Tuesday, March 31, 2015

Comparing Malaysia With Singapore

I probably shouldn’t bother, but from TMI (excerpt):

When the success of one nation casts shadows on the failures of another

...That Malaysia, with her bounty of natural and human resources, has failed miserably to keep up with Singapore is a sad reflection of the policies we’ve undertaken in the last 50 years. Where one has chosen unwavering pragmatism and a merit-based administrative policy to push its nation forward, the other is still proclaiming the supposed inherent superiority of one race over others.

Singapore is able now to move beyond focusing entirely on economic policy, to addressing problems such as social mobility and a rapidly ageing society to further better the quality of life of its citizens. Malaysia seems to be obsessed with proposing-debating-and-proposing-again the implementation of hudud, instead of fighting the deeply-rooted disease of corruption and inefficiency which leads to the billions of ringgit that slip out of our country’s coffers every year.

I hate repeating myself, but:

The Paradox Of Plenty

There’s this somewhat understandable idea that because Malaysia is rich in natural resources, we are…well, rich. Or at least we should be, if the government had handled things properly....

...But there’s a slight problem with this mindset – the empirical evidence suggests that natural resources alone do not beget wealth or prosperity, that focusing on developing such assets actually undermines the foundation of long term growth and prosperity. In fact, in development circles, it’s more common to speak of natural resources as a “curse”, not a blessing....

…In Malaysia’s case, it’s probably more pertinent – and accurate – to wonder not why we aren’t rich when we have abundant natural resources, but rather how Malaysia has managed to grow so far and so fast despite the handicap of having abundant natural resources.

In addition, three links on my series on corruption and growth (here, here and here), or if you want the whole series, you can start from here. From Part III of the series (excerpt):

The idea that corruption has a dampening effect on income levels and/or growth is intuitively appealing, yet the data doesn’t appear to support any causal relationship of any kind. In fact, the conclusion appears to be that the relationship is technically spurious – corruption affects neither the level or growth of income, nor does income affect the level or rate of corruption (or should I say, the perception of corruption).

The difference in growth between Singapore and Malaysia really boils down to volatile commodity prices before Malaysia’s economy was fully diversified beginning in the 1990s. There are a few other things, which I won’t get into right now.

Natural resources are not a blessing. Anybody who watched oil prices plunge last year can certainly attest to that. Long term, any country relying on natural resources is not on a path to prosperity.

The statement that Malaysia is “…staggering behind most of her Asian peers,” is sheer hyperbole. Since 1965, the only countries to have overtaken Malaysia in real GDP per capita in East Asia is Korea and Taiwan – despite the fact that both had had institutionalised corruption during their highest growth phases. This also ignores that we have been making steady gains on both, as well as against developed country standards, in the last decade.

Lastly, on the (de)merits of pure meritocracy, try here, here and here.

Thinking Like An Economist: GST Edition

[UPDATE: Changed comment on petrol prices]

I was at Giant supermarket this weekend, doing my usual grocery shopping. Of course, there was a massive crowd stocking up on everything from flour to diapers, as this article aptly describes.

Some of the purchases are warranted; some are not. Personally, I only bought what my family needed this week and no more. It wasn’t worth the time and effort for me to get more. The point I want to make here today is that calculating the cost-benefit of stocking up isn’t as simple as calculating the money savings one might have relative to after GST comes in.

For high-ticket items, the logic is pretty clear – it’s worth the trouble…mostly. Buying a new smartphone now for instance – say one costing RM1k – one would save about RM60. For the vast majority of the population, such savings are worth it.

The cost-benefit for groceries is not nearly as simple.

Tuesday, March 24, 2015

Wages and The CE/GDP Ratio

I’ve come across the same dilemma myself, but a box article in BNM’s 2014 Annual Report outlines the latest data (excerpt; emphasis added):

Trends in Malaysia’s Gross Domestic Product by Income

…In terms of share, capital income forms the largest component of GDPI (Chart 3). However, with the growth of labour income outpacing the growth of capital income, the share of labour income to GDP has risen steadily from 29.5% in 2005 to 33.6% in 2013. By definition, however, the labour income component in GDPI excludes income earned by self-employed individuals…With such adjustments, the share of labour income for Malaysia is higher, on average, by 8.0 ppt. throughout the period (Chart 4)….

Monday, March 23, 2015

Tears For Singapore

Condolences to the people of Singapore, for the passing of Lee Kuan Yew. Love him or hate him, nobody can deny his achievements or what he has meant for Singaporeans.

