PM dodges 1MDB scandals

March 2, 2015

PM dodges 1MDB scandals


DAP’s Tony Pua says PM is either complicit in the company’s hanky-panky or guilty of gross negligence and incompetence in managing 1MDB.

najib-tony-puaTime to Fix 1MDB mess

Tony Pua has said that the Prime Minister cannot continue to disassociate himself from the gross failings of 1MDB in light of the current revelations detailing how the company played a role in an elaborate scam to siphon money.

He said this in response to recent documents involving a US$1billion Petrosaudi investment transaction that was exposed by the Sarawak Report and which pointed clearly towards “an elaborate scam to siphon money from 1MDB into a Swiss bank account owned by Jho Low’s private company”.

The MP for Petaling Jaya Utara said, “Even if the Prime Minister is indeed not complicit in the serious hanky-panky in the company, he is guilty of gross negligence and incompetence in managing 1MDB under his Ministry.”

Condemning Najib’s continued assertion that 1Malaysia Development Berhad was in “sound financial health” Pua pointed out three facts that were in direct contradiction to the PM’s statement namely that the company was unable to repay a RM2 billion loan without “begging” billionaire Ananda Krishnan for help; that 1MDB had requested for a RM3 billion emergency bailout fund from the Cabinet; and that 1MDB was unable to show proof that it had US$1.1 billion (RM3.9 billion) parked anonymously overseas after disposing of its Cayman investments.

“How can the Finance and Prime Minister allow the 1MDB shenanigans to sink to the current level of RM42 billion in debt while becoming practically insolvent?,” Pua asked.

He also pointed out Najib’s attempt to dismiss the Sarawak Report as being politically motivated, saying that in his triple roles as PM, Finance Minister, and Chairman of the 1MDB Board of Advisors, it was irrelevant whether this was so and that Najib was duty bound to get to the bottom of the scandal.

“I, for example, would seek to expose all corrupt activities of the ruling government to remove them during the next general elections. What is more important, is whether the documents and email communications are genuine,” Pua said.

Kanda, newly appointed president and group executive director of Malaysia's state investor 1Malaysia Development Bhd, poses for photographs in Kuala Lumpur1MDB’s New Miracle Man

He added that if indeed the documents are proved to be genuine, then the government must answer for the “brazen abuse of power” and added that Najib cannot continue to distance himself from 1MDB by claiming he was not directly involved in its day-to-day operations.

Throwing his support behind DAP elder statesman Lim Kit Siang who has called for a Royal Commission of Inquiry into 1MDB’s RM42 billion debt, Pua added that the move is important so the truth would come out and that the “crooks behind and abetting the scams will be punished and put behind bars”.


Tong Kooi Ong is not a currency speculator

February 2, 2015

COMMENT:  Most of those who have attacked Dato Tong may notdin2 understand what short selling, be it currency or share, is about. In simple terms, it is  the sale of a currency or security that is not owned by the seller, or that the seller has borrowed.

Short selling is motivated by the belief that the exchange rate of a currency, say the ringgit, or price of a security will decline, enabling it to be bought back at a lower price to make a profit.

Short selling may be prompted by speculation, or by the desire to hedge the downside risk of a long position in the same security or a related one. Since the risk of loss on a short sale is theoretically infinite, short selling should only be used by experienced traders who are familiar with its risks (adapted from

Deepen your knowledge of short selling by reading the basic guide on Short Selling: Introduction.

Is Dato Tong is currency speculator? I know he is not. He is a well-known security analyst and an entrepreneur with a Midas touch. He is also an astute investor and a builder of businesses.  I knew him from my days in Cambodia in the 1990s.  I met him when he visited Phnom Penh with some of my friends to identify business opportunities. He then owned a bank, and was a property developer and an equity analyst with a solid reputation. A currency speculator has a different mindset.

His attackers have chosen the wrong guy to heap the blame for the recent dismal performance of the ringgit. It is time we look seriously into our economic and fiscal and monetary policies before we find scapegoats for our policy failures. It is sad to note that our leaders are not prepared to deal with reality. Surely, we can manage our affairs better.

While it is true that the strength of the US dollar “may be due in part to the strengthening of the US economy and the expectations of an interest rate hike, following the end of the US quantitative easing since October 2014″, I add that the lack of investor confidence in our economy for 2015 and our worrying political climate are influencing sentiments on our stock market and undermining the ringgit.–Din Merican .

Tong Kooi Ong: I am not shorting the Ringgit

Businessman  Dato’ Tong Kooi Ong (pic below) has denied allegations that he is shorting the Ringgit, saying recent blog postings claiming he has taken a short position against the national currency are “malicious lies”.

Dato Tong Kooi OngThe Businessman with a Midas Touch

In a statement today, Tong said he had never shorted any currency or equity, being a value investor, and stated that he does not feel crashing the Ringgit is possible.

“I do not believe it is even remotely possible to break Bank Negara or crash the Ringgit. The foreign exchange reserves of the country are in excess of USD110 billion,” said Tong, whose businesses include the Edge Group, today. “The current account of the country is in surplus. Non-Ringgit borrowings are very low. I have gone on record with the above statement, both in my speeches and in the articles I wrote. Again, this is a matter of record.”

The blog postings were carried on and and timestamped January 29 and 28 respectively, though no author was named.

On Friday, January 30, Bernama quoted Prime Minister Najib Abdul Razak as saying that should allegations of individuals attempting to capitalise on the current pressure on Ringgit to sabotage the economy be true, relevant government agencies should gather evidence and take action.

