wealth to flee this land. We shall see 5.05 …

  12. Racists and dumb homo S will not know anything until it hurts the stomachs. Until then UMNO types will rule. After that we need Along type debt collectors to hurt mamak kutty and the likes. Will be oh so exciting!

  13. Does it matter if this article is lifted from Hufington Post? It is the best critique of malaysia’s economic policy I have come across, albeit it was tilted to Anwar’s side.
    Having said that I must protest at Pakatan’s populist move for petrol subsidy. I regard this policy as not sustainable. We are already a net importer of oil. How long can keep that. If our neighbours can live without such a subsidy and remain competitive, we can’t we do it?

    If we really want help the poor we could expand our outreach programmes. We don’t have to encourage everyone to waste petrol. The removal of fuel subsidy might herald a more healthy way of living for us since we will be forced to walk more, perhaps share transport and promote the use of mass transit.

  14. What’s wrong with petrol subsidies when we are net exporter. Since when are we net importer. Plz correct your facts.

    Our neighbour island is rich while many of us still enjoy rural livestyles which is absent in our neighbour which has NO resources.

    We subsidize whatever we can to make people’s live happy.
    Subsidies happens in US as well in the form of stamps for those who qualify.
    Perhaps we can have petrol stamps for kampong folks so city folks have to pay more for petrol at par with Singapore then there is no need to Sg cars to load in JB. Would that serve you and your city folks well?

    We control food prices so kg folks can enjoy more. Anything wrong with that? If you don’t like then you pay the difference in Sg.

    We give out book vouchers. Anything wrong with that? If you don like you can return it and pay full price.

    • I fully agree with you, BN, although I’m not a BN supporter.
      We should continue with subsidies for essential items such as petrol, food, electricity, etc. The govt have to consider the poor people from both urban and rural. Removing subsidies will create a big burden to their every day lives. For those rich people, from both urban and rural, no subsidies will not create any burden to them. As for GST, I agree it can help the govt to collect more taxes as it is broad based, but I don’t agree with GST as it will impact the poor. If the govt apply the GST to the rich only, then its okay to implement.
      But, whatever it is, the govt have to find out WHY it is spending much more than it could afford, every year, and for so many years. Something is very wrong somewhere. LEAKAGES in every govt depts activities and for every year ? If money siphoning problems is not corrected, increasing taxes and removing subsidies will not solve the problem. Brainstorm and find out the root causes of the problem and bravely remove all the root causes, especially political one.

  15. So MT Lai, i presume you’re an idiot? Like me?
    The petrol subsidy does more than it appears initially. It reduces or slows down inflation. Are we a nett importer of O&G? Only for heavier crude for refining for domestic consumption. That’s also why we can’t buy diesel vehicles that demand Euro-4 standards. Our own sweet crude, we export at a higher price. That’s why Petronas remains profitable. My spouse says so. But she doesn’t know nuts.

    But it does nothing in the long run, as the tax base must be widened to include GST sooner, rather than later. All these populist policies are nice to hear, but hard to swallow. The problem is one of ‘subsidy’ mentality besides the free-lunch behavior of the average Bangsat Kampong Malaysian. No blardy dignity or integrity.. Saying that, i do believe that the PR economic policy will be a much holistic and kinder way to achieve balance.

    The Neo-Mahatirism policies and budget deficits due to rampant corruption and leakages must stop ala UMNO. As it stands, the average household debt is way over-board, and most of these are loans for housing and property, vehicles (seeing the abject poverty of Mass Transit) and simple things like electrical-electronic devices that everyone wants. Heck this gen X will probably commit suicide without their FB and twitter!

  16. BN Supporter
    My grandfather had a house and a bicycle. Both are in his name, no hutang. My father had a car and a house, also no hutang. But my generation have mansions and Merz and Beemers. In name only. They are all owned by banks and the average Malaysian work 210 days to pay for his mortgage and car loans. Is that the life we wish for?

    Now now CLF, I’m sure your spouse knows more than what you credit her for. Just be careful she doesn’t read this blog ha ha or you’ll be sleeping in the dog house. Malaysia also don’t have refineries capable of refining the Malaysian sweet crude.

  17. Before the Zimbabwe economy went into a tail spin President Mugabe increased the pension payment to War veterans between 100% and 150%. At that time National Debt was double GDP. How to pay. Print baby print. The rest they say is history. Economies that depend on subsidies, one-off payments and sudden increase in wages usually go into a tail spin and when that happens we will not know what hit us. All we can do is pray.

  18. I say, OM, my spouse is totally oblivious to the political shenanigans. She was just complaining to me that the Chinapek traders in the wet market were insisting on giving her a Orange colored pamphlet which was in Mandarin – which she can’t for the life of her, read (malu-la, neither can i). When i told her it was probably the buku Jingga – she thought it was advertising a brand of orange juice..

    She was also accosted by the Rocket hacks, and was so frightened that she insisted on going to Houston during the elections. But i told her that they usually launched from Florida.. So much for Geography teachers.

  19. It’s the equivalent of a (very) massive fiscal stimulus for the economy
    By a fiscally irresponsible Finance Minister and ruling regime.

    We’ll pay the price later, folks.

