Author: Nurhisham Hussein, Malaysia

There is a stark divide between perception and reality when it comes to the Malaysian economy. According to official statistics, the Malaysian economy grew 4.7 per cent in 2013, down from the 5.6 per cent recorded in 2012.

Despite the lower number, GDP growth throughout 2013 accelerated, rising from 4.1 per cent in the first quarter to 5.1 per cent in the last quarter.

These are by no means bad growth figures. Given the slowing increase in the labour force over the past few decades, Malaysia’s potential for economic growth has been naturally declining. A growth rate averaging above 5 per cent for the last two years is in fact commendable, especially since Malaysia’s neighbours are doing considerably worse, relatively speaking.

But there remains a startling pessimism regarding the state of the Malaysian economy, a pessimism that transcends concerns over the cost of living, unemployment or income growth. This seems hard to account for. The economy has grown, and grown in a fairly robust manner. Real GDP growth in South Korea, Taiwan, Thailand and Hong Kong all averaged or exceeded 4 per cent between 2001 and 2010 with Singapore averaging above 5.5 per cent; Malaysia meanwhile saw growth around 4.6 per cent. Since then, average growth for the above economies was 2.9 per cent, 2.5 per cent, 3.2 per cent, 3.1 per cent, and 3.3 per cent, respectively. Malaysia by contrast averaged over 5 per cent during this time.

After the initial recovery from the global recession of 2008–09, global trade growth levelled off. Countries that were most dependent on global trade saw their economic expansion slowed. Yet in the Malaysian case that barely occurred, despite being one of the most highly exposed and open economies in the world. What explains this gravity-defying performance?

Whatever one might think of the virtues or faults of the government’s Economic Transformation Programme (ETP), it deserves the credit for Malaysia’s buoyancy. By fostering an environment conducive to investment, Malaysia saw a sudden sharp increase in capital investment, both public and private. While the infrastructure projects under the ETP hogged the limelight, private investment increased sharply as well, particularly in 2012. There’s no doubt that the resulting investment boom helped support economic growth even as external demand remained subdued.

Yet this apparent success was not broad-based. Growth was primarily concentrated in construction and its related sectors. While one could argue that investment in infrastructure such as the Mass Rapid Transit project was necessary and long overdue, there was also an accompanying boom in commercial property construction. The manufacturing sector, however, suffered from flat exports, while the primary sectors were affected by both slowing demand and softer commodity prices.

So, on the one hand, the benefits of Malaysia’s recent growth have been narrowly distributed while, on the other, risks to the economy are increased from potential over-investment in a single sub-sector.

Not that this is unusual for Malaysia. Growth in the 1990s was focused in manufacturing and construction, with the primary sector declining. Similarly, growth in the 2000s (pre-2008) saw the return of agriculture and mining, outshining growth in both manufacturing and construction as a global commodity price boom helped drive up incomes in those sectors.

The Malaysian economy is thus fairly diversified, with multiple sources of growth. This will help sustain aggregate income growth even when particular sectors are not doing so well. But in turn, it means the distribution of the benefits of that growth can and will be uneven at any given point in time.

Over the last few years, construction and real estate have been significant drivers of growth. With the recovery in the US and other advanced economies now taking root, manufacturing looks set to join the party. But the ongoing growth slowdown in China and India has affected demand and prices for primary commodities, and the outlook for the palm oil and the oil and gas sectors is not strong.

Perceptions of the state of the Malaysian economy therefore really depend on who you’re asking, and when.

Nurhisham Hussein is a Malaysian economist.

Author: Eric Loo, UOW

Malaysians are evidently freer today to openly criticise their government than they were prior to 1998.

But fundamental reforms that civil societies had hoped for during the internet-driven Reformasi movement in 1998 and Bersih rallies (in 2007, 2011 and 2012) are wanting.

Instead, Malaysians have a government focused on achieving a high-income developed-nation status by 2020 while eschewing the cultural prerequisites of a normative democracy — freedom of access to public information, free and fair elections, vigilant media and press freedom.