The sad thing is that Singapore is now at an economic crossroads, and probably needs LKY’s brand of pragmatism more than ever. Whether this next generation of leaders will be able to steer the country through the challenges it faces now remains to be seen.

Thursday, March 19, 2015

Economic Efficiency and GST

We’re less than two weeks away from GST going live, so it might be appropriate to look at the economic arguments in favour of it.

On the WCI blog, Frances Woolley reviews the textbook arguments (excerpt):

The case for taxing basic groceries

Economists frequently argue that taxing basic groceries is a good idea - for example, see these papers/posts making the case for taxing food in the US, Canada, and New Zealand.

The equity argument for taxing groceries is straightforward. Suppose everyone spends $500 a month on groceries. If groceries were taxed at 10 percent, everyone would pay about $50 in tax (or slightly less, if people cut back on their food expenditures when the tax is introduced). If part of the revenue raised by taxing groceries was used to give every low income individual a $60 tax credit, the tax on groceries would actually increase the well-being of the worst off members of society. Any additional revenues raised could be used either to decrease other taxes, leading to greater economic efficiency, or to provide needed social or infrastructure programs, further enhancing efficiency and/or equity.

Income Traps: It’s All About Convergence

A couple of recent papers have come out on “middle income traps”. First up from the World Bank (abstract):

Transitioning from low-income growth to high-income growth : is there a middle income trap?

Is there a "middle income trap"? Theory suggests that the determinants of growth at low and high income levels may be different. If countries struggle to transition from growth strategies that are effective at low income levels to growth strategies that are effective at high income levels, they may stagnate at some middle income level; this phenomenon can be thought of as a "middle income trap." This paper does not find evidence for (unusual) stagnation at any particular middle income level. However, it does find evidence that the determinants of growth at low and high income levels differ. These findings suggest a mixed conclusion: middle-income countries may need to change growth strategies to transition smoothly to high-income growth strategies, but this can be done smoothly and does not imply the existence of a middle income trap.

Translation: No, there’s no such thing as a middle income trap.

Wednesday, March 18, 2015

GST Price Guides

These were supposed to come out a couple of months ago based on the original planned timeline, but I remember some concerns being raised that releasing them too soon might render them inaccurate enough that people might not trust them.

In any case, here they are:

  1. Northern Zone
  2. Eastern Zone
  3. Central Zone
  4. Southern Zone
  5. Sarawak
  6. Sabah

Complaints about retail pricing or price gouging can be addressed to the 1Malaysia One Call Centre (1 800 886 800)

Government Debt: Revisionism

Tengku Razaleigh made a speech in Parliament yesterday that made some waves.

I thought I might have a look back at the fiscal metrics during Ku Li’s time as finance minister (fiscal deficit and government debt as ratios to GDP; shaded area):



The truth is, fiscal management is and can be event specific. Ku Li had to deal with the biggest and sharpest collapse in global commodity prices in modern history. This government on the other hand had to deal with the longest and most severe global recession since the Great Depression.

Just sayin’.

Tuesday, March 17, 2015

Why Fuel Subsidies Had To Go

All explained in two slides from last week’s BNM Annual Report Briefing:



You can find the box article these were taken from here.

Thursday, March 12, 2015

Explaining External Debt

Yesterday, the media (social, online, offline) were agog at Malaysia’s external debt numbers. They shouldn’t have been – the inflated numbers were due to a redefinition of external debt made last year (see here, especially the last four pages), which was announced, though nobody appeared to have caught on.

So what’s the deal?

Hafiz Noor Shams has a nice graph showing the difference between the old definition and the new one. I agree with him, the reporting on this has been deplorable, and not just from the local media (sorry guys, it has been pretty bad), but from the foreign media as well. One joker speculated that with external debt so high, Malaysia might have trouble “servicing” it, because the foreign exchange reserve cover was low. Hah!

Friday, March 6, 2015

Ringgit Depreciation In Perspective

This is from June 2014 to December 2014, and to February 2015 (% appreciation of USD; sorted based on the latter date; click on the image for a larger version):


The Ringgit is in the top half of the list, but just barely. Most of the bottom half are currencies pegged to the USD (i.e. from Honduras down to Saudi Arabia), while most of the top half are mostly European and pegged to the Euro. Not all currencies are on the list, but these exceptions are also mostly pegged currencies (most of the Caribbean and Africa for example).

