Budget 2019:Tough Times Ahead for Malaysia


Budget 2019:Tough Times Ahead for Malaysia–The Price of UMNO’s Fiscal Indiscipline

Domestic Demand to grow at 5 and 4.8pct in 2018 and 2019

by Bernama@www.malaysiakini.com

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BUDGET 2019 | Domestic demand growth is expected to remain resilient at five percent and 4.8 percent this year and in 2019 respectively, steered by sustained private sector expenditure.

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https://www.malaysiakini.com/news/450171

According to the Economic Outlook 2019 report released by the Ministry of Finance today, private sector growth expenditure is expected at 6.5 percent this year and 6.4 percent in 2019, constituting about 72 percent of the Gross Domestic Product (GDP).

Meanwhile, the report said public sector expenditure is anticipated to further decline to 0.9 percent in 2019, after recording a marginal growth of 0.1 percent this year, mainly due to lower investment by public corporations.

“Private consumption will remain the major growth determinant, expanding by 7.2 percent and supported by a stable labour market, benign inflation and conducive financing conditions.

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“Other factors such as the zerorisation of the Goods and Services Tax, subsidised pump prices, the general elections, FIFA World Cup season, and termination of toll collection on two highways, provide further impetus to household spending,” the report said.

Private investment, the report said, is expected to grow 4.5 percent this year, accounting for 17.3 percent of GDP with capital outlays concentrated in the services and manufacturing sectors.

It is expected to post a higher growth of five percent next year, attributed to capital spending in technology-intensive manufacturing and services sectors, it added.

According to the report, as Malaysia moves towards digital technologies and the Industrial Revolution 4.0, investment will focus on catalytic industries.

These include the Internet of Things (IoT), software, advanced electronics, smart machinery, automation and robotics, automated guided vehicle, aerospace and medical devices.

On the other hand, public consumption is anticipated to expand marginally by one percent this year, in line with the continuous efforts by the government to rationalise and optimise expenditure without compromising the quality of public service delivery.

In 2019, the report said, public consumption is expected to expand 1.8 percent on account of higher spending on emoluments as well as supplies and services.

As for public investment, it is expected to decline 1.5 percent and 5.4 percent in 2018 and 2019 respectively, mainly weighed down by public corporations’ lower capital spending.

Nevertheless, sustained federal government capital formation is expected to continue to support overall growth of public investment. Despite lower capital spending by public corporations, some of the ongoing projects are expected to continue in the oil and gas industry.

The report said capital spending in the utilities and transport segments is projected to continue to expand capacity and upgrade services.

Meanwhile, federal government development expenditure will be channelled mainly to upgrade and improve transport, infrastructure and public amenities, as well as enhance the quality of education and training.

“In line with steady economic growth, Gross National Income (GNI) in current prices is expected to grow 5.6 percent in 2018 to RM1.4 trillion, while gross national savings (GNS) is anticipated to increase marginally by 0.4 percent to RM387.8 billion with the private sector accounting for 82 percent of total savings.

“With the level of GNS continuing to exceed total investment, the savings-investment gap is expected to record a surplus between 2.5 percent and three percent of GNI, enabling Malaysia to continue to finance its growth primarily from domestic sources.

‘’Growth momentum in GNI is also expected to continue next year expanding 7.1 percent to RM1.5 trillion, with the private sector accounting for 86.9 percent of total savings, while GNS is anticipated to grow 3.4 percent,” the report noted.

Total investment is projected to increase five percent to RM366.8 billion, leading to lower savings-investment surplus, ranging between two percent and three percent of GNI.

Directions for Malaysia’s Economic Policy


October 28, 2018

Directions for Malaysia’s economic policy

by Cassey Lee / Khmer Times
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History repeats itself but often in slightly different ways. So it is with the tabling of the Mid-Term Review of the Eleventh Malaysia Plan (MTR-11MP) on October 11 by Prime Minister Mahathir Mohamad.

Some 34 years ago, in March 1984, Mr Mahathir unveiled the mid-term review for the Fourth Malaysia Plan (4MP) (his first since assuming power in 1981). The Eleventh Malaysia Plan (11MP) is the country’s latest five-year development plan covering the period 2016 to 2020. It serves as a tool for medium-term economic planning. The mid-term review of the Plan essentially takes stock of the progress achieved half-way through its implementation period.

Though both the 4MP and 11MP were crafted under heightened fiscal constraints and contained significant new policy directions, there are some notable differences. A key difference is that the new policy directions in the MTR-11MP are noticeable but contain less implementation details. This is to be expected, as the new Pakatan Harapan (PH) government, which came into power in May, probably only had about three to four months to shape the MTR-11MP report. Work on the report commenced in October 2017 and was supposed to be tabled in Parliament by July or August.

