Malaysia: Impact of defunding Public Universities

January 24, 2017

Malaysia: Impact of defunding Public Universities

by Dr. Lee Hwok Aun
Published in The Edge, January  16, 2017

Malaysia’s public universities are headed for troubled waters and it is unclear whether our policy makers and executers are even on the lookout. The university rankings business is a debatable one, but I bring it up here because it is the government’s ultimate performance benchmark, and recent developments underscore the detachment of officialdom from the institutions’ woes.–Dr. Lee Hwok-Aun

Image result for Defunding Malaysian Public UniversitiesMalaysia’s Finance Minister Najib Razak–Presiding over a soon to be financially insolvent nation

Malaysia’s public universities are headed for troubled waters and it is unclear whether our policy makers and executers are even on the lookout. The university rankings business is a debatable one, but I bring it up here because it is the government’s ultimate performance benchmark, and recent developments underscore the detachment of officialdom from the institutions’ woes.

The University of Malaya’s rise to #133 on the QS World Universities score sheet in 2016, its best position ever on this rankings scheme, was greeted on campus with surprise, nonchalance, and a dash of despair. The sentiments are distinct from previous years. When UM inched up the rankings, from #156 in 2012 to #146 in 2015, these small and steady gains brought relief, and a bigger hop from #167 in 2011 to #156 in 2012 infused a sense of accomplishment. Research grants were quite abundant, there was support for internationalization, for recruiting and retaining talent. Universities were basically supported, we seemed to be doing things better; improvement in the rankings made sense.

Then came the funding cuts. Federal budget allocations for universities were slashed by 12% in 2015, 15% in 2016, and 19% in 2017. UM took the biggest hit in 2016, when it suffered a 27% shortfall from the previous year. And here lies the trigger of despair. This defunding spree, coinciding with a major leap in the rankings, might be taken as vindication, and perhaps embolden further budgetary constriction.

The government will be perilously mistaken to do so. Continual aggressive defunding brings three significant deficits on Malaysia’s public universities.

First, a personnel deficit. Severe fund-slashing compels severe cost-cutting, shock therapy induces desperate measures. Contract staff are one of the first on the chopping block because the funds for this specific category of employees have dried up. Many contracts have not been renewed, and they are not substituted with allocations for part-time instructors or new recruits. Financial dispensability, however, does not equate with importance to core activity and service. Numerous academic departments count on contract academic staff to teach core courses and produce research and publications.

As contract staff are ushered out, the same workload gets distributed among the remaining staff, increasing their burden and contributing to the second deficit, in morale. Academics will likely see burdens increased, while concerns toward the funding cuts are typically dismissed by invoking the seemingly non-negotiable policy of reducing public subsidization of university expenditure. The Higher Education Blueprint 2015-2025 outlined new funding formulae, with performance-based allocations and per student funding as appealing new features. This formulae is to be rolled out on a “gradual”, “gate-staged” basis.

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ISEAS-Yusuf Ishak Institute Senior Fellow, Dr Lee Hwok-Aun

“Performance funding” is especially contentious. If fixated on numbers and not adequately anchored to the public interest and long-term objectives, as seems to be the case, there is every potential for the system to be gamed, for example, by lowering academic rigour to boost completion rates and student satisfaction, or pursuing quantity over quality of research. Given these complexities, one would expect the policy to be agonizingly deliberated, and gradual and systematic if implemented.

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But Universiti Malaya and Universiti Kebangsaan Malaysia have already, for 2016 and 2017 respectively, been administered huge funding cuts of 27% and 31%. Why? Enrolments have not fallen precipitously, nor have the universities massively scaled down operations. Have they performed so badly? The lack of coherence and transparency in the targeting of funding cuts, compounded by drained research grant reservoirs, are disconcerting, and cannot be good for morale in the academic community.

Some initiatives with good potential risk derailment. At the University of Malaya, to allow for academics to play to their relative interests and strengths, different career tracks – focused on research or teaching – are also being rolled out. But in the hasty pursuit of extracting more output from less resources, research track targets have been made frighteningly difficult to hit. Few select that option, and some – the more diligent, productive, conscientious ones – have been forced to take it against their wishes, to the detriment of their morale.

What of the next generation of academics? Policy brims with rhetoric of talent development, and reference to the Higher Education Talent Roadmap, but the Malaysian approach diverges from the practices in recognized institutions. Globally leading universities excel by attracting talent, then trusting them, through their dynamism, creativity and self-motivation, to research, teach and contribute to public knowledge with light monitoring. Malaysian universities are increasingly inclined to do the opposite – micromanaging rewards for formulaic outcomes, distrusting the industry and capability of staff, monitoring for compliance and resisting change, which seriously risk repelling and losing talents that are drawn to institutions that safeguard trust, autonomy and freedom.

Which brings us to a third deficit that can grow as public financing shrinks: our international profile. Malaysia’s public universities, having made inroads in internationalization, could see these gains reversed. The public universities are subject to the public services employment scheme, including the rule that a non-citizen cannot be hired on a permanent basis. All non-Malaysian academics are on contract, predominantly short term. The more contracts are not renewed, the less international our profile. Will Malaysia’s public higher learning institutions, especially the research universities, become more domestic, less global? That might happen, and if so, our presence on the world academic stage will fade. A specific recruitment scheme for public universities, promoting secure employment of international academic staff, is worth considering.

The presumption that rebalancing of university funding sources and reducing of government subsidy necessitates budget cuts also warrants scrutiny. These can be achieved by maintaining the federal allocations, while facilitating growth in other sources. There is currently a baffling downward spiral and multiple moving targets. Both the share of government subsidies and the overall expenditure of universities are falling – why?

