Forecasting The 2020 High Income Threshold

This is going to be a technical post – feel free to skip to the end if you’re not comfortable with the math.

There’s apparently some question of why the ETP has a target of USD15,000 in per capita GNI by 2020, and how it was derived.

Scepticism over the target has always struck me as a little strange because of the uncertainty of forecasting over such a long horizon, and the desire for pseudo-precision involved in assuming such targets are meant to be operative. I mean – if you manage to get to USD14,999, does that mean we’ve failed? How about USD15,001? Would USD15,002 be significantly better?

China’s Impact On Malaysia

I’ll be going on leave for a short break during these school holidays, so there won’t be any further posts until the middle of next week. In the meantime, I’m making a note on a briefing held yesterday by the World Bank on China’s long term prospects and the consequences for Malaysia.

Since it was a closed door session and the their report on China was the subject of some controversy, we’re not supposed to talk about the China portion of the presentation. Suffice to say that the report and its recommendations are freely available through the World Bank’s website (link here). My only comment on this is to repeat what we were told – in detail, the report broadly mirrors the proposals of our own New Economic Model.

ETP and GTP Annual Reports [UPDATED]

The PM will be unveiling the annual reports for the GTP and ETP live on RTM1, TV3 and Astro Awani tonight at 8.30pm. If you’re interested in the progress of these two programmes, don’t miss the show!

[UPDATE]

The pdf versions of the reports are now available online:

1. 2011 ETP Annual Report
2. 2011 GTP Annual Report

The Fuzziness Of Economic Forecasts

Economists do forecasts – or at least, people think economists have some kind of competitive advantage in forecasting economic variables. But the fact of the matter is, most economists have only a passing familiarity with forecasting and all that goes into it.

The reason why economists, and especially financial market economists, do forecasts is pretty disappointingly prosaic, and the essence of which can be captured by this joke:

“Economists don't answer to questions others make because they know what the answer is. They answer because they are asked."

We’re asked to give forecasts, because it’s presumed we know what’s likely to happen – but that’s based on the presumption that an expert on economics is also an expert in forecasting. But those are two very different fields.

Idris Jala Addresses The ETP Income Targets

There’s a lot of criticisms aimed at the ETP’s (actually the NEM’s) income targets – I’ve been one of them, at least insofar as how it’s been discussed publicly is concerned. One of the bigger issues is the fact that the target’s really nominal income in USD, but everybody talks about the real (inflation-adjusted) growth in Ringgit.

So, setting the record straight (excerpt):

Minister Idris Jala invites you to write to help to build M'sia

…The first thing I would like to explain is the concept of income, which is key to the entire concept of transforming into a high-income country. At what level of income do we become developed and achieve high income? How do we do it? How do we measure this? And can we achieve it?

What The IMF Thinks About Malaysia In 2012

From the transcript of Monday’s press briefing on the World Economic Outlook Update for Asia, with Anoop Singh, Director of the IMF’s Asia and Pacific Department (excerpt):

Transcript of a Press Briefing on the Economic Outlook For Asian Countries

MS. UTSUNOMIYA: Okay. If I may, the last questions from online. What are some of the external risks you foresee for Malaysia for 2012 when the bulk of the government's transportation program projects will be rolled out, which should boost domestic demand?

And also, briefly, shouldn't Japan's rebuilding process, as well as transfer of some of the production basis out of Thailand, provide growth momentum, too?

MR. SINGH: So on Malaysia, I think we should also recall what Governor Zeti said just, I think, a few days ago -- they're clearly watching it closely. The governor was very clear in her assessment that monetary policy is still accommodative and it is widely accepted that growth will likely moderate a bit this year, and also that the current level of interest rates, in her view, are supportive of growth.