The following day Bernama quoted Deputy Finance Minister Ahmad Maslan as urging Bank Negara Malaysia, the Malaysian Communications and Multimedia Commission and other relevant agencies to investigate claims that individuals are speculating on the Ringgit for personal gain.

“I hope MCMC and BNM will investigate the matter and if there is any truth in the allegation, the perpetrators must be brought to justice,” Ahmad was quoted as telling reporters yesterday.

Tong’s statement is reproduced in full below:

I refer to the malicious lies and fabrications against me in the blogs I refer to the malicious lies and fabrications against me in the blogs (29 January 2015) and (28 January 2015).

I vehemently and absolutely deny the accusations. I did not at any time short the Malaysian Ringgit.

I am an equity analyst, besides being an established entrepreneur. I am a value investor. I have never shorted currencies or equities. I acquire and build companies, create value for shareholders and create employment through ideas and innovation. My track record speaks for itself.

I am certain Bank Negara Malaysia will be aware if there is such a heinous crime. Bank Negara has not contacted me and I pledge to cooperate fully with Bank Negara if my assistance is needed at any time.

As a Malaysian, I too am against economic saboteurs. I support the Prime Minister’s call that those who sabotage the country’s economy must be brought to justice.

Personally, I do not believe it is even remotely possible to break Bank Negara or crash the Ringgit. The foreign exchange reserves of the country are in excess of USD110 billion. The current account of the country is in surplus. Non-Ringgit borrowings are very low. I have gone on record with the above statement, both in my speeches and in the articles I wrote. Again, this is a matter of record.

The facts are that almost every currency in the world is currently falling against the USD (United States Dollars). This is due in part to the strengthening of the US economy and the expectations of an interest rate hike, following the end of the US quantitative easing since October 2014. Further, many countries in the region as well as Europe are depreciating their currencies and lowering their interest rates to promote growth.

I am currently unable to ascertain the individual(s) who is (are) responsible for the malicious lies against me, and what their intentions are. I will pursue legal course of action once I am able to identify those responsible. Making up such lies is beneath human decency.

Thank you.

Tong Kooi Ong

1MDB: Ananda to the rescue?

January 31, 2015

1MDB: Ananda to the rescue?

by Reuters/

Malaysia’s second-richest man Ananda Krishnan will lend 1Malaysia Ananda KrishnanDevelopment Bhd (1MDB) RM2 billion to settle a loan to local banks, two people familiar with the matter said, helping pave the way for a US$3 billion (RM10.85 billion) IPO by the state investor.

The people, who declined to be identified due to the sensitivity of the matter, said Ananda was currently negotiating the terms of the loan with the state firm.

Earlier this month, Reuters reported that Ananda was in talks with 1MDB to become a cornerstone investor in the long-delayed listing of its power assets, which is likely to take place in the first half of this year.

“It is just a plain loan for now. We don’t know for certain how this will translate into an equity stake in 1MDB’s power unit,” one of the people said.

1MDB officials declined to comment. Officials at Ananda’s investment vehicle Usaha Tegas were not immediately available to comment.

1MDB has already twice missed payments on the RM2 billion bridge loan it took from local banks Malayan Banking Bhd (Maybank) and RHB Capital Bhd. That hit its bonds and fuelled broader investor concerns about Malaysia’s economy.

Najib as 1MDB advisorThe state investor, whose advisory board is chaired by Prime Minister Najib Abdul Razak, has been dogged by controversy over its RM41 billion debt pile, hundreds of millions of dollars of revenue earned by Goldman Sachs for handling its bond issues and a perceived lack of transparency.

The company this month hired Abu Dhabi-based MalaysianArul Kandasamy investment banker Arul Kandasamy as its new President, replacing chief executive officer Mohd Hazem Abdul Rahman, who departed less than two years after his appointment amid criticism for leading the company into further debt.

1MDB has said it plans to use funds from the initial public offering of its energy assets to cut its debt and expand its business.

On the state of the Malaysian Economy

January 28, 2015

MY COMMENT: It is true that we need to be rational about things, but we also need to be realistic. The issues raised by my good friend Guna in his article have the potential of putting our economy in crisis.

What if 1MDB defaults on its loans? The Malaysian government will have to step in since it has apparently guaranteed lenders that it will stand by 1MDB. What happens to some major Malaysian banks (and other financial institutions) which are heavily exposed to this GLC? I am afraid taxpayers will be have to bear the burden of any bailout. But I sincerely hope we have do not have to come to that stage.

Tun Ismail Mohamed AliHow long we can run persistent fiscal deficits without the risk of  down grading  our sovereign rating, which means our borrowings will cost taxpayers more? The ringgit’s decline against the US dollar and the Singapore dollar is the worst I have witnessed in recent years. Does that not tell us that markets are concerned about our economy and our management of it?

Are we not experiencing current deficit  in our balance of Tan Sri Aziz Tahapayments given the substantial drop in  the crude oil price and export earnings from palm oil and rubber, and massive capital outflows? Because of cheap ringgit, won’t our imports cost more? Isn’t that inflationary?

Bad politics maybe but I would like to think that it is bad economic management that is a matter of serious concern. Furthermore, it is better to prepare our citizens for bad times ahead so that they are not deluded into thinking that our economic fundamentals are sound. Are they I wonder?