Suppose a university currently spends RM100 million and receives RM90 million from government, in line with the current 90% subsidization rate. Expenditure of RM120 million in ten years would be a reasonable projection. If the government share declines to 70%, then in ten years – a “gradual” rollout as the Blueprint stipulates – the government’s contribution would amount to RM84 million, or basically holding steady, not dropping steeply.

Will the government assess the impact of the funding cuts and reconsider the policy – at least its pace and severity? This will take courage, since reducing public funding has been high on the higher education agenda for a decade, and the government defends the deep cuts apparently as a mark of its resolve.

But at the rate we are cutting funds, it will be impossible to avoid deficits in personnel, morale, and international profile.

Dr. Lee Hwok Aun is Senior Fellow at ISEAS-Yusuf Ishak Institute.


Nobody takes Malaysia’s Budget seriously and here’s why

October 24, 2016

Nobody takes Malaysia’s Budget seriously and  here’s why

by T K Chua

“It is simple; the annual budget can’t instil discipline if there is no oversight. The annual budget can’t function as an instrument of control if borrowing and off-budget activities are allowed to roam free, unrestrained and unchecked.”–T K Chua

Image result for Najib's 2016-2017 Budget

When I read “Why I didn’t watch the Budget speech” as written by Kensi from Sarawak, I found my feelings were the same. For the first time in a quarter century I did not sit through the whole Budget speech. I walked off after the first hour or so.

The Budget has long lost its aura. It is just an annual pomp for fund managers to get excited and for the government to announce some goodies. Whether or not the goodies are carried out as planned is as good as anyone’s guess.

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Malaysia’s National Budget is Petty Cash for this First Couple. When the cash is finished, just borrow more or ask Bank Negara to print more money and then pass the burden to ordinary Malaysians by way of debt service or inflation. That is Najibonomics: Tax and Spend recklessly.–Din Merican

Why do I say our federal budget is meaningless?First, the annual budget has never capped the amount of borrowing that the federal government could incur each year. If the federal government may borrow without restraint, who bothers whether our projected revenues and expenses are adhered to? If revenues fall short, the government could borrow more to fill the gap. If expenses burst the budget, again the government could borrow more.

Where are the restraints and control that the annual budget is supposed to provide? In fact, the annual supplementary budgets are clear indications that the budget has failed to keep government financial indiscipline in check. The government will borrow and spend as it wishes, regardless of the revenue performance or actual expenditure incurred.

Second, the annual budget is just a mechanism to dish out allocations, but never to accomplish its intended outcomes. We mistakenly look at the allocation earmarked for each programme as if it is a fait accompli.

But this is far from true. For example, just look at the allocation for subsidies which the government has always bragged about. It is time for the government to list out how much of the allocation has reached the intended target groups and how much of it was siphoned off by corrupt officials, businessmen and those who could indulge in arbitrage.

Seriously, if budget spending has been constantly effective over the years, I believe there would be no more poor people in this country.

Image result for Najib's 2016-2017 Budget

Third, the annual federal budget is no longer the true representation of government financial commitment and responsibility. Off-budget agencies and activities have now overwhelmed traditional government ministries and departments.

Parliamentary oversight of government taxation and expenditure through the annual budget is at best only half correct.

When non-financial public enterprises and GLCs set up ventures, incur debt and impose contingent liabilities on the government, did they get the approval of Parliament to begin with? When government decides on privatisation projects, including guaranteeing revenues and profits of privatised entities, did it seek the approval of Parliament?

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This guy is excited about the Budget–He is the Minister of Defense: Commissions

I thought the Federal Constitution, (through Part VII – Financial Provisions), is very clear on financial oversights by Parliament – no taxation shall be levied or expenditures incurred unless with expressed authority of federal law. How then did the government spend and borrow so massively through off-budget agencies such as GLCs and Non-financial public enterprises?

It is simple; the annual budget can’t instil discipline if there is no oversight. The annual budget can’t function as an instrument of control if borrowing and off-budget activities are allowed to roam free, unrestrained and unchecked.

T.K. Chua is an FMT reader.

Sanity Check on the Malaysian Economy

November 4, 2015

Sanity Check on the Malaysian Economy

by Wong Chun Wai

LET’S face it – there is a trust deficit in this country. Many Malaysians simply have little confidence in what the leaders tell us.It doesn’t help when certain media are seen as trying too hard to pander to the political leaders, resulting in greater distrust of the Government. Malaysians want to be convinced. It would not be wrong to suggest that they perceive that there are attempts by our politicians not to disclose the whole truth.

The country’s economy is surely not in the pink of health, what with the continuing downward pressure on the oil prices and the Govern­­ment having to depend on the collection of the Goods and Services Tax (GST) to pay, among others, the salaries of the 1.6 million government ser­vants.

Yes, the fundamentals are strong – as some of our politicians keep telling us – but the overall economy is still in choppy waters, and we need able hands to navigate us through. There is a picture of doom and gloom when you do a quick scan of the headlines and online commentaries. We are not well and fine but at the same time, we are not exactly in dire straits.

The 1MDB controversy won’t turn our grandchildren into maids and labourers, nor will it bankrupt the nation.

Our Employees Provident Fund (EPF) money will still be there for us. In fact, EPF is flushed with cash now that the Government has sta­ted it does not encourage the fund to pursue overseas investments.But Malaysians have every right to be worried and concerned. It is obvious that many of them want to know where the country is heading and how much lower we can go, buffeted as we are by global and domestic issues.