Taking this time-constraint into account and the fact the new administration has had to struggle with a host of concurrent issues (including fiscal consolidation), the report is nevertheless a compelling read as it provides the first broad overview of the future directions of the PH government’s economic policies.

The report itself is divided into two major components. The first component which covers chapters two to eight provides reviews of the six strategic thrusts of the 11MP which were crafted by the Barisan Nasional government.

Aside from providing statistical updates on the progress achieved, the reviews are generally critical in the sense that they often attribute problems to existing institutional deficiencies. This then leads to the second component of the report (chapters 10 to 15), each of which contains one of the six “pillars” or new policy directions.

These are: (i) reforming governance towards greater transparency and enhancing efficiency of public service, (ii) enhancing inclusive development and well being, (iii) pursuing balanced regional development, (iv) empowering human capital, (v) enhancing environmental sustainability through green growth, and (vi) strengthening economic growth.

Comparing the MTR-11MP with the 11MP, there are some similarities in the themes and emphases of the two reports e.g. human capital, environmental sustainability and inclusiveness.

The significant departures from the original foci of 11MP are in pillar (i) on institutional reforms and pillar (iii) on regional development.

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The institutional reforms detailed in chapter 10 are likely to have drawn from the report from the Institutional Reforms Committee which submitted its final report in July. The reforms include policies to strengthen check and balance mechanisms, revive the spirit of federalism, deepen the anti-corruption agenda and drive political reforms.

One political reform proposal that has received media attention is the implementation of a two-term limit for the Office for the Prime Minister, Chief Minister and Menteri Besar. Given the importance of institutions as key determinants of long-term economic development and growth, the emphasis on institutional reforms is both appropriate and encouraging.

The renewed emphasis on regional development is refreshing and surprising. Surprising, because regional development was largely neglected during Mr. Mahathir’s first term as Prime Minister (1981-2003). Though the 11MP did promote the development of regional economic corridors, the new emphasis is on reducing state-level developmental gaps that have persisted. The report contains proposals to improve development allocations to less-developed states, namely, Sabah, Sarawak, Kelantan, Terengganu, Kedah and Perlis.

This strategy is both equitable and politically astute – the latter because the PH government needs to win the trust of rural Malay voters in northern Peninsular Malaysia and East Malaysian voters before the next general election.

Dr Cassey Lee is Senior Fellow, and co-coordinator of the Malaysia Studies Programme, at the ISEAS-Yusof Ishak Institute. This article first appeared in ISEAS Commentary and it can be read at https://bit.ly/2PgakFW

Brexit–David Cameron led us to this calamity.


October 23, 2018

 

“David Cameron is a former PM. He not only has the right to offer his solution but a duty. If he is to earn the right to a hearing, however, he must first find not only self-knowledge and courage, but an un-English seriousness of purpose he has evaded all his life.”–Nick Cohen

John Major, Tony Blair and Gordon Brown have warned of the dangers of Brexit. But where is the former Prime Minister who called the referendum that will blight Britain for as far ahead as anyone can see? Whatever happened to that likely lad? David Cameron doesn’t want to talk about it, one of his friends tells me. “He doesn’t defend the referendum, but won’t say he made a mistake either. Europe is like a family scandal. We know what’s happened but we don’t say a word: it’s his no-go zone.”

At a personal level, the consequences swirl around him. I may be exhausting your capacity for compassion but the smallest of the casualties of Brexit has been the good fellowship of the Chipping Norton set. Naturally, the Cotswolds’ wealthy Leavers are grateful. But Cameron must resent them. He must know that he has been the useful idiot who succumbed to the demands of Rupert Murdoch’s Rebekah Brooks, a member of the local nouveau gentry by virtue of her converted barn, in the crashingly stupid belief that no harm would come from his surrender.

Invitations to “kitchen suppers” from Remainers, however, can only include Samantha Cameron’s name – if, they are extended at all. Tania Rotherwick invited the Camerons to her pool at the magnificent Cornbury Park estate before she split from her husband and Cameron split Britain from Europe. She is now particularly contemptuous, I hear.

