Malaysiakini Letter

Economic vision or delusion?

Persatuan Patriot Kebangsaan  |  Published:  |  Modified:

Imagine a person borrowing heavily to spend on his or her family to keep everyone happy. It is a delusion of grandeur and wealth, with the costs pushed forward.

Prime Minister Najib Abdul Razak, in a pre-Budget piece on his blog, claimed that from the time of his premiership, the Malaysian economy has grown leaps and bounds.

Our PM has presented a very positive outlook attributing the achievements to himself and his government. Persatuan Patriot Kebangsaan (Patriot) would beg to differ and look at the economy from a more balanced perspective.

We caution against overenthusiasm, lest fatal economic decisions be made.

Heavy borrowing

It is true, as mentioned by the PM, the per capita income has increased significantly from RM27,819 in 2010 to RM40,713 in 2017. However, this increase is attributable to huge government spending from foreign borrowing.

Malaysia's government debt to GDP in 2008 was 41.24 percent. In 2009 it shot up to 52.81 percent, right after Najib took office. Since then, it has remained above the 50 percent range. The government's debt in 2016 amounted to a high of RM908.7 billion, or 53.2 percent of the GDP, just below the 55 percent threshold.

Obviously, this level of public spending – never before seen in previous administrations – would cause the per capita income to rise.

There is a vast difference between creating the wealth from your own nation's human and natural resources, and notional wealth borrowed directly from foreign sources.

Our PM also proudly mentioned that the monthly median income reached RM5,288 in 2016. Take a random survey in the semi-urban and rural regions and ask how many have monthly income of RM3,000 and above, let alone RM5,000. The truth will hurt.

High growth a global phenomenon

Since 2008, with the world economic recession starting from the burst of subprime bubble in the US, there had been a series of four quantitative easings by the US Treasury. The US technically “printed” money and flooded the banking system with very low interest rates, and the whole world followed suit.

Practically every country was creating more and more fiat money, and there was easy money flooding the economic systems of the world. Therefore, it was inevitable that the GDP would also rise, and not just in our country.

Inflation and interest rate disparity

The Statistics Department has just reported our country's headline inflation rate to be 4.3 percent, a hefty jump from the previous quarter, whereas the interest rate remains at three percent.

Ideally, the interest rate should catch up with the inflation rate for a cooling effect of economic heat. Holding back the interest rate too long can cause distortion and misallocation of the economic resources.

Of course, it serves the purpose of the ruling party to see that the economy is booming. Bank Negara has to be bold and make independent decisions for the good of our country's economy.

Malaysia's nominal GDP growth rate for 2016 was 4.2 percent. Real growth – which has to be deducted from the inflation rate, i.e., 4.3 percent - was negative 0.1 percent. This means our economy has been stagnant from 2016.

Gold as hedge

Malaysia's gold reserves decreased to 38.26 tonnes in Q2 2017 from 38.57 tonnes in Q1 2017. Patriot sincerely hopes that our government, particular Bank Negara, will safeguard our gold reserves.

With so much uncertainty in the world economy, and with so much fiat currency in the system, it would be prudent if our government accumulates more gold as a hedge for the potential explosive nature of the world economy.

After all, the wise head of a household does not burden his or her children with debt.

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