Civil societies had a glimmer of hope when Najib Abdul Razak was sworn in as the country’s sixth prime minister in April 2009. Addressing journalists at a media awards night in Kuala Lumpur, Najib said: ‘If we are truly to build a democracy that is responsive to the needs of all the people, we need a media — both old and new — that is empowered to responsibly report what they see, without fear of consequence, and to hold governments and public officials accountable for the results they achieve or do not achieve’.

The Centre for Independent Journalism and Writers Alliance for Media Independence submitted to Najib on 3 May 2009 a roadmap setting out the directions for media freedom and democracy. But roadblocks remain. Worrying recent cases include the suspension, later lifted, of The Heat in December 2013 for a series of reports on the prime minister and his wife’s extravagance; the revocation of the printing licence of FZ.com in August 2013; and the denial of a printing licence to the online news portal Malaysiakini, a decision reversed by the High Court in October 2012.

There have been some advances. Freedom of information laws were passed in the Opposition-controlled states of Selangor and Penang in 2011, which allowed for the disclosure of public information. But amendments to the Penal Code, a federal law that prohibits the leaking of government information to the media, and the Official Secrets Act, render the FOI legislation practically meaningless.

A combination of structural, political, legal and professional factors have led to a fragmented and unbalanced media landscape. Media companies and conglomerates are owned by political parties, leading to partisan political reporting. Establishment newspapers are increasingly deviating from fair treatment of public interest issues. Libel suits against the mainstream papers (for example,Anwar Ibrahim vs Utusan Malaysia; Suaram, Bersih & CIJ vs New Straits Times ) have seen the media losing cases. The media market is also divided along technological lines: a content analysis of the general election coverage in May 2013 shows the mainstream media are explicitly  pro-government and online news portals generally pro-Opposition.

The media market is also segmented by ethnicity and language, although the mainstream English language papers are widely read. Vernacular papers, accessible online, cater to the communal interests of those who speak Mandarin, Tamil and Bahasa. Language, ethnicity, religion and politics in the Malaysian context are inextricably linked, and since senior journalists and editorial policymakers in the mainstream papers, television and radio are predominantly Malay, these considerations do creep into the editorial process.

For instance, in a commentary in the Bahasa national daily Utusan Malaysia, the president of the National Association of Malay Journalists (NAMJ) and Writers of Malaysia, Alias Mohamed, wrote that if Malay leaders continued to accommodate the Chinese, they would risk losing their Malay authority and political leadership. Alias Mohamed’s emphasis on ‘Ketuanan Melayu’ (‘Malay Lordship’ commonly reinterpreted as ‘Malay supremacy’) could legitimise a hegemonic framework that NAMJ members could arguably see as acceptable in framing their coverage of racial and religious controversies, such as the Bumiputera economic agenda, preferential treatment policies, the child conversion (to Islam) bill, the ban on Christian churches from using the word ‘Allah’, and the post-election power relations structure.

Najib has attempted to demonstrate his commitment to accountability and transparency on his 1Malaysia blog. He remarked that ‘democracy is not just about elections, it is about addressing the needs of the people in between elections — and that means getting unfiltered, first-hand information through meetings, visits and social media about the things you really care about’. As Najib promised in 2009, the government repealed the Internal Security Act (ISA) in September 2011.

But the ISA was replaced by equally repressive measures in July 2012 by amendments to the Evidence Act 1950 and the Security Offences (Special Measures) 2012 Act, which provides for the detention of suspects for 28 days compared to indefinite detention without trial under the ISA. In the same month, the Printing Presses and Publications Act was amended whereby newspapers no longer need to apply for an annual renewal of printing permits, but which the home minister at his discretion can unilaterally revoke or even deny the right to apply for a permit. Malaysiakini and Fz.com are recent examples.

It has been one step forward and two steps back for media reforms, greater accountability and transparency under Najib’s administration.

Eric Loo lectures in journalism at University of Wollongong. He is founding editor of Asia Pacific Media Educator, and writes a column for Malaysiakini and The Edge Malaysia.