As journalists, we talk to many groups of people. From ordinary Malaysians trying to eke out a living to key officials in government sha­ping our current scenarios and experts who spend their days analysing the country’s state of the economy.

The rakyat have been expressing concern and while there are valid reasons for these concerns, their fears are sometimes misplaced and have come about because they are not aware of the facts and statistics.

At the same time, the Government and some experts have been consistently sharing data on the state of the economy. But no one is listening. Why is this so?

It doesn’t help when some politicians are seen to be shutting down intelligent discussion on contentious issues, including 1MDB, thinking a black-out of the issue, will see it blown away. But the reali­ty is that like the haze, it will just go away temporarily before returning.

To add to the mix, some households feel burdened by rising costs, which they see as being linked to the imposition of GST and the fall of the ringgit.To these households, it is a daily struggle to make ends meet. Of course, no one wants to believe in or listen to “facts” when their disposable income has shrunk. Thus, the Government appears ever more remote and out-of-touch with ordinary life.

We empathise with the seriousness and gravity of these concerns. It is important for the public to un­­derstand where the Government stands on the many key issues assail­­ing our economy at this juncture.

Hence, The Star has taken on the challenge of gathering views and insights of key government officials, including our Prime Minister, the ministers in charge of the economy and the Central Bank Governor and other external experts.

To focus on things we want to see improvement or change, sometimes it is best to get back to the drawing board and understand where the shapers of the economy stand on key challenges compared to how the person-on-the-street sees them.

We sent out e-mails to these key policy makers whose decisions affect our daily lives. We by-passed their aides and convinced them that we want “clear answers”.

So what we have in today’s issue of The Star are their e-mail replies. The readers should find time to read them fairly and decide if their answers are substantive and convincing.

If we are to move ahead in these difficult times, let us be fully aware of the facts and not be swayed by emotion and rhetoric.

Related story : 

 Does this character know what he is talking about?
MALAYSIANS are worried. Some of us think we are not getting the full picture. Is Malaysia facing an economic crisis or heading towards one?

Datuk Seri Najib Tun Razak: No, we are not in an economic crisis. In the last five years, my Govern­ment has taken tough and deliberate measures to implement economic reforms, al­­low­­ing the country to better cope with the current global economic slowdown.

The country’s fiscal deficit has been consistently reduced year-on-year since the Economic Trans­for­mation Programme (ETP) was laun­ched in 2010. The situation would have been worse if reforms only started now.

The country is on a more solid footing compared to the period of the Asian financial crisis in 1997. We have learnt from that episode. When the ETP was implemented, the fiscal deficit then was at 6.4%, but by end 2015, the deficit is projected to be at 3.2%.

 Even if it is unpopular and painful, sooner or later, people will rea­lise reforms we introduced back then have given us the latitude to face uncertainties. Imagine if the deficit today were at 6.4%, our po­licy options would be limited and we would be in dire straits.

We keep hearing our leaders telling us that all is “well and fine”. What do they mean by “strong fundamentals”.

Najib: Our GDP growth in the se­­cond quarter of 2015 was at 4.9%, bringing growth in the first half of 2015 to 5.3%. We have also diversified our economy, reducing our re­liance on oil and gas revenue, creating a more resilient fiscal environment.

Our economy continues to record trade and current account sur­pluses. The country’s labour market conditions are stable, with unemployment at 3.1% as of the second quarter this year. Inflation rate as measured by CPI for August also remained low at 3.1%.

Malaysia’s financial system is resilient. Domestic financial markets continue to function in an orderly manner to support the needs of the domestic economy.

But what needs to happen for our economy to strengthen?

Tan Sri Dr Zeti Akhtar Aziz: First, when the US Federal Reserve decides it is going to exit from the zero-bound. There is still uncertainty and it is generating volatility. The US economy is ac­­tually recovering and the recovery is strengthening. We are looking forward for them to exit from what has been termed as extreme and unprecedented mea­sures.

We have to be patient and look forward, and when it happens, I believe it will contribute to stability and recovery.

Second, energy and commodity prices will recover from their current lows and conditions in China will stabilise. When all these happen cumulatively to include also a resolution on our domestic issues, we will see a recovery for a currency reflecting our fundamentals.

For more than five years now, we have had good growth and we are considered one of the best perfor­ming economies. Our macroeconomic fundamentals are strong, we have a solid banking sector and not at any period was credit growth disrupted.

Another reason why we have been deeply affected by the current global economic slowdown, aside from being an open economy, is because our financial markets are larger and more developed.

In fact, in South-East Asia, our bond market is the largest and this invites inflows. You can expect when there are reversals, we feel more pronounced movements in these flows and in the exchange rate.

If you actually retraced when currencies strengthened, the ringgit was one of the earliest to strengthen the most. Of course, given the re­versal now, it is also one that expe­rienced the most depreciation. We see more volatility and this is how it is going to be. Everyone has to ma­nage themselves to live in such an environment.

That is why we built buffers for our reserves and work hard to ensure our financial system is resi­lient in order to better withstand this. Businesses will need to do the same and households are not spared.

WHY is our ringgit dropping so fast and steeply, and is one of the worst performing in Asia? Is it due to the 1MDB issue, the political crisis or just the continuing drop in the price of oil?

Abdul Wahid: The best way to answer is the “3+1” explanation: three external challenges and one domestic.In terms of external challenges, first, there is a reversal of investment flow from emerging markets back to the US economy. Therefore, Malaysia as an emerging market is negatively affected. Second, we are still a net exporter of oil and gas, and with oil prices slumping, we are taking a hit.

