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Behind the international politics, there is always the economic substance. Why else would it be for (for Malaysia)? So my fellow Malaysians, please understand the undercurrent movements of the economy before blaming left, right and centre.
THE MALAYSIAN economy has undergone recessions many times. 1989 and 1998 saw contractions of 2% and above. Now, based on the recent 2016 statistics, we closed at 4% of Gross Domestic Product growth. It is expected that 2017 will show 4.2% with budget deficit of 3%. Considering that times are bad, such achievement is quite commendable. Despite all these, people are still making noises. Yes, true that we are experiencing some form of recession, but this can be managed. The Malaysian economy is basically mainly contributed by Services industry at 54%, Manufacturing at 23%, Agriculture at 9% and Oil and Gas at 9%. Oil & Gas seems pretty small at 9%. So why is the Government blaming that sector as heavily contributing to the sluggish economy that we are facing?
The answer is because a huge chunk of Government revenues come from Oil and Gas. To be exact, RM66 billion out of the total revenue of RM220 billion if based on 2014 statistics. That is approximately 30%. When the oil price fell from USD110 per barrel to USD50, that RM66 billion fell by half giving only RM30 billion. So our economy was short by RM36 billion. Luckily we had GST revenues to fill up the gap by approximately RM20 billion, coupled by reduction in Government subsidies to the tune of RM16 billion. Although the Governmemt has been able to fill in this gap, its operational expenditure remains high and increasing. The top sectorial allocations are Education (RM40 billion) and Health (RM20 billion). The cost of paying salaries to civil servants alone has reached RM77 billion. Not to mention the Government Debt and Pension costs of RM5 billion each in 2003 that have now arisen to RM20 billion each in 2016.
Then there was the Trump effect from the US. Donald Trump's policies practically promised American investors comparable returns if they are to withdraw their investments out from Asia and back into the US. This is via his reduced tax promise from 35% to something as low as 15% (yet to be determined) as well as increasein interest rates well above 4% (also yet to be determined). This makes American money market more attractive than the Asian market. For a start, Malaysian bond market only gives a return of 4%. He also invested domestically (US) and open up more job opportunities in the US. Malaysia suffered from this as foreign investments fled reducing our foreign reserves from USD120 billion down to USD90 billion. To make things worse, China also had policies that gave the same impact.
Today we have to produce RM4.50 to get 1 USD. This is the effect Trump and Oil proce has to our (Malaysian) currency. Now, at this point, even when the oil price recovers, the strength for our Ringgit could not pick up as the demand for Ringgit could not be recovered given the US and China policies. The former accounts for 10% of our international trade and the latter 16.2%. In addition, ASEAN's 27% contribution to Malaysian international trade will also be dampened as they (the other 9 ASEAN countries) too have significant international trade with China and the US. To top up, our 10% international trade with Europe (28 countries) is also dampened by the Brexit uncertainty. With that kind of numbers, you'd be like a car missing all 4 wheels.
So, fellow Malaysians, the only way now is to excite the economy domestically. We have to increase consumption expenditure in order to increase the Gross Domestic Product. Having said that, we ought to not buy imported goods because that will only dampen what we want to achieve. We also need not take up more loans such as housing loans and car loans, or even excessive use of credit cards. What we really need to do is create internal transactions to stimulate the economy while waiting for how the US and China are going to end up. The hightened relationship with Middle East could not have come at a better time. They can potentially be the replacement to the Americans and the Chinese as a significant international trade partner. Behind the international politics, there is always the economic substance. Why else would it be for (for Malaysia)? So my fellow Malaysians, please understand the undercurrent movements of the economy before blaming left, right and centre.
(Source of info: Dato' Johari Ghani's late night speech to Directors of GLCs on 7 March 2017).
* kopihangtuah
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