MALAYSIA REGISTERS 25.7 MILLION TOURISTS
AND RM65.44 BILLION TOURIST RECEIPTS IN 2013

KUALA LUMPUR, 27 February 2014 – Malaysia’s tourism industry performed above expectations in 2013, with tourist receipts of RM65.44 billion exceeding the initial target of RM65 billion. The 8.1% growth from RM60.56 billion in 2012, represents an expansion of about RM4.89 billion in foreign exchange earnings.

Meanwhile, tourist arrivals also grew by 2.7% to 25.7 million (25,715,460) arrivals compared to 25.0 million (25,032,708) arrivals in 2012 despite a challenging year.

“We are pleased to achieve such a substantial growth in tourist receipts last year. This is in line with the broad objectives of the National Key Economic Areas (NKEA) and Malaysia Tourism Transformation Plan (MTTP) to increase yield per tourist. Last year, the average tourist spending per capita was RM2,544.90 per person compared to RM2,419.10 per person in 2012,” said the Minister of Tourism and Culture Malaysia Dato’ Seri Mohamed Nazri Abdul Aziz.   

He added that tourism was the sixth largest contributor to the economy moving up one spot compared to 2012. It contributed RM51.5 billion to Gross National Income (GNI) in 2013.

He attributed the growth in tourist arrivals and spending to the Government’s focus on the initiatives under National Key Economic Area (NKEA) Tourism including the promotion of Malaysia as a duty-free and affordable luxury shopping destination, as well as the concerted efforts through the strategic public-private partnership to position and brand Malaysia as the top-of-mind destination for business and leisure.

The ASEAN market remains the largest contributor with 19.1 million arrivals, representing a 74.3% share of the overall tourist arrivals to Malaysia. The medium-haul market was the second largest market with 4.9 million arrivals followed by the long-haul market with 1.7 million arrivals.

The top ten tourist generating markets from January to December 2013 were Singapore (13,178,774), Indonesia (2,548,021), China (1,791,432), Brunei (1,238,871), Thailand (1,156,452), India (650,989), the Philippines (557,147), Australia (526,342), Japan (513,076) and the United Kingdom (413,472).

Markets showing double digit growth in arrivals were mainly from the medium and long-haul countries with Turkish arrivals surging by 28.9% assisted by the seven weekly direct flights from Istanbul to Kuala Lumpur by Malaysia Airlines and Turkish Airlines, as well as the re-opening of Tourism Malaysia Office in Istanbul.

Other markets showing strong growth include China (14.9%) which benefited from the new six weekly direct AirAsia X flights from Shanghai to Kuala Lumpur and another seven weekly direct AirAsia X flights from Hangzhou to Kota Kinabalu. Swedish tourist arrivals saw an increase of 13.1% on the back of strong promotional efforts there, in addition to the thrice weekly flights from Stockholm to Istanbul and Kuala Lumpur by Turkish Airlines beginning April 2013, as well as the seven weekly Emirates flights from Stockholm to Dubai and Kuala Lumpur, which started last September.  

Double digit growth arrivals were also recorded for the following markets: Bangladesh (55.7%), Cambodia (28.6%), Iraq (27%), Egypt (25.3%), Russia (18.8%), Taiwan (18%), Ireland (13%), Vietnam (11.7%), Norway (11.6%), and Spain (10.9%).

Last year, tourist arrivals from the Iranian market registered a significant drop of 38.5% partly due to AirAsia X’s decision to suspend its services to Tehran beginning October 2012.

The ongoing political woes in Thailand throughout 2013 had also affected arrivals from the country, which showed a decline of 8.4%.

To view more statistical information, visit http://www.tourism.gov.my/facts_figures.