Third, trade with China last year was at 14% of total trade, making China our largest trading partner. Malaysia is bound to feel the heat as Chinese growth moderates as part of its efforts to re-balance and for economic sustainability.

The one domestic challenge is our own domestic sentiments, which compound these external impacts on the ringgit.

Should we be concerned about our depleting foreign reserves?

Zeti: With respect to our reserves, we have had periods of falling reserves before. Foreign reserves have recently fallen from US$120-130bil to about US$94bil. As opportunities arise, we will rebuild them.

Even at current levels, reserves are equivalent to about 7.4 months of import cover, which is very healthy. Our reserves will increase as a function of our current account surplus, investment inflows and reversals of outflows to developed markets.

Looking at the current scenario, can Malaysians conclude that we will not get to high-income status by 2020 because of the weakened ringgit?

Datuk Seri Idris Jala: We are definitely still on track for high-income status by 2020. “High-income status” as defined by the World Bank is a moving target, as practically all countries experience some level of economic growth over time.

Nevertheless, Malaysia continues to grow faster than the world average. Thus, we have been closing in on the World Bank’s high-income threshold since 2010 (see chart 1).


Also, the volatility of exchange rates is a normal part of daily life. Over time, exchange rates will reflect the fundamentals of an economy and monetary policy. Ours are strong. Currently, short-term challenges are creating many concerns around what will happen between now and 2020.

My view is that we have to recognise that there are challenges ahead, and at the same time pursue good policies. I am convinced that if we continue to do that, we will get to Vision 2020 by the year 2020.

There are suggestions that we cannot let the slide of the ringgit continue and that capital control measures must be introduced at some point to protect the ringgit from weakening further. What is your take?

Najib: I would like to reiterate that we will not impose capital control measures or peg the ringgit despite the strong headwinds we are facing. Instead, my administration will shore up the domestic economy and continue to attract investments.

Some examples are the Kuala Lumpur mass rapid transit project, the Pan-Borneo Highway, the high-speed rail link between Kuala Lumpur and Singapore, and the Petronas oil and gas terminal project at Pengerang in Johor.

The depreciating value of the ringgit against the US$ must surely affect trade negatively. It is hurting a lot of businessmen.

Mustapa-Mohamed-TPPA-300x202Datuk Seri Mustapa Mohamed: With the current currency movements, there will obviously be winners and losers (see chart 2).

From a trade perspective, it is a net positive for Malaysia. That said, for individual companies it mostly depends on your input cost – whether input is domestically sourced or imported and which market you sell your goods to. Anecdotally, when we talk to multi-nationals in the electrical and electronics sector, for instance, on balance we find they are starting to see a positive impact.

Ringgit2Consumers, people who travel abroad, those with children studying abroad – they will lose and feel the pinch and pressure now. But on balance as a country, in the medium to long term for exports in this case, there are some upsides to be enjoyed.

Najib misses opportunity in 11MP

June 29, 2015

Najib misses opportunity in 11MP

 by Ramesh Chander and Bridget Welsh
The credibility problem with the 11MP goes far beyond the macroeconomic assumptions underpinning the plan. The Najib government is creating arbitrary targets that are not in line with standard international practices.–Chander and Welsh

11th Malaysia Plan2As 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.

Underlying macro-economic fallacies

DatukChanderThe 11MP argues that Malaysia will become a “developed” or “high-income” nation by 2020. This is in line with the long-standing Vision 20/20 targets laid out two decades ago. The current plan argues that this transformation will be achieved with the economy growing at an average rate of five to 6% per year over the next five years resulting in the GNI per capita level of US$15,690 by 2020.

The macro-economic assumptions underlying this trajectory have been questioned and have not been seen as credible.

Scholars have highlighted that the Plan begins by failing to acknowledge the shortfalls in projected growth targets in previous plans and thus begins from an unrealistic starting point. Targets set out in the 10th Malaysia Plan had postulated an average annual growth rate of 6.5% a year over 2010-2020. However, during the first half of the decade the level achieved fell short and only reached 5.5%.

Simple arithmetic indicates that the country will need to grow at a rate faster than 6.5% in the second half of the decade, to compensate for the prior shortfall. The Malaysian economy must thus achieve a real growth of 7.7% per year over 2015 to 2020 if the targets set in the previous 10MP are to be met.

Other assessments have pointed to inflated projections of growth resulting from a failure to account for conditions in the international economy, particularly lower revenues coming from the global drop in oil and gas prices, the slowdown in China’s manufacturing and lower investment and potential capital outflows from Malaysia tied to quantitative easing in the United States accompanied with a rise in interest rates.

Concerns have also been raised about inflated assessments within Malaysia’s economy. For instance, the overall growth in GDP is postulated in part on the assumption that that household consumption will contribute positively to overall growth.

This assumption appears to ignore the role of large household debt, estimated at 88% of GDP, that will reduce household consumption. Household consumption has been a main driver in the economy over the past few years, primed by public spending. Consumption has been further dampened by the introduction of the GST which has not only reduced demand, but also hampered business due to poor implementation, especially among small business and in country’s narrow private sector.

Malaysia is reaching record levels of inflation, officially at 2.9% but unofficially much higher. Net exports are likely to only provide a limited amount to GDP as Malaysia’s prime markets are likely to record modest growth as traditional sectors of oil and gas and other commodities such as palm oil under deliver due to lower prices.