Cameron’s memoirs were meant to be published this month but have been delayed until next year. The early signs are ominous. A book has to be coherent if it is to find a readership: its opening must prefigure its conclusion. As described in the publishing press, Cameron’s effort will have no consistency. He will tell the story of the formation of the coalition, his contributions to economic, welfare and foreign policy, his surprise victory in the 2015 election and then – as if from nowhere – the conventional memoir will end with the author carelessly deciding he will settle the European question, without planning a campaign or preparing an argument and, instead, launching a crisis that will last for decades. Nothing will make sense. Nothing will hang together. It’s as if a romcom were to conclude with serial killers murdering the cooing lovers or Hilary Mantel were to have aliens invade Tudor England on the last page of her Thomas Cromwell trilogy.

The book Cameron cannot write would accept that his political battles and achievements were as nothing when set against his decision to appeal to the worst of the Tory party. It would begin with Cameron honouring the decision that won him the Conservative leadership in 2005. He would confess that he should have known better than to pull the Conservatives out of the centre-right group in the European parliament and align them with Law and Justice, the know-nothing Polish nationalists who are reducing their country to an ill-governed autocracy. The manoeuvre was pure Cameron: tactics above strategy; appeasement instead of confrontation.

The pattern continued throughout his premiership. He thought he could buy off the right by refusing to explain the benefits of EU membership to the voters. At one point in 2014 he threatened to leave the EU. He then turned around in 2016 and asked the public to believe that leaving would be a disaster and was surprised when 17.4 million men and women he had never treated as adults worthy of inclusion in a serious conversation ignored him.

If he were being honest, Cameron would admit too that Brexit ought to bring an end to a British or, to be specific, English, style that is by no means confined to the upper class, but was everywhere present among the public-school boys who ruled us.

‘One Etonian led the Remain campaign and another led the Leave campaign, and the English couldn’t see why that was wrong.’
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‘One Etonian led the Remain campaign and another led the Leave campaign, and the English couldn’t see why that was wrong.’ Photograph: Frantzesco Kangaris for the Guardian

I mean the ironic style that gives us our famously impenetrable sense of humour (which we will need now the rest of the world is laughing at us). The perfidious style that allows us to hide behind masks and has made England superb at producing brilliant actors for the West End but hopeless at producing practical politicians for Westminster. The teasing style of speaking in codes that benighted foreigners can never understand, however well they speak English. The cliquey style that treats England as a club, not a country, and allowed Jeremy Corbyn to say that Jews cannot “understand English irony”, however long their ancestors have lived here.

 

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The deferential style that allowed one Etonian to lead the Remain campaign and another to lead the Leave campaign and for the English to not even see why that was wrong. The life’s-a-game-you-shouldn’t-take-too-seriously style that inspired Cameron to say he holds “no grudges” against Boris Johnson now the match is over and the covers back on the pitch.

The gentleman amateur style that convinced Cameron he could treat a momentous decision like an Oxford essay crisis and charm the electorate into agreeing with him in a couple of weeks, as if voters were a sherry-soaked don who could be won round with a few clever asides. The effortlessly superior style that never makes the effort to ask what the hell the English have to feel superior about. The gutless, dilettantish and fatally flippant style that has dominated England for so long and failed it so completely. The time for its funeral has long passed.

A politician who bumped into Cameron said he thinks the referendum result must be respected, but that Britain should protect living standards by going for the softest Brexit imaginable and staying in the single market. This is a compromise well to the “left” of Theresa May and Corbyn’s plans and is worth discussing. Whatever his critics say, David Cameron is a former PM. He not only has the right to offer his solution but a duty. If he is to earn the right to a hearing, however, he must first find not only self-knowledge and courage, but an un-English seriousness of purpose he has evaded all his life.

Nick Cohen is an Observer columnist

CEP’s Dr. Jomo Kwame Sundaram–A Life of Public Service


September 24, 2018

CEP’s Dr. Jomo Kwame Sundaram–A Life of Public Service

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The Council of Eminent Persons (CEP), sometimes described as the Council of Elders, was set up to advice the Prime Minister Dr Mahathir Mohamad’s new Pakatan Harapan government.

However, the CEP has also attracted a fair amount of controversy, including criticisms from within Harapan about the council’s role and powers.

One of the council’s members, economist Jomo Kwame Sundaram, addresses those criticisms in a question-and-answer format.

Question: You have been quite quiet since you were appointed to the CEP.

Jomo: Yes. Given all the speculation and tendentious publicity, I did not feel it was helpful to provide more fuel to the fire. As you know, myths about the CEP thrived, and all manner of things were attributed to the CEP, often wrongly.

There were also things we did in our individual capacities, which were being attributed to the CEP. As a result, the initial goodwill, credibility and legitimacy the CEP enjoyed were undermined, and instead of being an asset to the government, especially the PM, we became the butt of many criticisms, including from within the Harapan coalition, largely due to misunderstandings and misperceptions.