-ENDS-

For more media releases, media info and media features on Malaysia’s tourism industry, kindly visit the Media Centre of Tourism Malaysia’s website at http://www.tourismmalaysia.gov.my/

MALAYSIA TOURISM PROMOTION BOARD OR TOURISM MALAYSIA is an agency under the Ministry of Tourism & Culture, Malaysia. Tourism Malaysia focuses on the specific task of promoting Malaysia at all levels. Since its inception, Tourism Malaysia has grown by leaps and bounds and it has emerged as a major player in the international tourism scene. In 2012, Malaysia registered 25 million tourist arrivals and RM60.6 billion in tourist receipts, placing the country firmly as the 10th most popular tourism destination in the world.

In 2014, Malaysia will celebrate its fourth VISIT MALAYSIA YEAR (VMY) with the theme “Celebrating 1Malaysia Truly Asia”. The VMY 2014 promotional campaign has started this year with a series of year-long special events and activities leading to VMY 2014. It will contribute to the Government’s target to receive 36 million tourist arrivals and RM168 billion in receipts by 2020, as outlined in the Malaysia Tourism Transformation Plan (MTTP) 2020.    

Press contact:
Media Relations Unit:
Mr. Razaidi Abd Rahim, Senior Asst. Director, Communications & Publicity Division
Tel: +603-8891 8768
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Editorial Unit:
Ms. Anis Rozalina Ramli, Senior Editor, Communications & Publicity Division
Tel: +603-8891 8759
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Author: Shankaran Nambiar, MIER

For a long time, Malaysian policymakers have tip-toed around the question of budget discipline. But the need for fiscal consolidation is pressing, and although the government has recently announced changes that will help reduce the deficit, it needs to make sure that these reforms don’t hit the middle class unfairly.

Malaysia’s history of budget deficits gives reason to worry. The budget has been in deficit most years since 1971. Only in the period from 1993 to 1997 did the country enjoy budget surpluses. And while statements have occasionally been issued on the necessity for fiscal realignment, little has been done to turn speech into action.

Keynesian economists suggest that deficits be used when the economy is in a downturn and that when the economy is doing well there should be budget surpluses. Malaysia has chosen to ignore theory, permitting government spending in excess of revenue even when the economy has been doing well.

Because of this history of budget deficits, government debt in Malaysia has been creeping up. The most strident note in recent years came from Idris Jala, the Minister in the Prime Minister’s Department, in 2010. He warned that Malaysia would be bankrupt by 2019 unless subsidies were cut and borrowings restricted. He went on to add that Malaysia’s net government debt would rise from 54 per cent of GDP in 2010 to 100 per cent of GDP by 2019 if subsidies were not cut. In 2012, this figure stood at 53.3 per cent. It appears that Idris Jala’s warning is now being heeded, with the government attempting to reduce the debt-to-GDP ratio.

When Fitch downgraded Malaysia’s sovereign rating outlook from stable to negative in July 2013, it was a sharp reminder to policymakers of the reality that international observers are watching Malaysia’s economic performance. It’s not all bad news though: Fitch still maintains a good rating on Malaysia’s long-term foreign debt (A-) and long-term local debt (A).

But the downgrade still serves as a useful reminder to policymakers that fiscal consolidation needs to be tackled now, especially since general elections are over. On all counts this is a good time to take steps towards fiscal reform.

The introduction of the goods and services tax (GST), which was announced in the Budget 2014 speech and will take effect from 1 April this year, marks the start of the season for fiscal reform. The proposed GST rate of 6 per cent may be high, considering that this figure will in all likelihood inch up from year to year. That said, there is no doubt that the GST is an efficient tax: it broadens the tax base and can be imposed at every stage of the production process.

But the GST is also a regressive tax. A study conducted by Lim Kim-Hwa — published a few weeks before the GST was officially announced, and which assumes a rate of 7 per cent — suggests that low-income households, with an average monthly income of RM 605, will pay 2.62 per cent GST as a percentage of income. Those with an average income of RM 2579 per month will be pay 3.07 per cent of their income in GST, while the highest-earning households (with an average monthly income of RM 30,815) will pay only 1.56 per cent of their income in GST. The message is clear: the middle-class will be badly hurt. And although official inflation will increase, it won’t reflect the true impact of the reforms on prices, since the consumer price index includes items that won’t be subject to GST.