The most troubling issue is the lack of a clear driver for growth in Malaysia’s economy. Public sector spending, already strained by high public debt and a growing deficit that passes the 3.5% threshold when one considers off-budget and contingent liabilities, is lower in real terms than in the 10MP and the proposed engine for growth laid out in the 11MP, the private sector, is in need of serious reforms to engender a more competitive and conducive environment for growth.

The 11MP has effectively abandoned any real economic reforms, as it comes after Najib’s expansion of chosen Bumiputera affirmative action programmes after the 13th general election and increased politicisation of government procurement, a key tool used to shore up political support.

The problems with the macroeconomic foundations of the plan have dominated the debate surrounding the 11MP, with the economic fundamentals seen as less than credible and undermining the basis for the blueprint.

Rather than acknowledge realities, Datuk Seri Najib Razak’s government has chosen to paint an overly optimistic and unrealistic fallacy, to not come clean in relation to the macroeconomic circumstances facing the nation.  This fallacy affects confidence, and undermines the ability for the country to actually reach the touted 2020 goals.

Arbitrary targets of ‘developed’ status

The credibility problem with the 11MP goes far beyond the macroeconomic assumptions underpinning the plan. The Najib government is creating arbitrary targets that are not in line with standard international practices.

One key concept embodied in 11MP is that of a “highly” or “developed country”, its origin needs to be understood.The World Bank classifies countries by income categories (low, middle, high income) to serve the Bank’s needs to establish operational and lending markers. Its website makes clear that low-income and middle-income economies are sometimes referred to as developing economies. This term is a convenient categorisation, it is not intended to imply that all economies in the group are experiencing similar development or that other economies have reached a preferred or final stage of development. The Bank makes it clear that classification by income does not necessarily reflect development status.

The Bank prepares its classification of countries annually on the occasion of its fiscal year (ending in June 30). The per capita GNI calculations used in the classification employ a well-established methodology known as the Atlas method for converting per capita incomes expressed in national currencies into a common measure (the US dollar).

The method takes into account exchange rate fluctuations in cross-country comparisons.  The Atlas conversion factor for any year is the average of a country’s exchange rate (or alternative conversion factor) for that year and its exchange rates for the two preceding years, adjusted for the difference between the rate of inflation in the country, and through 2000, that in the G-5 countries (France, Germany, Japan, the United Kingdom, and the United States).

For 2001 onwards, these countries include the eurozone, Japan, the United Kingdom, and the United States. A country’s inflation rate is measured by the change in its GDP deflator. The calculations are done annually and are not comparable from year to year and cannot, therefore, be projected. In other words, the use of per capita incomes as a measurement is not a standard that is used for planning purposes as it does not allow for proper comparison and assessment over time, nor does it have any real meaning when projected in the future as there are too many unknowns to evaluate its value in the future.

Najib’s figure of US$15,000 in the 11MP has been arbitrarily chosen and has no real meaning. It is a concocted notional figure and then fancifully set as a goal. The reality is that, given the World Bank’s methodology, the cut-off for distinguishing “high-income” countries from “middle-income” countries cannot be determined at the present point in time for a date in the future.

Projecting future per capita GNI levels (in accordance with the Atlas methodology) requires an array of assumptions pertaining to inflation trends, exchange rates and the emergence of unexpected shocks.

The 11MP fails to offer any clues as to how the Najib government came to choose the figure of US$15,000 as the determining cut-off and what are the assumptions about the factors that would underlie it emerging in the future. In using the US$15,000 per capita target as the goal as it has, the credibility of the 11MP has been affected.

Missing details on poverty

A basic good practice in planning is to carefully lay out the methodology and assumptions in the numbers used for projections and assessments.

Nowhere is this more important that in the analysis of poverty. With self-congratulatory language, Najib’s 11MP claims that poverty incidence has declined from 3.8% in 2009 to 0.6% in 2014.

No details are provided about the estimated poverty lines used in the calculations. This is unlike previous plans, notably the 9MP. The failure to outline the methodology attempts to skirt the persistent concerns regarding how Malaysia’s poverty measurements do not conform with international practices.

Malaysia’s measurements are seen to define poverty below the bar used in international levels and to use “households” rather than “persons”, obscuring the real scope of poverty in society. In the absence of details, it is inappropriate to make grand claims in poverty reduction.

The perfunctory and non-transparent analysis of poverty in the current plan raises concerns. Even if we take the number of households listed as “poor” at face value, when converted to number of “persons” basis, (persons per households) the number in poverty is actually a staggering number – almost a million and a half of all Malaysians live in absolute poverty.

The 11MP offers no real discussion regarding the composition of these communities, namely that disproportionately the majority live in Sabah and Sarawak, are women and children and come from families of multiple generations of impoverishment. It is a most serious state of affairs that after almost four decades of the NEP, significant numbers of poverty exist even when a low bar is used to define it.

Not only do the poverty numbers reflect the current failure of the NEP to deliver upon development to all Malaysians, they reveal the shortcomings of the Najib government in its focus on short-term measures of millions of cash handouts and lack of meaningful policy programme to address the status of the country’s poorest citizens.

The thin accompanying “strategy papers” with the 11MP do not include substantive ideas to address poverty, from rural development to urban exclusion. What the 11MP reveals is the lack of the political will to acknowledge the need to make adjustments and develop meaningful policy programs on poverty.

The lack of a connection to the current conditions faced by Malaysians is especially troubling. No bridget-welshassessment is made of the impact of the reduction of subsidies. The Plan wholly ignores the question of how implementation of GST or the granting of BR1M (1Malaysia People’s Aid) cash handouts affects poorer Malaysians. The impression given is that poverty gains are to be lauded and the ongoing problems largely ignored.