Tan Sri ZetiThe Governor  Bank Negara Malaysia, Tan Sri Zeti Aziz,  keeps saying that we have adequate reserves to deal with any eventuality. I remember when I was  Secretary of the Bank in the 1970s  the late Tun Ismail Mohamed Ali telling my colleagues and I that his greatest worry was the level of reserves for the ringgit. To him it was never enough since the ringgit could be subjected to massive currency speculation.

For Tun Ismail, it was important that we manage our economy well, balance the budget, and be prudent in our use of public funds. His successor, Tan Sri Aziz Taha, too shared the same concern.

It is time for us to be cautious and prudent, and for our government to restore public and investor confidence in the way we deal with our finances and manage our economy. –Din Merican

On the state of the Malaysian Economy

by P

QUESTION TIME: Granted we have lots of problems in the country and tonnes of wastage. We overpay for contracts, we have a strategic investment fund which has gone amuck and is investing willy nilly with borrowed money, we have a looming disaster in the form of RM30 billion at risk in a private finance initiative gone wrong and we have loads of patronage.

Does this necessarily mean that the economy is in crisis if we put all this together with a weakening ringgit and oil prices which have fallen off a cliff? Does this mean this year will be a disaster and one of gloom and doom for Malaysia?

It is tough to do but this is when we need to be rational about things and assess economic conditions with a cool head, separating this to some extent from the sad state of politics in the country which leads to a whole host of economic concerns.

Let’s just take a couple of the most serious concerns and examine them in some detail to see what gives. First, the weakening ringgit which was at its lowest levels in six years. But why was it low six years ago – early 2009 to be precise?

Yes, it was when the world financial crisis (WFC), caused by the subprime mortgage issue in the United States was raging. It was biting hard at that time after it surfaced in 2008. And what were the pundits predicting, especially those who had huge funds at their disposal to make their predictions come true, at that time?

Yes, a weak ringgit (to be fair not just the ringgit but currencies of other countries as well which had open markets) because the funds were going to repatriate money back to the US where it will be needed. And also because these countries will have problems with their exports to the US whose purchasing power will fall.

Also, you have a strange situation of the US dollar strengthening against currencies of those countries whose economies were in much better shape than the US. Is that sustainable? No. Is the analysis smart? No. Was that done for a trade then? Highly likely because that was a smart if crooked way to influence markets and if you did it first, you can make a lot of money.

As it turned out the US undertook the biggest exercise of printing money in history through quantitative easing 1 and 2 by buying government bonds from investors and injecting money into the system, driving interest rates down next to nothing.

The excess funds flew out of the US finding a home in countries like Malaysia where stock market returns were better and interest rates were higher. And yes, you guessed it, Malaysia’s currency appreciated against the US dollar to levels not seen since the Asian financial crisis (AFC) of 1997/98. And so did the currencies of many other countries.

Now, it seems, because of falling oil prices, Malaysia’s budget deficit as a proportion of GDP (gross domestic product – sum of goods and services produced) is likely to increase – by all of 0.2 percentage points to 3.2 percent from, a projected 3.0 percent last year, as the prime minister pointed out two days ago.

Poor outlook for the ringgit

Malaysian ringgit
These and slowing growth are the main reasons for the outlook for the ringgit to be poor this year, along with the stoppage of money-printing by the US. Such arguments have resulted in a weak ringgit (also other currencies as well but the ringgit has weakened more than most), the weakest seen in six years. And continued capital outflows are supposed to result in persistent weak demand for ringgit. But will that situation prevail?

According to the government, as announced by the PM, given a new forecast price of US$55 per barrel for oil (instead of US$100 previously), the revenue shortfall will increase by RM5.5 billion to RM13.8 billion. To compensate for this, the government has proposed to cut operating expenditure by RM5.5 billion.

But let’s look at what the oil price fall will do. First, it increases the disposable income available to the public which helps to boost the demand in the economy by increasing consumer spending. The government estimates disposable income to increase RM7.5 billion.

Second lower oil prices and a depreciating ringgit reduces costs of producers and makes them more competitive in international markets, which does help to push growth up. While as a net exporter of oil and gas, Malaysia can expect export proceeds to decrease because of the oil price fall, this is mitigated by other factors.

On balance, the impact on the Malaysian economy is minimal. Growth will come down to about 4.5 percent to 5.5 percent from 5-6 percent, which is still pretty respectable by world standards. Government finances will suffer slightly but not by a lot.

By any reckoning of what one means by a crisis, and using as yardsticks the 2008-9 WFC and the 1997-8 AFC, Malaysia is quite far from an economic crisis as are most countries in the region, despite being a net exporter of oil and gas.

So why is the ringgit weakening? I reckon it is the same reason why it weakened in 2009 – a trade, perhaps a few trades, basically. When it becomes obvious that Bank Negara Malaysia, with foreign exchange reserves approaching RM500 billion, is quite willing and able to deal with massive capital outflows, it should move back up again as speculative selling of the ringgit diminishes.

My conclusion – despite all the bad things happening in the country – the wastage of public funds, 1Malaysia Development Bhd, Pembinaan PFI Sdn Bhd, poor decision making and a whole host of other things – the economy is not in crisis now although it could be lot better if these things were properly handled.

That does not mean that we can continue with all those bad practices which we have accumulated over the decades. If we continue with them and add on to them instead of turning against them, it will be inevitable that we will have not just an economic crisis but a national crisis of epic proportions not long from now! Let’s turn back from this path of doom quickly before it’s too late.

P GUNASEGARAM is founding editor of business news portal KiniBiz.

