In past week the World Bank and the IMF have issued reports and statements concerning the Malaysian economy. The IMF released a brief statement entitled IMF Staff Completes 2018 Article IV Visit to Malaysia while the World Bank published its report in the Malaysia Economic Monitor.
The IMF note highlighted in highly nuanced language, in summary form, the outcome of the Annual Article IV Consultations with the Government.
The highlights made reference to recent economic performance and revised forecasts for the current year and expected growth in 2018. The revisions in the estimated and projected GDP growth rates for Malaysia are thus in step with revisions that the IMF has made for almost all countries since it issued its earlier estimates and forecasts.
Beyond the reference to growth prospects the statement took up a number of other policy concerns. It made veiled statements about the need for “higher revenues”—alerting all and sundry that taxes will have to be raised; it reminded the need to implement the adjustment programs outlined in the 11th Five Year Plan; etc. meaning that reform policies are not being implemented. The statement is thus a rap on the Government’s knuckles .
It is not inappropriate to read between the lines from the following:
“In the medium term, fiscal policy should follow a gradual consolidation path, and the composition of adjustment could be improved to make it more revenue based and to make room for the structural reforms and increased social spending for inclusive growth. Medium term fiscal targets should be better communicated.“
The statement contains cautionary remarks that urge the Government to pay heed to the downside risks it faces for which it is ill prepared.
Note the following statement: “…while downside risks include policy uncertainty in advanced economies and tighter global financial conditions. Going forward, striking the right balance in policies will be key.”
This is further emphasized by:”In the medium term, fiscal policy should follow a gradual consolidation path, and the composition of adjustment could be improved to make it more revenue based and to make room for the structural reforms and increased social spending for inclusive growth”.
These are interim conclusions. The Fund will undoubtedly issue a fuller report in which it will for certain spell out its concerns in greater detail.
The Prime Minister in his remarks commenting on the IMF Statement, limited himself to boasting about the revised growth rate.
He chose to wholly ignore the nuanced rebuke about the failure to implement reform measures and made a not-too-cryptic point about the need to tighten fiscal policy and take up structural reforms. By taking this stance, the Prime Minister is acting in a highly irresponsible manner.
The World Bank’s latest Malaysia Economic Monitor is a report commissioned and paid for by the Government. It attempts to take an overview look at recent economic developments in the Malaysian economy.
It too presents revised macro-economic growth estimates and forecasts reflecting revisions to global numbers that take account of changes in the global economy.
The higher estimates for Malaysia are thus in tandem with international developments and have little to do with either better policies or improved economic fundamentals.
However, the Prime Minister has been quick in making claims implying that the somewhat higher GDP growth is wholly attributable to the efforts of his administration.
What is particularly noticeable is the fact that neither the Prime Minister nor the mainstream aka the fake news media chose to ignore the main thematic findings presented in the Malaysia Economic Monitor.
Based on data collected by the Department of Statistics, the Bank reported that the rising cost of living is having a disproportionate impact on lower-income households in Malaysia, with those in urban areas the hardest hit. The poorest households have been disproportionately affected by the build-up of inflationary pressures over the past years with higher relative increases in food prices.
The report points out that the higher inflation experienced by low-income households has been further compounded by the persistent deterioration in the affordability of housing since 2012, as a result of a undersupply of affordable homes, particularly acute in the highly-urbanized areas of the country.
The report points to the need for better targeted social assistance, a point also made in the IMF’s note. These mildly stated criticisms and policy failures have not been taken up by the Prime Minister who has been quick to mouth feel-good remarks often taken out of context. The mainstream media aka the fake news media have failed in its duty to report faithfully and fully.
Illustrative of such selectivity is provided by The Star in its reporting. In an On-Line posting it carried a story entitled: World Bank: Malaysia to achieve high-income nation status as early as 2020 ( https://www.thestar.com.my/news/nation/2017/12/16/world-bank-malaysia-high-income-status-by-2020/#sATharQ25LYjprd2.990.
The Star made no attempt to make any cautionary statements pointing out that the World Bank’s presentation was a simulation and hypothetical in nature. There are many caveats and no one should under-rate that all forecasts for GDP growth in the near term as precarious.
Witness the recent revisions. Much will depend on how the US, Chinese and EU economies perform. The US faces uncertainties e.g. the impact of Federal Reserve interest rate adjustments; China must tackle its debt issues; the EU must worry about BREXIT – there are many uncertainties in the Middle East.
These impact on Malaysian economic growth prospects. And for Malaysia there are the further uncertainties associated with the value of the Ringgit once the Federal Reserve raises interest rates leading to an outflow from the Malaysian market of short term foreign funds.
Second: The notion that Malaysia will “cross” the high-income bar by 2020 is false. Note the Chart which shows a static cut off at US$12,236. This figure changes annually in accordance with the Atlas methodology. This figure NEVER gets projected because of the nature of how the number gets calculated. The bottom line is: the bar is NOT STATIC.
In this regard the Bank in making this prediction has acted less than responsibly. It has chosen to ignore its very own Atlas methodology. It would almost seem as if it is dancing to the piper’s tune!
Beyond the assessments offered by the Fund and the Bank, Moody’s (the rating service) in its recent Global Credit Research noted that Malaysia has “a relatively high but stable government and household debt burden.”
It further noted: “Malaysia is also exposed to a potential sharp and lasting negative change in external financing conditions, given the country’s reliance on foreign financing.”
Moody’s goes on to point out that Malaysia’s reserves are insufficient to meet maturing external long-term debt repayments and short-term debt. It cautions that Malaysia’s household debt levels — while stable — pose downside risks to growth. The general tone of Moody’s assessment, while not negative, appears to urge caution.
The likelihood of Malaysia crossing over to join the ranks of the high- income group of countries by 2020 is remote. It is all the more unlikely given the inability of this scandal driven government making the hard but necessary policy corrections recommended by both the Fund and the Bank. These concerns should be noted by the electorate as it makes its choices in the GE14 due in the near term.