A new beginning is needed. To sincerely and fully address the issue of poverty, it is imperative that Malaysian policy-makers first apply the internationally accepted concepts and methodology employed to derive the various Poverty Line Income (PLI) measures and the estimates of poverty incidence.

The current methods are deeply flawed and are not conducive to an honest discussion of the problem of poverty. To the extent there are efforts to distort real conditions facing Malaysians, the lack of proper measurement fundamentally affects the analyses and conclusions.

In turn, this leads to the adoption of ineffective policies. The World Bank and UNDP, two leading global agencies in analysing poverty, use the concepts of “absolute” and “relative” poverty.

There are no valid reasons Malaysia should deviate from standard international terminology and standards. A meaningful step toward reducing poverty involves using national estimates based on population-weighted estimates from household surveys, rather than unrealistic lower-than-normal bars based on notional estimates of food consumption baskets utilising caloric values that are widely seen as less reliable measures.

A struggle over how to understand and measure poverty is evident in the 11MP. A pitch is made for the introduction of a new “Multi-Dimensional Poverty Index” based on a tool used by UNDP.

In an elaboration of the index, details are provided of the weights that will be adopted for each of the component elements making up the composite index. The choice of weights is critical to the viability of the overall index.

In the citation provided, no rational is given as to how the weights would actually be calculated. This gap in information does not offer an improvement on current measures as it continues arbitrary calculations of Malaysia’s poverty levels.

It is crucial that these measures be determined transparently and consistently in line with international standards. The 11MP also introduces a new concept, namely that of “B40” households, made up of the households at the bottom 40% in terms income distribution. Some 2.7 million households make up this group. The mean average monthly income of these households is claimed to be RM2,537. The plan projects that their incomes will more than double to RM5,270 by 2020.

While some elaborations are provided, there are unanswered questions concerning the consistency of these numbers with other indicators in the 11MP and how these numbers can be achieved given the flawed macroeconomic assumptions underlying the plan as a whole.

The overall picture that emerges is that the 11MP is labouring hard to project “feel good” numbers without providing details.The numbers, even though precise to the last digit, are not supported by information concerning data sources, concepts employed and assumptions made in the projections. As Malaysia employs numbers not in line with accepted international practices, this information is necessary for credibility.

While the authors can be forgiven for not incorporating such details in the actual plan document, there is hardly any justification for not providing the relevant detail in the so-called strategy papers or in technical appendices.

Deviating from the past

A centrepiece in all Malaysian five-year plans, beginning with the 3rd Malaysia Plan, has been treatment of the two prongs of the NEP, namely the eradication of poverty irrespective of race and the greater equitable distribution of wealth.

The issues with the former are outlined above. The latter is essentially missing in the 11MP altogether. In Malaysia, the distribution of wealth has focused upon ownership of share capital by race.

All plans since 1970 have incorporated tables showing the progress made towards attaining the 30% target for Bumiputera ownership of share capital. It is thus truly surprising that this principal goal of planning in Malaysia since the early 1970s has essentially disappeared altogether in the 11MP.

A reference is made that the 30% target remains unfulfilled as of now, and a claim is made that the targets will be met by 2020, but no data is included to allow for assessment or evaluation.

Unlike all earlier Plan documents, the 11MP does not include a table detailing the ownership of share capital.  This is indeed puzzling, and raises questions about the intentions of the Najib government.

One possible explanation could lie with an attempt by the Najib government to skirt the controversial discussions regarding how estimates to measure share values of different communities have been prepared.

The use of nominal values has been extremely controversial. The impression given, however, in the failure to properly include this issue of equity ownership in the 11MP is that it is no longer a priority of the Najib government.

Missing information also surrounds the important area of development expenditures. Malaysia’s five-year plans have consistently included detailed accounts of where money will be spent, outlining the spending priorities of the government for long-term planning.

These expenditures have been tied into the broader goals of plans, including poverty reduction and increasing incomes.

While a number of projects are listed in 11MP, the relationship between these projects and the broader well-being of all Malaysians has not been laid out. A core element in planning involves a thorough and transparent accounting of public spending, sadly missed from the 11MP. Given the billions of funds that are being pumped into the Malaysian economy, as the Najib government has outlined over RM400 billion in expenditure while in office, the tie between spending and broader planning goals is a serious omission.

Raising questions, losing confidence

The 11MP stands out in how information is presented and not presented – the arbitrariness of numbers, concerns with distorted realities, lack of detail in assumptions and methodologies, distracting new concepts that further move away from international standards and major gaps in information and analysis that allow for the emergence of constructive and conducive policy platforms to address the country’s policy challenges, from poverty to raising incomes

All previous plans and mid-term reviews have gone beyond outlining aspirational targets and seriously attempted to lay out policy reforms tailored to the targets.

The 11MP has deviated from this approach. It has failed to outline meaningful measures that are needed to remove the constraints that are holding the country back, entrapped as a middle income country. It appears that the Najib government is not genuinely interested in planning, or does not have the capacity to effectively formulate policies for Malaysia’s development.

In the 11MP, the Najib government has missed an important opportunity to move the country forward, to build faith in the current leadership and to show that the Prime Minister has a plan to strengthen Malaysia. Rather than inspire confidence, the 11MP raises questions about how the touted targets will be achieved and whether Malaysians, especially poorer citizens, will get the governance they need. – new mandala, June 29, 2015.