Najib’s Political Battles Pose a Challenge to his Foreign Policy Agenda

January 23, 2015

Najib’s Political Battles Pose a Challenge to his Foreign Policy Agenda

By Murray Hiebert and Nigel Cory
January 22, 2015
Murray Hiebert is Senior Fellow and Deputy Director of the Sumitro Chair for Southeast Asia Studies at the Center for Strategic and International Studies in Washington, D.C. Nigel Cory is a researcher with the Sumitro Chair.

4th PM of MalaysiaChallenges at home suggest Malaysian Prime Minister Najib Razak could face an uphill battle in pursuing his foreign policy goals in the year ahead. The long-simmering battle between Najib and former Prime Minister Mahathir Mohamad has erupted into a public spat that must have Najib looking over his shoulder given Mahathir’s role in ousting his predecessor, Abdullah Badawi.

As a result Najib finds himself flanked on the right by Perkasa,the equivalent of the Tea Party within his ruling United Malays National Organization (UMNO), and on the left by the opposition coalition led by former Deputy Prime Minister Anwar Ibrahim. No move Najib makes will please all Malaysians, and perhaps not even many, in this constrained environment.

The public mudslinging between Najib and Mahathir could weaken and distract the Prime Minister even as 2015 presents opportunities for Malaysia to make its mark on the international stage. Malaysia’s ruling party generally hides internal conflict from public view.But the escalation in political maneuvering between two of the party’s key leaders has changed this dynamic.

Old corruption charges have been rehashed against Daim Zainuddin,Daim an outspoken critic of Najib. Daim isan UMNO insider, financial power broker, and two-time Finance Minister under Mahathir. He is seen as a proxy forthe former Prime Minister and, to real insiders, may even be the one pulling the strings on his former boss.

The government-controlled media took the unusual step of covering the case against Daim in detail, which some interpreted as a coordinated political attack and which prompted proxies on both sides to take the fight to the internet.

The split between Najib and Mahathir burst into the open when the latter, now 89, publicly withdrew his support for Najib in an August 2014 blog. Mahathir blamed Najib for the ruling coalition’s poor showing in the 2013 national elections, attacked him for his efforts in 2011 to abolish the draconian Internal Security Act, and criticized his earlier plans to scale back the affirmative action program that provides special privileges for the country’s Malay majority. On all these issues, Mahathir has strong support from UMNO’s most conservative wing.

The bitter dispute between the two men and their respective camps appears to have picked up in earnest after a dinner between them in December did not go well. A thorny issue reportedly discussed at the meeting was the sovereign fund 1Malaysia Development Bhd., which has been plagued by charges of mismanagement and corruption and is reportedly suffering from billions of ringgit in nonperforming loans. Najib is chair of the fund’s advisory board.

Mahathir retains significant public and political influence in Malaysia as an elder statesman, particularly among conservative Malays. His profile stems from enduring public popularity, especially among older  members of society who are nostalgic about his 22 years in power. Mahathir’s political influence within UMNO has loomed large  over his successors since he stepped down in 2003. He leveraged this influence to undermine and ultimately remove his anointed successor, Abdullah, in 2009. Then Deputy Prime Minister Najib stepped up to become Prime Minister.He most certainly sees the possibility of history repeating itself.

And Malaysia’s economy is not going to provide any respite for Najib. The sharp drop in oil prices has created some stiff headwinds for Malaysia’s economy. Oil and gas exports account for a fifth of the country’s exports and a third of government revenue. It was therefore little surprise that Najib on January 20 announced $1.5 billion in spending cuts and said Malaysia’s economic growth has been revised down from 6 percent to between 4.5 and 5.5 percent for 2015.

anwar-ibrahim-recentUnder withering attacks from Mahathir and party conservatives, Najib has backed off many of his earlier political and economic reform plans. In recent months, his government has been criticized by the United States and human rights organizations for repeatedly using the colonial-era Sedition Act against critics. Anwar Ibrahim is awaiting a court verdict on another round of sodomy charges that could once again see him sent to prison. The verdict, expected in the next few weeks, would undoubtedly lead to further criticism from the international community.

Najib’s domestic challenges could pose risks for his foreign policy goals in 2015. This year is shaping up as an important one for Malaysia given its chairmanship of ASEAN and its non-permanent seat on the UN Security Council. As ASEAN chair, Malaysia can be expected to play a key role in pressing the grouping to take steps to complete regional economic integration, keep tensions in the disputed South China Sea under control, and explore ways to bolster the role of the East Asia Summit.

TPPA Protest

Negotiators of the 12-nation Trans-Pacific Partnership (TPP), which Malaysia joined in 2010, are scrambling to complete the trade agreement by March. But for Malaysia to get to the finish line will require some tough decisions by Najib and his cabinet in such areas as state-owned enterprises, pharmaceuticals, and investor dispute mechanisms. Even before his latest broadsides against Najib, Mahathir, who oversaw Malaysia’s earlier transformation into an industrial powerhouse, had  harply criticized the TPP as an attempt by foreign powers to colonize Malaysia. Anwar and the opposition have also sought to foil Najib’s reform effort.

The coming months could provide an opportunity for Malaysia and theNajib and ObamaUnited States to put more substance into the comprehensive partnership they announced last April when President Barack Obama visited Malaysia. But the visit marked only the beginning of the process, which requires more work by both sides to achieve deeper ties, including such things as stepped up cabinet-level exchanges,more military cooperation and intelligence sharing, and closer economic ties.

