1998 vs 2015, just numbers, no rhetorics.

I do not believe ANY politicians when they talk about economy. Regardless of those who said Malaysian economy is still strong or those who are asking if Malaysia should repeg the currency to US$. I believe my personal understanding based on numbers as well as reading from what the economists or analysts are saying is definitely better than ANY politician. Come on, those on the government side has to put up a strong face and those on the opposition side has to paint a bad picture of the government. This has not changed throughout the world and certainly would not change in Malaysia. Read on if you want to read facts. Stop reading if you think I have offended any of the politician whom you are supporting blindly today.
We can start by looking at an easy to compare chart published in The Star today. First of all, the GDP has clearly shown that as a country, Malaysia has grown tremendously. From a big country with a smaller GDP compared even to a small country like Singapore, today, Malaysia’s GDP is larger than Singapore and not likely to be smaller again in future. Per capita income has also grown and no matter how you want to say that Malaysians are facing pressure, are facing higher cost of living and more, fact is many of the middle income Malaysians are living a better life today. Should we help the Malaysians who are falling behind? Of course we must continue to help them. We are talking about the state of the economy today versus 1998, okay?
GDP growth then was also negative because of the financial crisis which hit Thai Baht first and then the rest in the region including even South Korea, Hong Kong and Singapore. Yes, all three are supposed to be BETTER managed than Malaysia? Well, when crisis comes, it’s a confidence crunch. Everyone within the same region would be affected and it may spread to the world, like what happened during the 2008 mortgage crisis which was caused by ONE economy which was supposed to be well managed but GREED took over.
Non Performing Ratio (NPL) in 1998 was 9%. This meant that not many banks dared to lend. They were also not strong. The NPL is today 1.2%. If you know what is Risk Weighted Capital Adequacy Ratio or Basel 3, you would also understand that the banks in Malaysia are looking good today. No one can promise they will look good if the world goes into a crisis but understand if the crisis hits, it is hitting us when we are at a strong position and not during 1998 when so many companies and so many banks were all very weak or in trouble.
Household Debt to GDP is the red flag but we must look at the underlying factors as well. Is it all due to speculative activities? Well, currently not yet. Have you not heard that loan rejections are still very high? In other words, only those who qualify could borrow. It was totally different during the 2008 mortgage crisis. Any Tom, Dick and Harry could borrow to ‘speculate’ in the property market. In the end, the crisis happened. Oh yeah, in case you wanted to know, in US, Household Debt to GDP is 80.1%. Even for Singapore, Household Debt to GDP is at 75.8% of GDP, end 2014. Singapore’s Government Debt to GDP is already near to 100% of GDP today.
Fiscal deficit of 3.2% is only okay if there are continuous push towards reducing it. Thus far, all the three international ratings agencies are still rating Malaysia at ‘investment grade’ but this is ONLY if the deficit continues to go down. Try having it increasing and rest assured that the ratings would change.
Trade account is still healthy. Exports are still more than imports. The higher the better! I think this is very important but perhaps it’s not a major consideration because “The United States has been running consistent trade deficits since 1976 due to high imports of oil and consumer products.” Despite this huge trade deficit, take a look at the US$ vs RM exchange today.
Would Ringgit continue to drop in value? I think the answer is yes when we look at the current sentiment. Everything is negative and perhaps this sentiment may also soon affect some of the fundamentals. Already some are taking a much more cautious stance already. Some foreign banks have also forecasted US$1 to RM4 by year end.
Happy reading more.
written on 9 Aug 2015
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