Malaysia: A ‘bankrupt’ nation? Very likely
Dr Lim Teck Ghee,
Readers following the great national debate initiated by Minister Idris Jala in the Prime Minister’s Department on the possibility of the country going bankrupt must be thoroughly confused with the mixed messages from government.
On the one hand, we are told that the country is more prosperous than ever before and that absolute poverty in the country, for example, is almost completely eradicated. We are also told that the country’s economy is in good hands and that the finances of the country are well-managed.
Every few days or so, we are reminded of how fortunate we are to be living in Malaysia and how much foreign investors love us. Just a short while ago, it was trumpeted that our competitiveness had shot up this past year so that we are now ranked number ten in the world – ahead of many advanced economies.
We regularly receive a barrage of statistics and data on not only how well the economy is performing but also how, thanks to the outstanding economic management of the government, we will soon reach dizzier heights of prosperity and affluence.
The New Economic Model, it is claimed, will transform the Malaysian economy to become one with a high income and high quality growth. Presently, per capita annual income in Malaysia stands at RM23,100; under the NEM plan, that figure would more than double to RM49,500 by the year 2020.
Lucky Malaysians – according to the government’s plan – to be able to live in a land of milk and honey with fistfuls of ringgit to throw around and to be standing side by side with the developed countries in the foreseeable future.
We have been fed with this optimistic and glowing picture of the country’s economic prospects for so long that many of us can be forgiven for believing that we stand on the threshold of unprecedented economic prosperity if not greatness. Never mind that doubt –in the way of the impoverished in our slums, squatter and ulu areas – is often just around the corner, many Malaysians prefer to close their eyes to this reality.
Dr Lim Teck Ghee
Idris Jala’s wake-up call
Fortunately or unfortunately, thanks to Minister Idris, we have now received a dose of reality that our economic situation is more complicated and a lot worse than what earlier leaders and the government-controlled media would like us to believe.
Although a few recalcitrant leaders are still living in denial and claiming that the minister has misled Malaysians on the true state of the country’s financial health, a closer look at Idris’s speech during the open house on ‘subsidy reduction’ shows that his concern and warning on the country becoming bankrupt (in the same way as Greece is) was absolutely correct and spot on.
Idris’s warning is based on a number of economic projections including:
(a) the country’s GDP would grow at 3% annually
(b) government debt continues to grow at 12% annually
Both assumptions are not unreasonable.
Average GDP growth has been slowing down in the past two decades. Prior to the Asian financial crisis of 1997-98, the country’s growth rate averaged 9% from 1990-1997. Between 2000 and 2008, growth rates fell to an average of 5.5%. If the trend of slowing growth continues, then the assumption of 3% GDP annual growth for 2011-2020 may well prove correct.
If there is no quick recovery in the global economy and we have a prolonged double-dip recession which seems more likely now following the ongoing financial crisis in the Euro zone, then even 3% annual growth in the GDP may seem optimistic.
As for the country’s debt, government debt in 1997 was RM90 billion. This has grown at a rate of 12% per annum to RM362 billion today. Based on a similar annual increase of 12% over the next nine years, the country’s debt will balloon to RM1.16 trillion by 2019.
The government’s own Performance Management and Delivery Unit’s calculations show that by the year 2019, the following economic scenario will be faced by the Malaysian government:
The country’s projected debt will be 103% of GDP
The fiscal deficit will reach RM449 billion or 38% of GDP
At that point, what will happen is that government revenue will not be enough to service its debt and to operate the hospitals, schools and other government services. In other words, the country will go into sovereign debt crisis, which is a polite way of saying that the country will become bankrupt.