Najib’s golf outing with Obama in early January showed the depth of personal camaraderie between the two leaders, which could help them achieve greater depth to the comprehensive partnership before Obama visits again in November. However, the sharp criticism Najib received for golfing in Hawaii while parts of Malaysia faced terrible flooding highlights some of the challenges he could face in the months ahead as he seeks to deepen the country’s regional and global foreign policy opportunities.

The United States will need to make some tough decisions in the coming months about how to engage Najib and Malaysia. The country is a vital partner and a key to strengthening ASEAN. The White House will face pressure from various advocacy groups to limit or curtail engagement and there will be congressional pressure during the TPP approval process. The administration will have to step carefully but be guided by the strategic need to support political and economic reform in Malaysia. For his part, Najib will need to harden his resolve to pursue that reform.

Prime Minister Najib’s Revised 2015 Budget Speech

January 21, 2015

Prime Minister Najib’s Revised 2015 Budget Speech (January 20, 2015)

Najib and the KijangWe are here this morning with leaders and administrators, civil servants, industry players and corporate members, representatives of embassies, NGOs and volunteer groups, as well as the rakyat in this hall, and those watching TV or listening to the speech.

I would like to address some concerns on the current economic developments and the Government’s financial position. Lately, there have been reports, concerns and queries on issues, such as crude oil prices and performance of the ringgit.The Government has been vigilantly monitoring the situation. In this regard, I will announce several proactive measures to realign our policies in line with the changing global economic scenario, which is beyond our control. We are undertaking this to ensure that we continue to achieve creditable growth.

In other words, I am here today to announce specific and proactive measures to align ourselves with the recent global economic developments.

We are not in crisis. Indeed, we are taking preemptive measures following the changes in the external global economic landscape which is beyond our control.

This is to ensure that our economy continues to attain a respectable and reasonable growth. And at the same time, we want to ensure development for the nation and rakyat continues.

Indeed, 2014 was a year of trials and tribulations for us due to several tragedies.

At the end of last year, Malaysia was hit by unprecedented floods, affecting several states including Kelantan, Terengganu, Pahang, Kedah and Perak.

Although the floods were not so severe in Johor, Sabah and Sarawak, local communities in some areas were affected.

Thus, it is said that while man plans, Allah SWT plans too. And Allah SWT is the best of the planners.

The Government has always done its best to plan, formulate and implement policies and measures for the betterment of the rakyat.

It has been three months since the 2015 Budget was tabled. The Budget was formulated based on; First, price of Dated Brent was forecast at USD100 per barrel.

Second, Gross Domestic Product (GDP) growth estimated between 5% and 6%. Third, a stable exchange rate of RM3.20 against the US dollar; and

Fourth, 2015 world economic growth was projected at 3.4% and 3.9% by the World Bank and IMF respectively. Since then, the World Bank and the IMF have revised global growth to 3% and 3.8% respectively.

It should be noted that Budget 2015 was formulated based on strong economic fundamentals in 2014. Therefore, the fiscal deficit was forecast from 3.5% in 2014 to 3% of GDP in 2015.

However, the external situation has changed lately and we are impacted directly as Malaysia is among the largest trading nations in the world.

Compared to the situation a few months ago, the global economic landscape has since changed significantly. This necessitates us to review and clarify some of our earlier macro and fiscal assumptions.

Among the issues raised is the Government’s ability to achieve its fiscal targets for 2015. Given the current situation, the question is whether the economy and Government’s financial position will be affected.

In this special address, I will explain to the rakyat and announce several measures to mitigate the current economic situation.

As a responsible Government, we will continue to ensure economic development and safeguard the well-being of the rakyat.

Declining Crude Oil Prices

We are aware of the concerns among the rakyat, business community and analysts over the impact of the sharp fall in crude oil prices on the domestic economy.

Over the last six months, global crude oil prices have plunged more than 50%, among others, due to oversupply amid weak demand.

Leveraging advances in technology, shale oil and gas output has risen significantly in the US.

The situation is exacerbated by higher output from non-OPEC (Organisation of the Petroleum Exporting Countries). OPEC is also not willing to undertake production cuts in order to maintain its market share.

The Government has consistently reiterated that crude oil prices are beyond its control.

The benchmark Dated Brent crude oil price has dropped to around USD48 per barrel on 19 January 2015. And analysts expect oil prices to take quite a while to stabilise.

Benefits of Declining Crude Oil Prices

Lower crude oil prices benefit net oil importing countries like Malaysia. For instance, the recent reduction in pump prices of petrol and diesel by 35 sen and 30 sen per litre, respectively will increase the overall disposable income of consumers by RM7.5 billion. Assuming that consumers spend 40% of this amount, it will boost private consumption by RM3 billion.

The World Bank estimates that lower crude oil prices will have a positive impact on world GDP. In fact, a 30% decline in oil prices could boost global GDP of up to 0.5%.

This bodes well for Malaysia’s manufactured products. Further, with the US economy strengthening, there will be sustained demand for our exports, in particular electrical and electronics (E&E) products.

Falling Crude Oil Prices will Reduce Federal Government Revenue

In contrast, falling crude oil prices will reduce Government revenue. The revenue is used for development purposes such as building of schools, roads and houses of worship. It is also used for other expenditures such as salaries of civil servants, cost of medicine in Government hospitals, agriculture subsidies and expenditure for security including armed forces, police and RELA.

