The curse with Malaysia is that we never had a good Government that managed the country’s economy well and often hard-earned money is spent on dumb fiscal policies & decisions that are designed to consolidate political powers and this often runs along the lines of race and religion. Just see how Singapore’s Dollar has strengthened against Malaysia’s Ringgit in the last 14 years. Chart source: Trading View
Back in 2018, we had a sense of hope when Pakatan Harapan took over the rein of the government and we had after a long time we started to see wastage being curtailed and more concrete solutions being formulated to improve enforcement, fiscal spending and policies that really mattered to the country’s economy.
In the end, Pakatan Harapan got back-stabbed by extremists, the corrupt and Dr M himself who used race and religion to sabotage and caused the Pakatan Harapan government to fall after just 22 months.
Things have not been rosy since then with the backdoor government running the show without the people’s mandate and this is not helped by the COVID19 pandemic. You even have a convicted criminal who is labelled as the plundering idiot by an Australian newspaper walking around freely and participating in the election campaigns.
Read these first:-
- Outbreak 2020: Possible Virus Surge in Pakistan from Tablighi Jamaat Gathering
- Boycott Malaysia 2019: Can Pakistan Rescue Malaysian Palm Oil?
- Economy 101: What Is The Rationale Of 51% Share Give Away In Private Companies?
- Economy 101: Bailout of RM10.3 Billion: Where is Your Dignity Now?
Those who never learned from others’ mistakes will be bound to make the same mistakes. For this, we have good examples from Pakistan (Dr M’s favourite country) and Sri Lanka of how mismanagement of the economy, political instability and policies that are similar to Malaysian’s Bumiputera policies have screwed the country’s economy and more importantly its people.
Pakistan: Economy Crisis Analysis
The first is titled “How PAKISTAN committed SUICIDE with its ECONOMY?” by Think School:-
And another by my favourite analyst, Amit Sengupta:-
In summary, Pakistan screwed its economy with political instability, sponsoring terrorism as one of the sources of income and getting cosy with the Chinese just because they are in conflict with India.
Sri Lanka: Economy Crisis Analysis
The first is titled “How China SECRETLY Killed Sri Lanka?” by Think School:-
And this one from Amit Sengupta:-
In summary, their Ketuanan Sinhalese which is similar to Ketuanan Melayu, institutionalised discrimination which favoured only one race was the trigger of the bloodiest civil war for almost 26 years that caused more than 100,000 deaths and almost USD200 million in losses in the economy.
Debt is never a positive indicator of a country’s economy’s health and yet most countries have some form of external debt with China has become the world’s biggest debtor with high interest and short loan repayment terms that make the debtor countries often fail to repay in time and had to substitute their sovereign assets. Chart source: BBC
Malaysia’s China Debt Link
Pakistan and Sri Lanka now have been trapped by China’s debt trap and the governments will be at loss on how to resolve the debt with China. China’s overtake of sovereign assets such as ports may be the only solution that these countries may have.
From a security point of view, this will see the expansion of their blatant naval intrusion like how they have been doing in the South China Sea. This is the reason why India is strengthening their naval assets in the Indian Ocean (a strong reason why Malaysia should work closely with India on a military alliance).
However Malaysia has not escaped China’s debt trap as well and if we don’t manage our economy well, we too will be allowing China to take a piece of our sovereignty and gives a big middle finger to the country’s idiotic Ketuanan Melayu doctrine.
China financed $22 billion in Malaysian projects during the administration of Prime Minister Najib Razak. Razak made a 31 May 2014 state visit to China, during which he was welcomed by Chinese premier Li Keqiang. China and Malaysia pledged to increase their bilateral trade to $160 billion by 2017 and increase economic and financial co-operation, especially in the production of halal food, water processing, railway construction, and ports.
Malaysia has several Chinese Belt and Road Initiative projects under construction, including the East Coast Rail Line, Kuantan Port Expansion, Green Technology Park in Pahang, Forest City, Robotic Future City, and Samalaju Industrial Park Steel Complex.
In September 2018, Minister of Finance Lim Guan Eng cancelled two contracts, worth approximately $2.795 billion, with China Petroleum Pipeline Bureau for oil and gas pipelines.
Mahathir Mohamad and Finance Minister Lim Guan Eng criticized the projects as expensive, unnecessary, superfluous, non-competitive (because open bidding was prohibited), conducted with no public oversight, and favored Chinese state-owned firms and those affiliated with Razak’s United Malays National Organisation (UMNO) party at inflated prices. Residents of Malacca City said that the port was unnecessary, and the small company which received the contract had ties to the previously-ruling UMNO.
About China’s String of Pearls strategy in the Indian Ocean and China’s motives in Malaysia and the Strait of Malacca, Malaysian Deputy Minister of Defense Liew Chin Tong said: “You look at a map and you can see the places where China is plotting ports and investments, from Myanmar to Pakistan to Sri Lanka, on toward Djibouti.
What’s crucial to all that? Our little Malaysia, and the Malacca Strait. I say publicly that we do not want to see warships in the Strait of Malacca or the South China Sea.”The loans were later renegotiated; Mahathir Mohamad pledged support for the BRI, and was a key opening speaker at the 2019 BRI Summit in Beijing.
Malaysians are asking the same questions – why does Malaysia need projects that are expensive, unnecessary, superfluous, non-competitive, conducted with no public oversight, and favouring Chinese state-owned firms and those affiliated with Razak’s United Malays National Organisation (UMNO) party at inflated prices?
This is not the first time projects in the country are inflated so that the middle persons who are often politically linked make a huge profit without any effort. It does nothing to our economy.