I think I speak for all CEP members that if the PM needs our services, we will gladly serve in our individual capacities, and hopefully, become less of a liability to him.

Why are you reported to be against publication of the CEP report?

The issue is complex and nuanced. First, producing a single report for publication was not in the PM’s appointment letter or announcement.

Undoubtedly, some other bodies in the past, viewed by many as precedents, did produce reports after working for much longer periods, but some did not. For example, Tun Razak’s National Consultative Council after May 1969 did not do so.

Our brief was to help the PM, and the new government, with some immediate tasks at hand, especially the PH manifesto pledges for the first 100 days. To do that well, we tried to offer advice as soon as possible for him to consider and act upon, which is different from producing a report after 100 days.

But a report has been submitted to the PM?

While CEP members were agreed on most matters, there were also some disagreements, for example, on government-linked companies. As is known, some of us disagreed on privatisation policy decades ago, which has a bearing on contemporary debates.

It may be impossible to resolve some such differences, even after further discussion. In such situations, what does one do? Remain silent, or publish the chair’s view, as long as that is made clear.

The CEP chairperson has come under particular criticism from certain quarters.

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Former CEP Chairman Tun Daim Zainuddin–The Silent Man of Action

I am not sure what you are referring to, but his longstanding relationship to the PM was undoubtedly crucial to the CEP’s establishment and functioning, and the object of criticism by his or the PM’s detractors.

There were also many criticisms of his trip to China, but again, such criticisms were undeserved, in my view. Governments dispatch special envoys all the time to deal with sensitive matters discreetly.

But you were a critic of the earlier Mahathir administration.

Indeed, I was critical of some aspects, but if you read what I wrote, my criticisms were always intended to improve government policy, and I also shared his aspirations for the country, especially development, industrialisation, Wawasan 2020, economic nationalism, nation-building, the so-called Asian financial crisis.

The CEP has not been meeting after the 100 days, but yet a report has just been submitted to the PM.

While we have not met or reviewed draft reports since, our chair has been helping the MACC on certain urban land abuses, as he should. Remember he has vast experience in such matters for half a century, even before he was involved with UDA, the Urban Development Authority.

Some CEP meetings were like master classes where I personally learnt more than I could ever hope to learn from reading.

So, are you for or against publication of the report?

It is really up to the PM. There are many options, including partial publication. Remember there are some highly sensitive matters, in terms of official secrecy as well as other matters which may be sensitive in terms of market behaviour, international diplomacy or even legal procedure.

As someone who has been critical of the abuse of secrecy in the past, I must also acknowledge that there are legitimately sensitive matters, and full transparency may not always be in the public interest.

If the CEP had a different proposal on some issue from the one eventually adopted by the Harapan government, what is the point of publicizing such differences with the government of the day after the fact? It is likely to be used by detractors for their own purposes rather than for better purposes.

Also, as you know, two committees were set up. The Institutional Reform Committee prepared a long report with a view to publication, and the PM may wish to publish it. The other one on 1MDB has contributed to expediting investigation and action, but I doubt their recommendations were intended for publication.

So, you will have nothing to show for your 100 CEP days?

Serving the national and public interest was our priority, not publicity or publications.

What are you doing a month after the CEP’s 100 days ended?

No longer an elder, I already feel younger.Many people expect me to write about the CEP, its work and its recommendations. I have no such plans, but am very busy with earlier unfinished and postponed work as well as new work to help the new administration, preferably under the radar.

The Current Account Counts


August 30, 2018

The Current Account Counts

https://www.project-syndicate.org/commentary/current-account-imbalances-precursor-to-crisis-by-stephen-s–roach-2018-08

Despite the US government’s recent upward revision to personal saving data, the overall national saving rate, which drives the current account, remains woefully deficient. And the major surplus countries – Germany, China, and Japan – have been only too happy to go along for the ride.

 

NEW HAVEN – In an increasingly interconnected global economy, cross-border trade and financial-capital linkages have come to matter more than ever. The current-account balance, the difference between a country’s investment and saving position, is key to understanding these linkages. The dispersion of current-account positions tells us much about the state of global imbalances, which are often a precursor of crises.

The same is true of trade tensions, such as those now evident around the world. Current-account disparities often pit one country against another.

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Economies running current-account deficits tend to suffer from a deficiency of domestic saving. Lacking in saving and wanting to invest, consume, and grow, they have no choice but to borrow surplus saving from others, which gives rise to current-account and trade deficits with the rest of the world. The opposite is the case for countries with current-account surpluses. They are afflicted by subpar consumption, excess saving, and chronic trade surpluses.