In 2014, Dated Brent reached its highest level at USD115 per barrel on 19 June. Global crude oil prices have since plummeted by more than 50%.

Consensus among economists is that the forecast price of USD100 per barrel used in the 2015 Budget is no longer realistic. They now estimate the average oil price in 2015 to range from USD40 to USD70 per barrel.

The Government has therefore revised downwards its forecast for the average baseline oil price to USD55 per barrel for 2015.

Based on the crude oil price of USD100 per barrel, coupled with savings following the implementation of the managed float pricing mechanism for retail fuel prices effective from December 2014, the Government is expected to get an additional operating surplus of RM3.7 billion.

If crude oil price remains at USD100 per barrel, the Government will be able to accommodate all the measures announced in Budget 2015 with the fiscal deficit target not exceeding 3% of GDP.

However, at the forecast price of USD55 per barrel, there will be a revenue shortfall of RM13.8 billion.

If we compare the revised figures with Budget 2015 tabled in October last year, despite the savings of RM10.7 billion from the implementation of the managed float mechanism for retail fuel prices, the Government still faces a revenue shortfall of RM8.3 billion to accommodate the 2015 Budget measures.

Without any fiscal measures, the deficit will increase to 3.9% of GDP against the target of 3% for 2015.

This requires the Government to take measures to reduce the deficit, in line with the Government’s commitment towards fiscal consolidation.

Therefore, taking into account the revised estimates, we are revising the fiscal deficit target to 3.2% of GDP in 2015.

This is still lower than the fiscal deficit of 3.5% of GDP in 2014. In view of the external factors, we have to acknowledge that we may not be able to achieve the earlier fiscal target of 3% of GDP as announced. Of importance, is our commitment to continue reducing the fiscal deficit from 3.5% of GDP.

More importantly, we will not compromise on national development planning as it will enhance productive capacity of the economy. We will not neglect the rakyat’s welfare, particularly the bottom 40% of households.

Volatile Capital Flows and Ringgit

The fluctuations in the ringgit are influenced by developments in the global economy. Hence, the ringgit is not the only currency to have weakened against the US dollar. In fact, almost all currencies in the region have softened against the US dollar since September 2014.

The recent volatile capital flows and significant depreciation of the ringgit were also due to concerns over the impact of the sharp fall in oil prices on the Malaysian economy.

In relation to this, we must closely monitor the following:

First, the current account in the balance of payments must remain in surplus.

Second, continue with fiscal reforms and consolidation and

Third, economic activity must be further diversified to enable us to cope with falling crude oil and commodity prices.

The Government is confident that the exchange rate will over time adjust to reflect the strong economic fundamentals. Of importance, our financial system continues to function in an orderly manner.

Most importantly, there has been no disruption to financial intermediation, with lending activities continuing smoothly. Businesses continue to have access to financing from banking institutions and the capital market.

In essence, greater policy flexibility, adequate international reserves, deeper and more diversified financial markets, sound banking system and strong domestic institutional investors such as the Employees Provident Fund will increase resilience to volatile capital flows.

Current Account Balance

The current account balance is directly related to the import and export of goods and services.

We are a crude oil exporter. Thus, when oil prices plummeted recently, there was a perception that export receipts will also decline drastically and result in a current account deficit.

Indeed, this perception is not correct. As a net crude oil exporter, we had a surplus of RM7.7bil from January to November 2014.However, we are an importer of petroleum products with a net import bill of RM8.9bil during the same period.

If we include both crude oil and petroleum products, we are actually a net importer with a deficit of RM1.2bil.

Therefore, the perception that Malaysia is a large oil producer is also not true.However, if we factor in exports and imports of crude oil, and nett out petroleum products, then Malaysia is a net importer of petroleum. This does not include LNG, for which Malaysia is a net exporter.

Furthermore, we are still resilient as our diversified economy is able to weather the decline in oil prices.

With a better outlook for the global economy in 2015, the shortfall in commodity receipts is expected to be cushioned by increased demand for manufactured goods, such as electrical and electronic products, wood-based products, textile products and others, which account for 76% of total exports. Meanwhile, crude oil exports account for only 4.5% of total exports.

Therefore, the Government is confident that the current account will remain in surplus this year, although smaller in the range of 2% to 3% of Gross National Income or GNI. In 2014, the current account balance is estimated to record a surplus at 5.1% of GNI.

Strategies to Strengthen Economic Resilience

As I have explained earlier, there are several issues which will impact the domestic economy significantly. In the light of this, the Government will take measures to ensure economic growth remains on a strong trajectory. We are confident of achieving GDP growth in the range of 4.5% – 5.5% this year with the implementation of the following strategies:

- First: Ensure balanced, inclusive and sustainable economic growth;

- Second: Continue fiscal reforms and consolidation; and

- Third: Provide assistance to the rakyat and business community to rebuild infrastructure damaged by floods.

First Strategy: Ensuring Balanced, Inclusive and Sustainable Economic Growth To boost exports of goods and services, the following measures will be taken:

First, actively promote import-substitution services such as shipping, port, education and professional services. This will reduce dependence on foreign sources for procurement of goods and services;

Second, accelerate implementation of recommendations of National Export Council:

- Enable exporters, especially SMEs, to be connected to new clients in new markets under an international linkage programme using market linkers and industry specialists;

- Intensify export promotion programmes in 46 countries covering Asia, Europe, the Middle East and the US;

- SME Bank will introduce SME-Go, an export programme for SMEs; and

- Leverage the Services Export Fund (SEF) and promotional programmes for SMEs to enhance sustainability of projects abroad.