Some people have been calling on the Governor to resign due to the deterioration in the USD value of the Ringgit. I don’t think Tan Sri Zeti is worse than the Governor of the Central Bank of Sudan. It’s clear from here that the sell down of the Ringgit is at worse only partially due to local factors, and much more to do with a strong global rotation towards the USD.

So much for “worse performing currency” and “foreign investors leaving due to lack of confidence in the economy”.

Technical Notes:

FX price data from the Pacific Exchange Rate Service

BNM Watch: Saying Nothing At All

As expected, the Monetary Policy Committee meeting yesterday left the Overnight Policy Rate unchanged at 3.25% (excerpt):

Monetary Policy Statement

At the Monetary Policy Committee (MPC) meeting today, Bank Negara Malaysia decided to maintain the Overnight Policy Rate (OPR) at 3.25 percent….

…the downside risks to the global economic outlook remain given the weak growth momentum in a number of major economies. The uncertainties in the policy environment are also contributing to the shift in sentiments in the international financial markets.

While the Malaysian financial markets have been affected by these global developments, there remains ample liquidity in the domestic financial system with continued orderly functioning of the financial markets….

…Going forward, domestic demand will remain as a key driver of growth…household spending will continue to be supported by the steady increase in income and employment.…The prospects are therefore for the Malaysian economy to still remain on a steady growth path….

…For the rest of the year, headline inflation is expected to trend higher, but to be below its historical average….

…At the current level of the OPR, the stance of monetary policy remains accommodative and supportive of economic activity….The MPC will also continue to monitor the risks of destabilising financial imbalances to ensure the sustainability of the overall growth prospects.

Thursday, March 5, 2015

2014 IMF Article IV Report on Malaysia

It’s out, and available here. The summary is per the link below (excerpt):

Favorable Prospects for Malaysia’s Diversified Economy

  • Growth likely to remain healthy in 2015, despite lower energy prices
  • End of fuel subsidies and start of Goods and Services tax is timely, and good for efficiency, equity, and the environment
  • Exchange rate flexibility will help non-energy exports

After a year of very strong growth of 6 percent, lower energy export prices in 2015 will likely contribute to growth moderating to a still impressive rate of close to 5 percent, say IMF economists.

In their annual report on the health of the Malaysian economy, the report’s authors say growth is expected to moderate to about 4¾ percent this year while headline inflation will likely increase slightly to about 3¼ percent in 2015 as a result of an end to fuel subsidies, the introduction of a Goods and Services Tax (GST), and exchange rate depreciation.

The Facts of Life: Monetary Policy Edition

[Rant Mode On]

Lim Sue Goan on the economy and the Ringgit (excerpt):

Bleak economic outlook for the Year of the Sheep – Lim Sue Goan

...The PM should put more focus on economy instead, in view of the plummeting international oil prices and a significantly weakened ringgit....

...Thirdly, the government should support the ringgit. The continuous fall of ringgit has brought up operating costs for many businesses resulting in import inflation. In the long run, the depreciating ringgit will harm the country's economic fundamentals.

Tuesday, March 3, 2015

BNM Watch: Wishin’ I Was Lucky

The Monetary Policy Committee will be meeting this Thursday and the consensus opinion is that there won’t be any change. I don’t think so either, but pressure will be mounting.

BNM won’t be the only central bank deciding on monetary policy this week. Also on the clock are Australia, Canada, Brazil, Poland, Albania, the UK and the ECB. I expect no change from the latter two  with the ECB having already pre-announced the start of Euro-area QE beginning this month and the BOE likely to stay the course. Brazil was the odd man out, with a 50bp hike in January.

Monday, March 2, 2015

Data For Free

Big data is gaining traction. The IMF is offering all its databases free of charge from the beginning of this year:

IMF Offers Free Access to Its Online Economic Data

From the start of 2015, the IMF has made its online economic data available to everyone free of charge. Users have access to a wealth of

macroeconomic data covering all economic sectors of a large part of the IMF’s member countries.

This includes the International Financial Statistics (IFS), Balance of Payment Statistics (BOP/IIP), Government Finance Statistics (GFS), and Direction of Trade Statistics (DOTS) databases. These were all previously only available via subscription.

If you’re interested in Singapore, Singstat has also put its data online (warning: pdf link):

Free Access to More Data on the SingStat Website from 1 March 2015

Data users can look forward to free access to some 12,000 statistical data series on the SingStat website. The data series span across multiple topics within two broad themes, namely population and economy.

So what’s the big deal? It’s not so much that the data is free and online, but that its also readily accessible via visualisation and data downloads of historical time series.

DOS, here’s your next big project.