Malaysia in an Economic Equation

www.kopihangtuah.blogspot.com

ECONOMICS was my favourite subject when I was in Uni. It may well still be my favourite subject given my interest in the Malaysian Socio-Political-Economic dynamics. On my first day at school in Year 13 of Uni Foundation, I was taught to understand this equation, if I remember it right - pls correct me if wrong :

GDP = Aggregate Demand = (c - t) + I + G + (x - i)

GDP is Gross Domestic Product, an aggregate measurement of the total production by a particular economy that is assumed to reflect the demand for that production. In economics, an equilibrium of Aggregate Demand equals Aggregate Supply will always be met as and when market forces react against or with each other to arrive at that equilibrium. In laymen's term, 'you produce what people want to consume' versus 'you consume what is produced by the market' will strike a balance resulting in price determination. What are the variables of the market forces? Well, here they are, based on the above economic equation:

(c - t) is Consumption Expenditure less Taxes. The inflation rate is now at 3% to 4% - still not too bad to ensure prices of a basket of consumer items are affordable save for oil and gas product that is haywired at the moment. Taxes dampen disposable income and thus, reduce propensity to consume. However, if Taxes are reinjected back in the equation via G, which I will explain later, will have positive impact to the economy. Another indicator to gauge whether we have enough stamina to ensure sustainable consumption expenditure is the unemployment rate. Currently it is low at 3% implying that there would be plenty of disposable income across the population.

I is Investment. Currently foreign investments are at RM22 billion. Although a lot has been pulled out over the past month, RM22 billion is still higher than RM18 billion registered in 1998. Our political turmoil had dampened foreign investors' confidence but many are still maintaining their investments in Malaysia. So, we are still not in dire straits position (never I hope).

G is Government spending. As evident in Rancangan Malaysia ke-11, a lot will be allocated for the nation's development well in excess of RM200 billion with maximum 4% budget deficit projected. This commitment from Government will make the country even more conducive for economic growth as it will address matters such as infrastructure, redistribution of wealth, entrepreneurship catalysts, education, new sources of economy for diversification to rely less on oil and gas as well as enhancement of various economic corridors.

(x - i) would be Net Exports, i.e. Exports less Imports. We are a net export country. However we rely too much on oil revenues. Recent fall in Ringgit affects us negatively because of this over reliance. However, Ringgit will be cheap now pushing exports back up again given 76% of our exports come from manufacturing. Imports are important for our consumption. We are still under control for the retaining of imports to meet demands as our foreign reserve at USD96 billion is enough to support 7 months of retained imports, which is well above Global standard of 6 months.

* kopihangtuah

| mcmlxxv:viii:xxix |