Third, frontload implementation of Logistics & Trade Facilitation:

- Improve last-mile connectivity to Port Klang including access road, railway network and traffic management system;

- Upgrade Padang Besar railway terminal;

- Improve operational efficiency of import and export processes; and

- Establish a hub and spoke system for air transport.

Fourth, intensify tourism industry;

Fifth, review levy on foreign workers; and

Sixth, waiver of visa fee for tourists from, among others, China.

To enhance private consumption, the Government will implement the following initiatives:

First, give priority to local class G1 (class F), G2 (class E) and G3 (class D) contractors registered with CIDB to undertake reconstruction works in their respective flood affected areas;

Second, intensify promotion of “Buy Malaysia” products;

Third, increase frequency and extend shopping hours of nationwide mega sales;

Fourth, accelerate promotion of domestic tourism through competitive domestic air fares; and

Fifth, encourage the private sector to leverage benefits from the establishment of the ASEAN Economic Community.

In efforts to accelerate private investment, the Government will:

First, set up a Services Sector Guarantee Scheme amounting to RM5 billion for SMEs in the services sector, with maximum financing of RM5 million and 70% Government guarantee;

Second, encourage GLCs and GLICs to invest domestically;

Third, reduce cost of doing business:

- Postpone the scheduled electricity tariff hike in 2015; and

- Postpone the scheduled gas price hike for the industrial sector in 2015.

Fourth, allocate 30% of the annual procurement budget of Government agencies and GLCs for goods and services to local SME producers; and

Fifth, increase local goods and services in Government procurement.

Second Strategy: Continuing Fiscal Reforms and Consolidation Among the revenue enhancement measures include:

First, broaden the tax base by encouraging companies to register with the Royal Malaysian Customs to enable them to charge and collect GST. This is expected to contribute an additional RM1 billion in GST collection. As at mid-January 2015, more than 304,000 companies have registered; and

Second, realise additional dividends from GLCs and GLICs as well as other Government entities amounting to RM400mil.

The Government will undertake the following expenditure rationalisation measures:

First, optimise outlays on supplies and services, especially overseas travel, events and functions and use of professional services. This will result in savings of RM1.6bil;

Second, defer the 2015 Program Latihan Khidmat Negara to enable the programme to be reviewed and enhanced, with savings expected at RM400 million;

Third, review transfers and grants to statutory bodies, GLCs and Government Trust Funds, particularly those with a steady revenue stream and high reserves. This measure will result in savings of RM3.2 billion; and

Fourth, reschedule the purchase of non-critical assets, especially office equipment, software and vehicles, with an expected savings of RM300 million.

  1. Third Strategy: Assisting the Rakyat and Business Community as well as Rebuilding Infrastructure Damaged by the Floods

The recent floods affected around 400,000 people nationwide. The latest estimate of damage to infrastructure is about RM2.9bil.

Among the measures that have been taken and will be implemented to assist flood victims include:

The Government has provided an initial allocation of RM500 million for rehabilitation works and welfare programmes for flood victims.

This is in addition to the existing allocation to the National Security Council, bringing the total to RM787mil.

Provide an initial allocation of RM800mil for repair and reconstruction of basic infrastructure such as schools, hospitals, roads and bridges;

Provide RM893 million under the 2015 Budget for flood mitigation projects;

Build 8-ft stilt houses for those who have land and whose homes were damaged by the floods; Hand over 1,000 units of completed low-cost houses in Gua Musang; Provide RM500 per flood affected household; and Provide RM5,000 for the next-of-kin who have lost family members.

For businesses affected by floods:

- Provide an additional RM100 million to TEKUN and RM100 million to AIM to provide soft loans to support SMEs and microenterprises.

BSN, Agrobank, SME Bank, TEKUN and AIM to defer existing loan repayments of up to six months.

Bank Negara Malaysia will establish a RM500 million Special Relief Facility for SME loan financing at a concessionary rate of 2.25% with a grace period of up to six months through banking and development financial institutions;

Bank Rakyat will offer a personal loan scheme of up to RM50,000 at a financing rate as low as 3.9%, while loan repayments will start after six months from loan disbursement;

A sum of RM500 million will be provided by financial institutions with a 70% guarantee under a Flood Relief Loan Guarantee Scheme (Skim Jaminan Pinjaman Bantuan Banjir) (SJPBB). The Scheme will be administered by Prokhas; and

Exempt levy payment to the Human Resources Development Fund (HRDF) for a period of six months for SMEs in the flood affected areas with effect from 1 February 2015.


To sum up, I would like to highlight 6 key take-aways:

First, we are neither in a recession nor a crisis as experienced in 1997/1998, and 2009 which warranted stimulus packages;

Second, the strategies announced by the Government are proactive initiatives to make the necessary adjustments following the challenging external developments which are beyond our control. This is a reality check following, among others, declining global crude oil prices;

Third, the current account balance is expected to remain in surplus;

Fourth, the financial markets remain orderly and resilient. Although the ringgit has depreciated, it is expected to stabilise over time to reflect the strong economic fundamentals;

Fifth, Development Expenditure of RM48.5 billion for 2015 will be maintained and spent.

This includes projects for the people economy such as public housing, flood mitigation, water supply, electricity and public transport infrastructure such as Pan-Borneo Highway.

In addition, projects such as the MRT Line 2, LRT 3, High-Speed Rail Kuala Lumpur-Singapore will be continued.