Critiquing The Critique; Or This Is NOT How You Calculate Inflation Part II

I got tipped off about an analysis of the ETP last week, which makes some of the same points I made two years ago (excerpt):

A Critique of the ETP (Part 2)
We won’t really be twice as rich in 2020

RM48,000 in 2020 is not real income.
The ETP promises to double gross national income GNI) per capita to RM48,000 by 2020 from RM23,700 in 2009. However, RM48,000 in 2020 will be worth a lot less than RM48,000 today, just like RM100 today buys a lot less than RM100 eight years ago, thanks to ever-rising prices. If Malaysians are really to be twice better off, nominal income must be RM64,000 by then, to compensate for the 2.8% per year inflation that PEMANDU expects.

Nothing transformational in the RM48,000 target.
This target is for nominal$ income, which includes inflation, and not real income, which strips out inflation. Because of inflation, nominal GNI per capita growth averaged 8.2% from 2001-2010, whereas real GNI grew only 3.2%. At the historical average 8.2% per year growth rate, nominal incomes will exceed RM48,000 by 2018 anyway, with or without the ETP or PEMANDU.

PEMANDU and its expensive consultants cannot even get basic mathematics correct.
If the income target is RM48,000, PEMANDU’s 6% real GNI growth rate and 2.8% inflation forecasts are wrong. If its growth and inflation forecasts are right, then the RM48,000 target is wrong - it should be RM54,145 in 2020, not RM48,000. Furthermore, key metrics of some EPPs – the investment value, GNI contribution and jobs created – are unavailable.

Grade ‘D’ for data transparency.
In this series, we evaluate the ETP on its own terms based on the goals and plans outlined in the ETP Roadmap. PEMANDU scores a ‘D’ for data transparency. Like us, Malaysia’s top research house finds it impossible to get the numbers to add up.

This Is NOT How You Calculate Inflation (UPDATED)

I wrote about DS Anwar’s speech regarding the ETP a week ago, but my comments were based entirely on the coverage by the Malaysian Insider, and not the speech itself. I stumbled on that via JMD’s blog.

Just so you know, PEMANDU have issued a rebuttal (without naming names).

But what caught my eye in the original speech was this paragraph that wasn’t mentioned in the news coverage:

The average inflation between 2001 and 2005 is 4.8%, reflecting the first energy price shock of 2003 that saw average crude oil prices moving beyond the psychological US$30 per barrel mark. The average inflation between 2005 and 2009 is even higher at 6.6% as a result of the 2008 crude oil price rally that saw the energy prices sky-rocketing throughout the world.

The ETP And The Distribution Of Income

My apologies for the long silence over the past week – I’ve been on holiday, and haven’t checked my mail for a while, or been too bothered about blogging. The next couple of weeks won’t see much in the way of posting either, as I’m going through some major changes in my life. I might (or might not!) write about it, depending on how circumstances develop. In any case, I’ll be returning to a more regular blogging schedule in January, God willing.

In the meantime, I’ve been asked to comment on a couple of speeches made by the opposition Pakatan Rakyat over the past week.

First is a dinner talk given by Datuk Seri Anwar Ibrahim:

ETP will widen income gap by 2020, warns Anwar

KUALA LUMPUR, Dec 15 — Datuk Seri Anwar Ibrahim sounded warning bells today, saying the government’s Economic Transformation Programme (ETP) will worsen income disparity and force some 1.7 million Malaysians into poverty by 2020.

On the flip side, he said, corporate giants and government cronies would be enjoying a larger slice of the economic pie even as the common Malaysian struggle with hardship.

Economic Transformation Programme: One Year On

So, I was sitting in the audience yesterday, with some mixed feelings. On the one hand I’m troubled by the flaws in the worldview presented as its raison d'etre. And on the other, I’m truly fascinated in this experiment in public policy implementation – perhaps the best example of its kind in the world, or even the only one of its kind. It serves a big purpose in terms of changing the psychology of citizens, businesses and consumers regarding Malaysia’s prospects. All that investment is nice, too, and Idris Jala is as ever an engaging speaker.

ETP Is One Year Old

Pemandu will be commemorating the 1st anniversary of the launching of the Economic Transformation Plan today at the Sime Darby Convention Centre in Bukit Kiara:

There will be a live feed of the proceedings, which can be viewed on the ETP blog from 3.00pm onwards.