* Dato’ Ramesh Chander was the first head of Malaysia’s Department of Statistics. He served as a senior adviser to the World Bank’s chief economist/senior vice-president before retiring from the Bank.

* Dr Bridget Welsh is a senior research associate at the Centre for East Asian Democratic Studies at National Taiwan University.

The Nation wide Roadshow: Spreading the 1MDB Bull

June 21, 2015

KidsWhat kids think of the UMNO Roadshow

Tthis  is a brilliant idea  coming from the high 3.85 CPGA Deputy Minister of Finance Ahmad Maslan.  By all means spread the bull to the rural heartland. I am sure the response will be great since participants will be treated to good food and drinks and may be given wang ehsan courtesy Arul Kanda Kandasamy of the infamous 1MDB. The cost of the road shows will be miniscule compared the amount  for funding the 2013 General Election (read .

WSJ Powering ElectionsIf I may suggest to the Deputy Minister, please bring along Mr. Transformation Blues Minister Dato’ Seri Idris Jala  and his guitar to  dazzle the audience his PowerPoint presentation slides and gadgetry, and also provide some entertainment. 

Mr. Jala’s time will be better spent here than being with  people at Oxford, Harvard (at the John F Kennedy School of Government) and in Moscow. Our rural folks can be very impressed with our country’s transformation under  Prime Minister Najib Tun Razak.–Din Merican

Nation wide Roadshow: Spreading the 1MDB Bull


The state-level Premier Information Dissemination Roadshows (MPPs) will be held during the second week of Syawal, said Deputy Finance Minister Ahmad Maslan. He said the roadshows are aimed at explaining current issues including on the 11th Malaysia Plan (11MP), Goods and Services Tax (GST) and 1Malaysia Development Berhad (1MDB).

“The roadshows will not be held in state capitals but in strategic and suitable locations within the 14 states,” he told reporters after attending an iftar (breaking of fast) at the Mara Junior Science College in Parit, Perak today (June 20).

maslan-robin-hood-superimposedThe UMNO Hood

Furthermore, he said the upcoming roadshows would also include exhibitions on the GST by the Royal Malaysian Customs and price control on goods by the Domestic Trade, Cooperatives and Consumerism Ministry. Earlier, Ahmad had a closed-door meeting with about 150 Parit UMNO leaders and village chiefs.

Transformation Blues Minister rebutts Bloomberg’s William Pesek

June 20, 2015

COMMENT:I am very skeptical about whatever Mr.dato-din-merican Transformation Blues  says on the state of our economy. He uses statistics with amazing ease  in  his rebuttal to Mr Pesek’s article. We know that statistics can be massaged for purposes for which they are intended. Malaysians are familiar with this kind of public relations exercise.

Minister Jala has been spinning too often and now has a serious credibility problem. Throwing statistics  around  will not  change public perception about the Prime Minister’s mismanagement of the economy.

Let us face reality. The 1MD debt problem is like an albatross around our national neck.  It has been badly handled by  company and Treasury officials and the Prime Minister himself. Minister Jala should be providing the answer to what happened to the RM42 billion debt? Why has he not commented on it in his rebuttal?  He must know that the issue has undermined public trust and investor confidence.

What transformation is he talking about when we know that our economy is up against some very  serious challenges in the years ahead. For example, we are in the middle-income trap and I have not seen any attempts on the part of the Najib administration to deal with this major challenge. We are still a commodity export economy, dependent on palm oil and oil and gas.

We have been talking about a knowledge economy for as long as I can remember, yet we are unable to fix our standard of education from primary to tertiary level. Our Research and Development policy is shrouded in mystery.

We know that the Prime Minister is not providing the leadership the country badly needs since he is pre-occupied with his own political survival.

Minister Jala should be talking to ordinary people to get a better understanding of their situation and  listening to economists who have contrarian views on our government’s  fiscal policy, and development strategy as  outlined in the 11th Malaysian Plan (2015-2020).

What is Minister Jala’s intention in making this point:

Because of our achievements, I was invited to share our experience at both Harvard and Oxford universities this year. At the Harvard Kennedy School of Government, I had the privilege to share Malaysia’s success story with government ministers from many countries. Last month, I was invited to share our experience with Russian ministers in Moscow.”

What success story is he telling his audience at Oxford and Harvard and the Russian Ministers in Moscow?  Are they gullible? My readers and I on this blog are not.–Din Merican

In addition to the above, I wish to add my good friend Dr. Bakri Musa’s  rebuttal to our Tranformation Blues Minister’s response to Mr. Pesek’s article as follows::

“The facts, however, are these. Between 2009 and 2014, Malaysian Gross National Income grew by 47.7 percent …”

Facts and figures by themselves mean nothing. What is the comparable figures for our peers – Taiwan, South Korea or even Vietnam. Not to mention Singapore or China. To quote the man, let me repeat again (… and one more time!), facts and figures must be put in proper perspective!

Oops! I forgot that our peers are now Nigeria, Pakistan, and Afghanistan in which case Jala’s figures are indeed impressive.Yes, our growth rate is higher than Japan, Western Europe and other advanced countries but those countries are already there, cruising at high altitude. Malaysia is still trying to take off and ascending. It cannot afford a low growth rate without risking a stall.

As for our devalued ringgit, Jala seems impressed by Zeti’s confidence rather than what the market is telling us. It is pathetic that Jala would consider his invitation to Harvard as an endorsement of the government’s policies. Jala should instead visit our universities and schools and discover how pathetic they are.