There is a long-standing debate over who is to blame for this state of affairs – the deficit countries, which draw freely on the saving of others to finance economic growth, or the surplus countries, which choose to grow by selling their output in foreign markets. This blame game, which has long been central to disputes over international economic policy and trade tensions, is particularly contentious today.

The United States has the largest current-account imbalance in the world. It has recorded a deficit for all but one year since 1982, the sole exception being 1991, when foreign contributions to its military campaign in the Persian Gulf underpinned a miniscule surplus (0.05% of GDP).

During the 2000-2017 period, the US amassed $9.1 trillion in cumulative current-account deficits. That is larger than the $8.9 trillion of cumulative surpluses run collectively by the three largest surplus economies – Germany, China, and Japan – over the same period.

Many observers believe that the US is doing the rest of the world a huge favor by running chronic current-account deficits – namely, supporting the large surplus countries, which tend to suffer from a shortfall of domestic demand. Others, including me, are more critical of America’s long-standing penchant for excess consumption and the role that surplus economies play in enabling it. While there is undoubtedly some validity to both points of view, I worry more about the destabilizing role of the US.

America’s consume-now-save-later mindset, which is at the heart of its current-account deficit, is deeply embedded in its political economy. The US tax code has long been biased toward low saving and debt-financed consumption; the deductibility of mortgage interest, the absence of any value-added or national sales tax, and a dearth of saving incentives are especially problematic.

So, too, are the wealth effects from a profusion of recent asset bubbles. Aided and abetted by the Federal Reserve’s über-accommodation since the late 1990s, there was no stopping the interplay between America’s asset-dependent economy and an equally pernicious leverage cycle underwritten by bubble-inflated collateral. Why save out of income when frothy asset markets can do the job? The preference for asset-based saving over income-based saving is central to America’s current-account deficit.

The surplus countries have been delighted to go along for the ride. It didn’t matter that the US consumption binge was built on a foundation of quicksand. Excess export growth in the large surplus economies enabled the excesses of the world’s largest consumer.

That was especially the case in China. Spurred by Deng Xiaoping’s “reform and opening up,” China’s export sector increased sixfold – from 6% of GDP in 1980 to 36% in 2006.

Mirroring America’s massive current-account deficit, China’s current account went from relative balance in 1980 (+0.1% of GDP) to a massive surplus of 9.9% in pre-crisis 2007. The same was true in major developed economies, albeit to a lesser extreme: Germany’s export share of GDP went from 19% in 1980 to 43% in 2007, while Japan’s went from 13% to 17.5% over the same period.

In many respects, a marriage of convenience between the surplus and deficit countries eventually blossomed into full-blown codependency. But then, with the wrenching global financial crisis in 2008, the music stopped. Since then, frictions between deficit and surplus countries have intensified, now risking the possibility of a full-blown trade war.

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President Donald Trump’s administration has played an especially antagonistic role in asserting that the US is being victimized by large trade deficits. Yet America’s trade gaps have, in fact, been spawned by a chronic deficiency of domestic US saving. Despite the government’s recent upward revision to a still-depressed personal saving rate, the overall US national saving rate, which drives the current account, remains woefully deficient, averaging just 1.9% in net terms (adjusted for depreciation) over the post-crisis 2009-17 period. That is less than one-third the 6.3% average during the final three decades of the twentieth century.

Large and growing federal budget deficits over the next several years will only exacerbate this problem. Blaming China misses the obvious and important point that the Chinese current-account surplus has fallen sharply in recent years, from 9.9% of GDP in 2007 to an estimated 1% in 2018. In 2017, China’s current-account surplus of $165 billion was well below that of Germany ($297 billion) and Japan ($195 billion).1

As China presses ahead with consumer-led rebalancing, it will continue to move from surplus saving to saving absorption, with the distinct possibility that its current account will shift into permanent deficit (a small deficit actually was recorded in the first quarter of this year). That will leave a deficit-prone America with one less surplus country to draw on in funding the growth of its saving-short, excess-consumption economy. Maybe the rest of the world will step up and fill the void. But with the Trump administration now disengaging from globalization, that seems less and less likely.

History suggests that current-account imbalances ultimately matter a great deal. A still-unbalanced global economy may be forced to relearn that painful lesson in the coming years.

Stephen S. Roach, former Chairman of Morgan Stanley Asia and the firm’s chief economist, is a senior fellow at Yale University’s Jackson Institute of Global Affairs and a senior lecturer at Yale’s School of Management. He is the author of Unbalanced: The Codependency of America and China.