In May, I will table the Eleventh Malaysia Plan (11MP) to outline the development expenditure until 2020.

Sixth, Operating Expenditure is expected to be reduced by RM5.5 billion through reprioritising expenditure.

In concluding, let us pray and hope that Allah SWT will always assist us in our efforts to find solutions.

In all of human nature, to Allah SWT we submit and surrender to His will. Of importance, we stand together in solidarity to face challenges.

Surely, with every difficulty there is relief.Hopefully God Almighty will continue to protect our beloved country from harm and danger.

 Thank you.


2015 Budget Revision: Need to focus of structural reforms

by Zurairi

Revised budget 2015

Putrajaya needs to look beyond adjusting its annual deficit figures and focus instead on structural reforms to keep Malaysia’s oil-dependant economy afloat as the plunge in global prices continue to eat into government revenue, economists said.

The observers noted that a number of rating agencies have already given Malaysia’s sovereign ratings negative outlooks, and Prime Minister Datuk Seri Najib Razak’s Budget 2015 revision yesterday have yet to change their views.

Fitch Ratings even warned of a possible downgrade yesterday after Malaysia revised its fiscal deficit target to 3.2 per cent of the gross domestic product (GDP), saying the move is evidence that “dependence on commodities remains a key credit weakness for Malaysia”.

“It is more useful, in my view, to focus on the progress in the underlying structural reforms that underpin long-term fiscal sustainability rather than the year-to-year deficit figures,” said Dr Frederico Gil Sander, a World Bank senior economist who specialises on Malaysia.

Besides warning against a weak implementation of the Goods and Services Tax (GST) this April and a return of oil subsidies, Gil Sander also suggested that Putrajaya prepares budgets for years in advance for its ministries to enhance the credibility of its fiscal policy.

“Part of the deficit is currently due to the financing requirements of government-linked companies (GLCs), which are further crowding out private investment,” suggested Asian Development Bank’s (ADB) lead economist on trade and regional cooperation, Jayant Menon.

“The current looming fiscal crisis in Malaysia provides the perfect opportunity to seriously reduce the government’s involvement in the market by divesting from GLCs.”

Yee Farn Phua of Standard & Poor’s (S&P) said the credit ratings agency was more keen on watching long-term fiscal consolidation efforts from the Najib government, rather than just for 2015.

“We view Malaysia’s revised budget as an indication of the government’s continued focus on fiscal consolidation,” the agency’s associate director of sovereign ratings commented.

Najib announced yesterday that Malaysia’s revised fiscal deficit target for 2015 is now 3.2 per cent of the gross domestic product (GDP) instead of 3.0 per cent. Malaysia’s deficit for 2014 was estimated at 3.5 per cent of GDP.

Najib claimed that with the revenue shortfall from the global oil slump, the deficit would be as high as 3.9 per cent of GDP if the budget was not revised.

“We have to accept the reality that we can never achieve the original target of 3 per cent of the GDP as announced previously,” the Prime Minister admitted in his televised address.

He stressed, however, that Putrajaya was committed to reducing the budget deficit from the targeted 3.5 per cent in 2014.

Despite that, the economists said that yesterday’s budget revision was inevitable, and that Putrajaya must proceed with spending cuts as it still faces a projected revenue shortfall of RM13.8 billion.

The shortfall was calculated based on a forecast that crude oil prices would stay at US$55 (RM197.6) per barrel this year, compared to the initial estimate of US$100 per barrel that was used in the Budget 2015 announced last October.

As a crude oil exporter, Malaysia is highly dependent on petroleum income. Its oil-related revenue totalled RM63 billion in 2013, accounting for 29.5 per cent of total government income.

“There are several reasons why Malaysia cannot defer addressing its large budget deficit.  International rating agencies will almost certainly downgrade Malaysia’s credit rating unless it appears to be addressing the deficit.

“Any downgrade will raise the cost of borrowing, as well as put further pressure on the ringgit,” Menon said.

Among the “big three” credit ratings agencies, Malaysia’s sovereign bonds’ outlook was last rated “stable” by S&P and Moody’s, but “negative” by Fitch.

“[We] view that reforms to attract private investments are insufficient and growth is being underpinned by increasing amount of government and household indebtedness,” said HSBC’s Asean economist Lim Su Sian.

Prior to Najib’s announcement yesterday, HSBC’s credit research team had already placed Malaysia’s sovereign on a negative outlook for 2015, according to Lim.

“Fiscal consolidation remains very important for Malaysia’s longer-term growth prospects as well as capital flows, and deferring those efforts now particularly at a time of increased global macro and financial market uncertainty would be foolhardy.

“The fact that Najib did not end up making any significant revisions to the 2015 deficit goal this morning suggests that the government is keenly aware that it needs to remain committed to its fiscal consolidation aims, in spite of the challenges,” Lim added.

In the Budget 2015 revision announced yesterday, Putrajaya insisted that there will be no cuts in the RM48.5 billion allocated to development expenditure, preferring instead to reduce operational expenditure by RM5.5 billion.

Putrajaya is also targeting an economy growth between 4.5 and 5.5 per cent this year, down from an earlier forecast of up to 6 per cent.

“Continuing on the path of fiscal consolidation is still the right policy so that Malaysia can continue to rebuild its fiscal buffers,” offered Gil Sander.

“The fact that 2015 will continue the consolidation trend, albeit at a slower pace, is positive.”