At the recent World Economic Forum at Davos, Switzerland, I had the opportunity to watch at close hand a myriad of discussions over the problems of the world economy and reflect on them, especially how they compare with each other.
One thing that emerged was that world leaders were good at defining and analysing the problems, arguing and discoursing endlessly about cause and effect. But there was a dearth of definitive solutions and a constructive way forward.
When our Prime Minister shared that the Malaysian economy grew by more than 5% last year, many country representatives were impressed as many countries were registering low growth rates while others were still going through a recession.
Let me illustrate some of the thoughts that went through my mind about at least some of the countries (see chart) facing economic problems. The world’s largest economy, the US, is still mired in debt with government borrowings exceeding the gross domestic product – GDP, the total amount of goods and services produced in an economy in a year.
Its fiscal or budget deficit, the excess of total budget spending over revenue, amounted to 10% of GDP. President Obama has his hands full trying to curb both the budget deficit and government debt though a combination of higher taxes and expenditure cutbacks.
In France, newly elected president, socialist Francois Hollande, is trying to do what can only be described as a juggling act fraught with difficulty and danger – increasing taxes and using that money to spend its way out of recession.
Predictably, the International Monetary Fund (IMF) is critical and favours austerity while Labour Minister Michel Sapin used that unfortunate word “bankrupt” to describe France.
It is reported that Hollande now faces the spectre of an exodus of high net worth individuals from his country, which may include former president Nicolas Sarkozy and his wife Carla Bruni, who may want to avoid paying taxes of up to 75%.
British Prime Minister David Cameron, who has to steer his economy through rather troubled waters, had earlier promised to roll out the red carpet to attract wealthy French people, according to news reports.
France is certainly not bankrupt but it has problems – government debt of 86% of GDP and an economic growth estimated by the IMF at 0.3% in 2012 and projected at 0.9% in 2013. The fiscal deficit is not that alarming at 4.5%.
The UK has a higher fiscal deficit of 9% and government debt at over 80% of GDP, similar to France’s. But IMF predictions are rosier – 1.0% growth in 2012 and 1.9% in 2013. Britain is struggling to produce growth amidst austerity.
While Middle Eastern countries are reeling in the aftermath of the so-called Arab spring, for example, Egypt, there is more positive growth in Asia, especially China which the IMF projects will grow by 8-9%.
But faced with a global slowdown, all Asian countries are showing lower growth. India’s growth has been projected to come down to around 5% from 7-9% in previous good years while South Korea and Singapore are showing lower rates too with growth coming down to around 2%.
China (see chart) does not have a debt problem, which is just a quarter of GDP while it has a fiscal surplus. China is a major exporter and to keep its currency down, monetary policy has been lose, with interest rates below inflation rates.
This has accelerated spending and helped boost the economy. However, there is a danger in continuing to be a low-cost producer. As many nations are finding out, there is a limit to which this will contribute to growth and bubbles can build up in the economy.
In Malaysia, we are tackling our problems. We decided we want steady, sustainable growth instead of breakneck speed. That ensures that no pressures or bubbles build up within the economy and that the changes can be gradually absorbed with sufficient allocation of resources to enable the growth to take place.
Our transformation plan is holistic and provides vision, strategy and clear linkage to implementation of catalytic projects in partnership with the private sector. These are then aggregated to the level of the broad economy.
Also we are taking steps to ensure balanced development so that no sector or group of people is excluded from the overall economic development that is taking place on a national basis. Our development not only targets high income but sustainability and inclusiveness as well.
We don’t just have a plan, we have a programme – we have targets and we have funding and we have quantified our eventual outcome. We also look at the soft sides such as quality of life.
When Datuk Sri Najib Razak became our Prime Minister cum Finance Minister in April 2009, he led the country’s transformation. He promised to “transform Malaysia into a high income, inclusive and sustainable economy, with a target of Gross National Income (GNI) per capita of US$15,000 by 2020″. So far, there is ample evidence to show success, such as:
1. In just two years, we increased our GNI per capita by 45% from US$6,700 in December 2009 to US$9,700 in December 2011, a rare feat in today’s world.
2. Our GDP (gross domestic product – sum of goods and services produced) grew by more than 5% in 2012. When Christine Lagarde, the International Monetary Fund chief, met our PM, she said Malaysia is the only country where IMF had to revise their forecast upwards.
3. Our private investment figures, both for total and also foreign direct invesments, were the highest we have seen in the last 10 years
4. Our stock market is robust, achieving a 30% increase in market capitalisation of RM340 billion from RM1.12 trillion in August 2010 to RM1.46 trillion in November 2012.
5. On the back of a healthy economy, Government revenue reached an all-time high for Malaysia with RM 183 billion in 2011 whilst for 2012, the Minsitry of Finance expects to exceed that record to achieve an estimated RM207 billion. As such, we are in a healthy fiscal position to implement many rakyat inclusive initiatives under our transformation programmes e.g BR1M to help the needy as well as heavy expenditure on rural infrastructure and urban public transport, including the MRT.
6. As promised, Malaysia was able to reduce its fiscal deficit steadily from 6.6% in2009, to 5.6% in 2010 and 4.8% in2011. Although the figures are not yet officially announced, we expect continued reduction in 2012.
After having been to Davos and looking at what other countries have been doing, I am more convinced than ever before that we are doing the right thing through our transformation and working closely with the private sector for common gain.
What’s more, it seems like we are not the only ones who think so. At Davos, many countries expressed interest in coming here and learning from us. And many companies want to come here and invest for future growth. We welcome them.
Datuk Seri Idris Jala is CEO of the Performance Management and Delivery Unit and Minister in the Prime Minister’s Department. All fair and reasonable comment is most welcome at [email protected]