External Debts – Malaysia vs Singapore
The problem with Pakistan and Sri Lanka’s economies is that they did not control the spiralling external debts and in the end, they had to fall back to foreign countries for loans.
Same in Malaysia, we are starting off with unnecessary infrastructure projects and to finance them, we go and get China to give us the loan which goes back to China as the project is done by Chinese contractors. It is the same trend all over the place and our politicians seem to be blind to the trap being set. This is not the way to manage our economy.
Speaking about debt traps and the impact on the country’s economy, we will need to compare Malaysia’s and Singapore’s external debts and how Singapore manages its economy.
Malaysia External Debt
In the last 10 years, Malaysia’s external debt has doubled from USD100 billion to USD250 billion. If we do not manage our expenses well and control our limited resources, external debts are going to spiral without control and that will not positive for our economy. Najib Razak was the Prime Minister and also the Finance Minister from 2009 to 2018. Chart Source: CEIC Data
Malaysia’s external debt increases to RM958.5 billion at the end of 2020 or 67.7% of GDP, from RM954.4 billion or 62.6% in 2019. The higher external debt primarily reflects the net issuance of bonds and notes by corporates and higher non-resident holdings of domestic debt securities. These were partially offset by lower interbank borrowings and non-resident deposits.
Bank Negara Malaysia (BNM) opined in its Economic Monitor Report 2020 that risks surrounding Malaysia’s external debt remained manageable in 2020 and well contained given its more favourable maturity and currency profiles, coupled with BNM’s prudential and hedging requirements.
In 2020, external debt-at-risk for corporates and banks amounted to RM26.4 billion and RM62.1 billion respectively. These cumulatively amounted to 9.2% of Malaysia’s total external debt and are equivalent to 20.5% of international reserves.
BNM’s international reserves in US dollar terms increased by US$4 billion to US$107.6 billion at the end of 2020, from US$103.6 billion in 2019, largely attributed to positive investment returns and revolution gains on its reserve assets amounting to US$10.3 billion in 2020.
This reserves position was sufficient to finance 8.5 months of retained imports and 1.2 times the short-term external debt. In 2020, the gross short position of FCY swaps declined to US$5.8 billion, from US$13.7 billion in 2019, which reflected the central bank’s operations to manage liquidity in the domestic financial system.
(Source: The Edge Markets)
The country’s foreign reserve is only USD107 billion which is not enough to cover the external debt of USD250 billion (a bulk is due to the 1MDB fiasco) but the fundamentals of the economy are still strong especially when backed by natural resources namely palm oil, oil and gas. However, we need to put some effort to reduce the external debts to a more manageable balance to reduce interest payments which is huge at the moment.
Singapore External Debt
Singapore seems to have higher external debts compared to Malaysia but its fundamentals are different and in reality are actually debt-free. Chart Source: CEIC Data
As of 2020, the IMF measured Singapore’s national debt-to-GDP ratio as 131.19%, the 6th highest in the world when expressed as a percentage of GDP. However, no one seems to be worried about the country’s national debt.
That’s because the headline figure reported by the IMF was gross national debt. When economists examined Singapore’s net national debt, they discovered that the country owes nothing at all.
Both Singapore’s constitution and the Government Securities Act prevent the government from spending any funds raised through debt securities. The money cannot be used to subsidize the annual budget. Instead it must be invested in capital projects that have sufficient profit projects to service the debt that funded them.
One of the factors why Singapore have to manage its economy well and be strict on the fundamentals is because Singapore is one of the financial centres of the world. The Central Bank is strict and does not hesitate to impose huge penalties on the banks operating in Singapore to protect its reputation.
So says an Australian newspaper and the judiciary when finding him guilty called him a national embarrassment. We had one of the worst Prime Minister and Finance Minister who said that cash is king and did not blink a bit when it came to mismanagement of the taxpayers’ money. 1MDB mess and the huge debts that the country have to pay were solely his fault. Image source: Twitter
Recently the backdoor government announced this:-
The government wants to eradicate hardcore poverty, involving 195,664 families in the country, by the end of 2025 through the Keluarga Malaysia hardcore poverty eradication programme (BMTKM).
Minister in the Prime Minister’s Department (Economy) Datuk Seri Mustapa Mohamed said through BMTKM, the hardcore poor families would be given assistance to improve their lives, and their family development would be monitored, especially their children’s education.
He said of the total 195,664 hardcore poor families in the country, the highest number was recorded in Sarawak with 58,611 families, followed by Sabah (31,598 families), Kelantan (28,553 families) and Kedah (15,964 families).
(Source: Malay Mail)
We need to benchmark ourselves with our closest neighbour, Singapore on how much we want to achieve economically. We have the all advantages over Singapore in terms of the availability of land, resources and natural resources and yet we are still far behind Singapore and still have hardcore poverty to be eradicated.
Managing the economy does not mean we only control the income and expenses of the government which at the moment is rather slacking but also covers others like a stable, incorruptible government, enforcement agencies following the rule of law and enforcing without any favours or bias, investor-friendly policies instead of one that supports racism and religious extremism and opportunities to the local players to be robust enough to compete globally.
We need to stop incomptent politicians from heading government-linked companies (GLCs) and get capable & professional managers to run GLCs professionally and profitably. Large bailouts due to incompetence and corruption should be a thing of the past and strict KPIs should be applied. Those who mismanage and are involved in corruption should be severally punished so that it is a lesson to others and give confidence to investors.
We need to make sure that we get a competent government elected first.