  20. Let’s be fair to Anwar when he becomes PM – it’s not going to be an easy job. In fact, cleaning up, putting house in order, making new policies, trying to reduce our debt, is going to be one huge nightmare for PR. Let’s torture ourselves a little today: RM500bil debt you said? At 4.25% p.a. for interest payable (shld be higher if borrowed fr EPF, right?) – that will be RM21.25 bil interest p.a. Divide by 365 days –
    M’sia must pay RM58mil interest per day. That RM58 mil payable does NOT include principal sum owing. Do u bn voters want to take ‘risk’ and change government NOW? It’s now or never. Frankly i don’t give a damn anymore. To hell with this country if ppl want to remain stupid & brainwashed.

  21. Orang Malaya
    We each choose the lives we live. You wanna show, then you pay la, simple.
    Why not follow frugal living like Warren Buffet and the FB guy where simple hooded t-shirt and his Chinese Dr. wife so simple. Simple life can live well and do good for humanity. So you style is we live only once so live it up, then pay la.

    There is a price in everything and karma is all things.
    Subsidies in US are call food stamp. We call it other ways like vouchers. I think BN has to formalise it as food stamp on monthly basis and petrol stamp as well. Meanwhile have GST.

    What is not acceptable in BN is Corruption went rampant. Show me an Incorruptible politician and I show you heaven. 5% ok or not? Even in financing, people get introducer fee 0.05%. Transaction hse get 2%. so politicians gaji small unlike Sg so the 2% goes to support his constituency, can or not?

    But 20% as reported by Solo about octo is too much. Must cut back la. Who to check, no one and dat is the problem. So we change the people and not the party, can or not?

    So we change the Sarawak MB can or not to protect land grab and orang hutang.
    So we throw the Ibrahim Ali chap away for disbalancing social but we still keep the party………..can?

    Now, who has the balls to stamp out corruption, that is the problem. So have an ultra strong opposition is darn good.

  22. Thumb Logic’s story of Zimbabwe reminds me of a round of golf I had with a couple of guys from that country.

    They said that they used to order and pay for their drinks at the club bar before they start their round because by the time they’d finished, the bar bill would have gone up in price.

    Now, that’s what I call INFLATION.

  23. Guys & Gals,
    You know what! One got to give some credit to this BN supporter…..He can rationale everything. Wow, man! I bet if his wife was raped, he’d say it’s ok. Ini Takdir la!

    BN,
    There is a karma on everything. You would kenna screwed depan & belakang. Don’t tell me you wanna do an “Annabelle Chong” style. Bean would know about it. Ask him what happen to Annabelle Chong.

    Loner,
    I would suggest all Pakatan leaders to get a crash courses by watching all Yes Minister/Prime Ministers series. Here are some samples

  24. BN Supporter
    The Food Stamps is not a subsidy but assistance for the low income group. That shows the government cares for the low income group and assisting them in buying food. Even then there are limitations on what type of food they can buy with the Food Stamps
    How to live simply when everything is costly. When you reach the level of Warren Buffet and the FB guy, money is no longer an issue. But if you are struggling to put food on the table and to send your children to school, how to live simply. You are already living simply and simply living day by day.Unlike some Minister who can eat Lamb Chop and Croissant, the daily meals for the ordinary kampong folks include what they grow in their garden, Maggi Mee and perhaps rice and salted fish.

    Yes I agree with your other points on corruption and Sarawak CM but most of us would like to see UMNO be cut down to size and change to be a better party. Perhaps spending some time as opposition will teach them a thing or too about humility.

  25. I has a cold over the weekend. Reading this article made me even more ill.

    @bigjoe99
    On your first comment – right on the money.

    @Mr Bean & Phua Kai Lit
    Based on the government’s budget this year, the net effect will actually be contractionary for the economy.

    @MTLai
    Absolutely agree with you on the petrol subsidy.

    @Ah Beng
    If you’re willing to share exactly how much you spend on all the major consumption categories (in percentage terms per month), I can calculate your personal inflation rate. Trust me, it’s a lot lower than you think.

    @BN Supporter & dennis lim
    Petrol subsidies should go because 1) petrol is an environmental pollutant, which is not accounted for in the price and 2) lower prices create wastage.

    Food subsidies should go because they cause a supply response i.e. there eventually will not be enough food to supply the demand at the subsidized price. Ever wonder why we don’t have national food security? Or why there are shortages every holiday season?

    The burden on lower income households can be handled by offsetting transfers i.e. increasing the BR1M payout. As of now, subsidies are enjoyed by rich and poor alike (including my shiny, gas-guzzling Beemer).

    @CLF
    The biggest time-bomb with household debt isn’t housing or car loans, its personal loans given through the non-bank system. Based on BNM’s briefing last month, these average around RM68k for a loan tenure of 20-25 years, secured via salary deduction, primarily to households earning less than RM3000 a month. Yikes.

    @loner6999
    As a ratio to the government’s total operating expenditure, debt service repayments are currently at a historical low (about 10%). Yields on benchmark 5-year MGS are currently at about 3.2%.

    @looes74
    I lurve Yes Minister. I think PR will find that it’s going to be extremely difficult to find the savings they think they can get.

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