More important than what Jala tells those Harvard folks or how honored he was to be invited, what did Jala learn when he visited Boston and what lessons can he impart onto our local institutions. Or was Jala, like so many ministers on their “study” visits abroad impressed only with the glitz and ceremonies?–M. Bakri Musa

Transformation Blues Minister rebutts Bloomberg’s William Pesek

by Dato Seri Idris

Guitar Playing Singer Idris JalaRebutting with Pemandu Statistics

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%.

2. Growth last year was 6%, and over the next four years the OECD predicts Malaysia will enjoy annual growth of 5.6%.

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%, 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 Datuk Seri Najib Razak launched Malaysia’s Economic Transformation Programme in 2010. Let me highlight some key achievements:

  • Third, as detailed in the World Bank’s Global Economic Prospects report 2014, Malaysia’s efforts at reducing poverty have been a great success, virtually eliminating absolute poverty to less than 1%. Since 2009, the income of the bottom 40 per cent households has increased by a compound annual growth rate of 12%, even higher than the national average of 8%. Inflation has been kept in check at only 2.4%. And through the implementation of minimum wage legislation, we have lifted 2.9 million people immediately out of absolute poverty.
  •  First, in the last five years, annual investment growth has been 2.5 times more than in the preceding years. Each year, total investment reached a new record for Malaysia. The bulk of this investment is from the private sector. If the private sector has no confidence in Malaysia as alleged by Pesek, why would they put in record investment year on year under the Najib administration?
  •  Second,‎ the country’s fiscal reforms are being successfully implemented, cutting Malaysia’s fiscal deficit for the past five years, while keeping public debt at only 53% of GDP.This level of public debt level is far lower than in many countries, such as the US, UK, France, Japan and Singapore.

4. We touched the lives of five million people through rural roads, electricity and water projects. This represents possibly the biggest government expenditure over a five-year period in the history of Malaysia. All of these were done in the name of inclusive economic development.

That should be enough to dispel the suspiciously negative picture Pesek paints. But let me address some of his other inaccurate accusations, too.

5 As for the alleged failure to “dismantle race-based policies that strangle innovation”, let me quote from a report in a respected international news organisation:

  • “Malaysia eased rules governing overseas investors, initial public offerings and property purchases, peeling back decades of benefits to ethnic Malays. Foreign companies investing in Malaysia and locally listed businesses will no longer need to set aside 30% of their equity to so-called Bumiputera investors, Prime Minister Najib Razak said today. He also raised overseas ownership thresholds in the fund management industry and at local stockbrokers.” At Initial Public Offerings, “Publicly traded companies will no longer have to meet any Bumiputera equity requirement under today’s liberalisation measures.” If Pesek disagrees with any of the above, perhaps he might discuss it with his editors. The report was published, after all, by none other than Bloomberg.
  •  At another point, he writes that Najib has “deepened the economy’s reliance on oil and gas production”. The International Monetary Fund believes otherwise. The headline on its “Economic Health Check” report this March was: “Favourable Prospects for Malaysia’s Diversified Economy”.

6. Pesek rounds off his imaginative piece of writing by declaring that “the ringgit’s fluctuations are a decent summary of the country’s wayward course in recent years”.

Perhaps he would like to discuss this with Malaysia’s Tan Sri Zeti Akhtar Aziz, one of the most admired central bank governors in the world. She has repeatedly said that the ringgit is undervalued. Here is what she said recently: “When the oil price plummeted, the wrong perception of the degree of dependence of the Malaysian economy on the oil and gas sector led markets to think that we would be more affected than others. Of course, the ringgit is undervalued. It doesn’t reflect our underlying values, which are solid and strong.”

7. Pesek’s opinions do not seem to have a strong connection to the facts. He gives away his true agenda when writes that “Asia-based journalists have missed (Tun Dr) Mahathir Mohamad since he left office in 2003” and suggests “a return to old political leadership” is “urgent”.

It may be that nostalgia for the past and his distance from Malaysia have clouded his judgment, and led him to write an unsubstantiated hatchet job on the current prime minister in order to please a former Prime Minister about whom he gushes, his “mercurial governing style and fiery rhetoric made for great copy”.

He certainly seems to have changed his mind about Dr Mahathir. Only last year he wrote: “The insular and jury-rigged system of affirmative action, national champions and fat subsidies over which Mahathir presided now holds the economy back. The Malaysian leader also had a tendency to embarrass his nation on the international stage with his nutty anti-Semitic tirades.”

He concluded: “Malaysians must find fresh inspiration by looking forward, not back to 1990.” We agree. Why does Pesek now think we should look back to a system he described in such a derogatory manner last year?

8. Malaysia has undergone an impressive economic transformation under Najib and the country is on course to reach the goal of becoming a high-income nation by 2020 – as the figures and achievements I have mentioned above make clear.

Because of our achievements, I was invited to share our experience at both Harvard and Oxford universities this year. At the Harvard Kennedy School of Government, I had the privilege to share Malaysia’s success story with government ministers from many countries. Last month, I was invited to share our experience with Russian ministers in Moscow.

9. I wonder why it is that many countries and institutions can see the progress we are making, but Pesek chooses not see any of it? His latest outburst is consistent with a series of slanted articles that unfairly run down Malaysia and its leadership.

10. Differing opinions are bound to be expressed on Bloomberg View. The defence of “fair comment”, however, does not apply to getting facts so woefully wrong. We would hope that the editors at Bloomberg agree, and will correct or take down such a disgracefully biased and ill-informed article.

* Datuk Seri Idris Jala is CEO of Pemandu and Minister in the Prime Minister’s Department.