Public Sector Reform: It Ain’t The Money, It’s The Love

File this under, “Duh, why didn’t I think of that”. But pay close attention to the last couple of paragraphs (excerpt, emphasis added):

Money can’t buy citizens’ love, but integrity and performance can

…Technologies to enhance public sector performance are widely known and available nowadays, but we still can't predict when governments are likely to take risks in the implementation of complex public sector reforms. One prerequisite for any government attempting to implement reforms is that it has sufficient political capital…

Another NKRA…

Decided on in the Wednesday cabinet meeting, we’ve got another National Key Result Area to go along with the six already in place:

PM announces NKRA to deal with rising cost of living

PUTRAJAYA: The cabinet decided Wednesday to add another National Key Result Area (NKRA) to the list of six to make it seven altogether.

Prime Minister Datuk Seri Najib Tun Razak said the new NKRA dealt with the rising cost of living...

...Najib said the government would leverage the expertise of Pemandu to assist the relevant ministries and agencies as well as the Cabinet Committee on Supply and Price headed by Deputy Prime Minister Tan Sri Muhyiddin Yassin.

GTP & ETP Update

I spent this morning at the Kuala Lumpur Convention Center listening to Idris Jala talking about progress on the ETP. Beyond admiring his salesmanship skills, there was actually some real substance to the presentation.

Based on what I’ve seen so far, there’s been some pretty impressive progress made even if you see the ETP as a fundamentally flawed exercise. There are obvious gaps and shortcomings in the scope of the ETP, but that would be true of any development plan. What’s clear though is that taken on its own merits, Pemandu has managed to overcome one of the greatest obstacles any strategic plan has to face – implementation and monitoring. On both counts, what’s been done over the last 8 months or so is an incredible achievement.

Debating the ETP

Last night there was a debate hosted by the LSE Alumni Association, on the key challenges for the Economic Transformation Program (ETP). Moderated by Tan Sri Dr Munir Majid, the panel speakers were YB Tony Pua (MP for PJ Utara), Tan Sri Dr Ramon Navaratnam (former senior civil servant and noted economist), and Datuk Ahmad Zaki  Zaid, (Executive Director of MRCB). Also present were representatives of PEMANDU, the organisation tasked with leading the implementation of the ETP.

As you can imagine, there was a lot of scepticism regarding the ETP and Malaysia’s achievement of high income status by 2020. Questions and comments from the floor were pretty numerous and I think out of the norm for a Malaysian audience – perhaps a reflection of the participants.

New Economic Model Part 2

I haven’t had the time to read it yet (watch for an analysis later this week), but the NEM Part 2 Document was launched on Friday, and can be downloaded here.

What’s The Impact Of The 2011 Mega Projects?

There’s a raging controversy in the aftermath of the budget regarding the spate of big mega-projects that were announced – the yet-to-be awarded Mass Rapid Transport system for Greater KL, the Dubai-based Mubadala Group and 1MDB hook-up for the development of a KL Financial District (I still have no idea where this will be located), and of course PNB’s 100-story Warisan Merdeka project. The last has especially attracted an uncommon amount of vitriol from Malaysians. The least troublesome of these projects would be EPF’s Sg Buloh development project, as there won’t be any “special” needs involved.

I’m going to forbear commenting on the feasibility of the projects as I’m not really qualified to comment on them. What I will do is speak to the possible macroeconomic effects of these projects, insofar as that’s possible with virtually no information beyond their projected development value.

ETP Roadmap: PM’s Speech

In case you missed it, the videos are on Youtube. Sorry, they’re in Bahasa Malaysia only:

Tun Dr Mahathir Points Out The Elephant In The Room

So much for staying away from blogging.

It was a little over a year ago that I wrote a post on what the Malaysian economy would look like in the run up to becoming a high income economy.

Now our ex-PM points out the same problem that I worried about:

ETP Roadmap Download

Hot off the press. If you still want a hard copy, MPH will be carrying it nationwide from tomorrow.