Malaysia not out of woods, lacks will for reform, says UN survey
The economists warned that although the economy had expanded by 7.2 per cent last year, with a double-digit growth in exports and manufacturing in the first half of the year, Malaysia and other developing nations in the Asia-Pacific region might “not be out of the woods yet from the 2008/2009 recession”.
The outlook for this year, they said, would be subject to downside risks, notably from the return of high food and fuel prices, sluggish recovery in rich nations, a deluge of volatile capital inflows, and after-effects of natural disasters such as the tsunami in Japan.
However, they stressed that Asia-Pacific nations would continue to remain the growth driver and anchor of stability for the global economy, despite these challenges.
For Malaysia, said Professor Datuk Dr Mohamed Ariff of the International Centre for Education in Islamic Finance, one major weakness is the government’s lack of willingness to implement reforms, the longstanding problem of brain drain, lack of skilled labour and a bloated civil service.
Speaking at the launch of the UN Economic and Social Survey of Asia and the Pacific 2011 (UNESCAP) here today, Mohamed noted that Malaysia had the largest civil service in the entire region.
He revealed that Malaysia’s civil servants to population ratio was 4.68, in comparison to Indonesia’s 1.79, South Korea’s 1.85 and Thailand’s 2.06.
The size of Japan’s civil service, he added, was similar to that of Malaysia’s despite having a population of over 120 million people.
Mohamed said that Malaysia’s Prime Minister’s Department alone has 43,544 government servants as of last year, up from the 4,418 in 1981 and 25,332 during the Abdullah Administration.
“I don’t know if they even have standing room in there.
“It is too fact, we need to trim it. Look at Cuba, it dared to sack half a million civil servants, sometimes when you trim, your productivity goes up,” he said.
In his SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis on Malaysia’s projections for the year, Mohamed also listed the “slow pace of reform” as one of the major threats hampering the country’s economic growth.
“Too much talk, too little action. Vested interest... certain people are benefiting from the existing status quo. There is a need for strong political will to implement these reforms,” he said.
He also pointed to the growing income disparity in the country, noting that Sabah and Sarawak accounted for 55 per cent of the nation’s poverty.
Other threats, he said, were racial polarisation, tense race relations, negative perception on media freedom, the judiciary and governance, corruption, rising cost of doing business and gutter politics.
Malaysia’s weaknesses, he said, include a “subsidy syndrome”, overdependence on oil revenue, massive public debt of 54.6 per cent of the GDP last year, skills shortage, brain drain, lacklustre flow of foreign direct investments and lethargic domestic investments.
Mohamed listed out some key indicators for Malaysia this year, including a slowed export growth from 9.8 per cent last year to 6.2 per cent, a marginally higher private consumption from 6.6 per cent to 6.8 per cent, gross investment growth to slow from 9.4 per cent to 5.5 per cent, manufacturing sector to lose steam from 11.4 per cent to 6 per cent, GDP growth to decelerate from 7.2 per cent to 5.2 per cent, public consumption to increase from 0.1 per cent to 7.2 per cent, inflation to rise from 1.7 per cent to 3.2 per cent.
On rising fuel prices, Mohamed noted that the issue was a “double-edged” sword for Malaysia.
“Malaysia is still a net exporter of oil so we will benefit from high prices but then on the flip side, higher oil prices are going to hurt other economies who are our export destinations so our manufacturing will suffer,” he said.
He added that 2012 would be a “nightmare” to forecast for Malaysia, saying that the feel-good factor of nations emerging from the 2008/2009 crisis could merely be a postponement of the worst to come for the global economy.
“We may simply be on a break,” he cautioned.
Speaking on Malaysia’s efforts to address structural challenges like escaping the middle-income trap, UN resident co-ordinator for Malaysia Kamal Malhotra noted that while Part 1 of the Najib administration’s New Economic Model (NEM) had done a good job to address concerns, it had failed to do the same in Part 2 and in the Economic Transformation Programme (ETP)
“We did not see it reflected in the NEM 2 and the ETP... whether in addressing or identifying. ETP is just about projects, it does not address the structural challenges in NEM1, and NEM 2 is silent.
“So the question of Malaysia moving out from this middle-income trap is the biggest challenge and it remains to be addressed,” he said.
He pointed out that brain drain was a major issue in Malaysia, saying that the net inflow of low-skilled and semi-skilled labour versus the outflow of skilled labour were not ingredients of a robust economy,
“Malaysia needs to reverse this,” he said.
Last month, World Bank senior economist Philip Schellekens Schellekens said that the number of skilled Malaysians living abroad has tripled in the last two decades, with two out of every 10 Malaysians with tertiary education opting to leave for either OECD (Organisation for Economic Cooperation and Development) countries or Singapore.
Both Mohamed and Malhotra also addressed the volatility of capital inflows, noting that while Malaysia was yet to receive or benefit from large chunks of US flows into the country, the appreciation of the ringgit value may later pose a problem.
But Mohamed warned that if the country was to impose capital controls, it had to be done in a prudent manner at the “entry point of the flows” unlike what former Prime Minister Tun Dr Mahathir Mohamad had enacted during the Asian financial crisis in the late 1990s.
“We have not reached an alarming stage yet but with the appreciating ringgit and rising stock prices, it could become a serious problem in time to come.
“Bank Negara is monitoring it. If we have to impose controls, what we did in 1997 was wrong. You should not put in controls after capital has fled... after the horses have left, we closed the gate and this makes no sense at all.
“If speculative capital is moving in large numbers, impose controls at the entry point, not the exit,” he said.
Kamal agreed, noting that “the real issue” for Malaysia would arrive in the next six months.
“When you look at US flows likely flooding the market, it will probably be after July. Malaysia has not benefited yet but with the appreciation of the ringgit and the expectation that interest rate will rise, we can expect a much larger inflow soon and the question is how to manage it.
“Most of them is short term, and it does not address the structural problems of foreign direct investment, not dealing with net outflows,” he said.
Late last year, opposition leaders in Malaysia had raised concerns over the impending surge of hot money into the local market, claiming it could put Malaysia into a tailspin similar to the Asian financial crisis.
The leaders had called for capital controls to regulate the economy and protect the local market as well as to deal with the massive liquidity in western economies seeking higher returns in faster growing emerging markets.
But the central bank had said Malaysia had learned from the 1997 crisis and was in the position to intermediate the flows while government leaders claimed the appreciation of the ringgit was not affecting the property market like in other countries.
No comments:
Post a Comment