Friday, December 11, 2015

Malaysia's National Savings

As a follow up to yesterday’s post, here’s some graphs showing some of the other interesting data from the distribution of income accounts.

First, gross savings across all institutional sectors (RM billions):

Note that the bulk of national savings actually comes from corporations (the first two sectors). Household savings is by comparison pretty small.

The next two graphs should be read together (RM billions):
Net lending/borrowing is (mostly) the difference between savings and investment, and I’ve added here the national total. The fact that Malaysia as a whole is a net “lender”, means that we have a continuing outflow of capital overseas. The graph below that shows domestic investment by institutional sectors.

This evidence dovetails with what I’ve touched on lately about institutional flows. The recent reduction in Malaysia’s current account surplus is a function of two things – a lower savings rate, and higher investment. National savings as a whole has plateaued, suggesting reduced savings relative to GDP. It actually fell from 37.4% of GDP in 2006 to 29.4% in 2013. On the other side, investment has continued to increase (21% in 2006 to 26.5% in 2013), thus reducing the savings-investment gap (i.e. the current account).

Note a couple of the symmetries here:
  1. A current account surplus implies a country is earning more than it spends, but also means that an outflow of capital that is invested overseas;
  2. Increasing domestic investment also implies a reduction in the current account surplus, and vice versa;
There’s no such thing as a free lunch.

Technical Notes:
All data from DOS Distribution and Use of Income Accounts and Capital Accounts 2006-2013


  1. The low saving rates.. how much is this caused by poor lifestyle choices vs genuinely hard to make ends meet?

    Recently Lazada Malaysia makes USD40 million in sale in just 3 days. Given preassures from GST and weak ringgit to purchasing power,I think ppl are buying like mad

    1. @anon

      There's a certain segment of the population that has no problems with either savings or spending, so I wouldn't read too much into anecdotal evidence such as this. The Klang Valley is an outlier in terms of incomes and wealth.

      For the majority of Malaysians however, any kind of "lifestyle" is a bit of a luxury they probably can't afford.

    2. Coincidentally, most of the grouses on cost of living is also within Klang Valley. Other than the fsct that prices (eg food) are higher in KG, is KV also an outlier in terms of lifestyle? Eg luxuries in other parts of Malaysia are considered everyday in KV

      So you mean Malaysians surviving day to day as any "any kind of "lifestyle" is a bit of a luxury they probably can't afford"?

      Then should we call ourselves a medium income economy.. sounds like Malaysians are piss poor.

    3. @anon

      Based on Khazanah Research data, KV has a GDP per capita equivalent to Korea, while much of the periphery states such as Perlis and Kelantan are on the level of Indonesia.

      So yes, KV is an outlier. The average Malaysian earns less than half what KLites earn.

      I wouldn't go so far as to call Malaysians piss poor though. That leaves out what to call Indonesia, Thailand and the Philippines, Vietnam, Cambodia and Myanmar.

    4. 1. anecdotal evidences - people queuing up in front of IKEA, buy iPhones, luxury car sales have risen over years. malaysians don't save enough or income couldn't keep up with consumption?
      2. what can be done to improve household savings rate other than urging people to spend frugally, save more?
      3. personal investments such as ASB, TH, unit trust, FD fall under which category/account?

      Haziq Nasir

    5. @Haziq

      1. I'd caution against using such anecdotal evidence - there's only two IKEA stores in Malaysia for instance. I'd say however, that income growth has been decent, but consumption growth has far outpaced it. One other possible explanation is that income is being under-reported (for example, to avoid income tax liability).

      2. Two things: raise income growth further (e.g. next year's minimum wage revision), and tilt the national income ratio further towards households. At 34%, we're still below the norm for a high income nation, where households take 50% or higher.

      3. FD falls under savings, but unit trusts and LUTH are under the income account. The issue with the latter is that "investment" in these vehicles involves a simultaneous equal and opposite "divestment". In any case, the numbers laid out here refer to the flow of savings, not to the totals.

  2. Do the household savings include the EPF contributions of individuals?

    1. @Seeteik Lim

      Yes it does. See this post for more details.

  3. Hi Hisham, am back from my 3rd treatment in UK and just about hanging in there! Just wondering if I can ask a question... Not sure it's econs, more like banking. Just got a letter from M'sian bank with Singapore parent saying interest rates for my loan were raised significantly. They point to the usual "We reserve all rights to amend terms and conditions as we deem fit" spiel. Can they do that? Isn't interest rate fundamental part of package? What is to stop banks from offering X% then relying on the catch-all clause to change it to 10X% the next day. I mean I understand if the BLR changes but this had got nothing to do with it..

    1. @The Slug

      Unless you specifically asked for a fixed rate loan, you're out of luck. Yes they can do that.

      They're not doing it willy-nilly though. Banking cost of funds is rising, both here and in Singapore. Capital outflows are crimping domestic liquidity, so money market rates are rising regardless of the official policy stance. My excess liquidity measure for the Malaysian banking system is now at its lowest level since 1998.

      Basel III compliance is also taking a toll, as banks have been forced to compete more fiercely for stable customer deposits. Locally, short term deposits rates are now higher than long term MGS, which is totally nuts.

      In Singapore, market interest rates would mirror Fed moves because of Singapore's currency regime, and they've been shifting higher since early this year.

      You can complain to BNM if you think there's cause, but I don't think you'll get very far.

    2. Thanks so much! Merry Christmas and Happy New Year!!!

    3. The Slug,

      Merry X'mas and Happy New Year to you and your family.

      Merry X'mas also to all Christian reading and happy holiday to non-Christian.

      I have a question, what is your rational for seeking treatment in UK as compared to Singapore? I have close family member also fighting the big C.

      Thank you in advance for sharing.

      Zuo De

    4. Hi Zuo De,

      Merry Belated Christmas and Happy New Year. Oh wait. The second para - I read something about it somewhere. Is it not good form to wish everybody at large Merry Christmas now? Anyway, Happy Span of Time to everybody.

      As to your question, the most basic rationale - they don't have that modality of treatment in Singapore. Mine is a rare type of cancer, even globally, but rarer still among Asians. I went for Chemosaturation in Southampton. That involves directing the chemo directly to the liver and bypassing the rest of the body instead of sending it conventionally through a vein. That way, the rest of the body does not get so much side effects and they are able to infuse a far higher dose since it bypasses the rest of the system. From what I know, it is because of the unique characteritic of the liver and further that they are only doing it for my type of cancer, not all liver types

    5. This comment has been removed by the author.

  4. The Slug,

    Thank you, wow this is really something....

    All the best and I hope you recover fully.

    One of the biggest factor in helping the fight against cancer is a good attitude. Go go go, never give up, stay positive and don't let the crap in the world bother us .....

    Zuo De