The other major fiscal reform being implemented is the program of subsidy rationalisation. The 2014 Budget announced the abolition of the 34 sen subsidy for sugar. This has recently been followed by a rise in the electricity prices, which will be increased by about 15 per cent on the Malaysian peninsular and about 17 per cent for Sabah and Labuan. The new rates took effect on 1 January 2014.

The increase in electricity rates will affect industrial and commercial users considerably since they account for 78 per cent of electricity consumption. But households will also be hit, and, once again, it can be expected that the middle class will be the worst affected.

Both of these reforms will help Malaysia regain the confidence of international agencies and investors. But introducing fiscal reform with only the interests of rating agencies and foreign creditors in mind is not the way to go either. All sectors have to tighten their belts, and that includes the public sector. The Auditor-General, in his annual report, had strongly commented on financial wastage through improper procedures and carelessness.

Former prime minister Dr Mahathir Mohamad has argued that the government should be more judicious in its expenditure. One hopes, however, that the reform programme does not go so far as to remove subsidies on healthcare at government clinics and hospitals, or for education in government schools and public universities. Fiscal reform in Malaysia has been neglected by policymakers for too long. The recently announced reforms are positive moves, but in reining in the deficit the government needs to ensure that any changes are equitable.

Shankaran Nambiar is a senior research fellow at the Malaysian Institute of Economic Research.

An earlier version of this article appeared in the Edge Financial Daily.

UCAPANYB DATO’ SERI MOHAMED NAZRI TAN SRI ABDUL AZIZMENTERI PELANCONGAN DAN KEBUDAYAAN MALAYSIAMAJLIS PERHIMPUNAN BULANANKEMENTERIAN PELANCONGAN DAN KEBUDAYAAN MALAYSIADEWAN SERBAGUNA KPK10 FEBRUARI 2014 (ISNIN), 2.30 PTG

Tuan-tuan dan puan-puan,Bismi…

Author: Nurhisham Hussein, Kuala Lumpur

Nearly two and a half centuries ago Marie Antoinette, on hearing the French people were short of bread, supposedly said: ‘Let them eat cake’. It was a callous remark, and became a symbol of the French aristocracy’s isolation from the people they governed, a schism that shortly thereafter descended into the brutality and violence of the French Revolution. Antoinette was also known for her lavish spending, to the point of being known as Madame Déficit, further underscoring the differences between the classes.

Many would see a parallel with Malaysia’s current situation, as a rising cost of living squeezes real incomes while the government pursues an agenda of deficit reduction and fiscal consolidation. That agenda has seen subsidy cuts across many essential items (beginning with petrol and electricity) identified by the new Fiscal Policy Committee (FPC), which was formed last year to coordinate and plot the overall direction of Malaysia’s fiscal health.

The situation that the FPC had to deal with was more acute than has been generally recognised. While government revenue and spending were both somewhat above budget projections, leading to the perception of a fiscally irresponsible government, nominal GDP growth had been in sharp decline since the end of 2012, and only began to recover in the second half of 2013. Hence, even if the government hit its 2013 deficit target in absolute terms, the debt-to-GDP ratio would have exceeded the administration’s line in the sand of 55 per cent by the end of the year.

That realisation caused some hard and hasty decisions to be made, the biggest of which was the 20 sen per litre (US$0.06) reduction in petrol subsidies, but also extended to a review of electricity tariff rates, toll road rates and other lesser subsidies. In addition, it was confirmed during the tabling of the 2014 government budget that the goods and services tax system would be introduced in 2015 at a higher-than-expected rate, replacing the antiquated sales and services tax.

From an economic and fiscal perspective these are all defensible moves, and there’s no question that implementing them would immensely improve the government’s financial position and the competitiveness of the economy. In fact, preliminary numbers indicate the government achieved a surplus in the last quarter of 2013, preserving the 55 per cent debt limit. The issuance of government debt securities in 2013 is also coming in below initial projections. While there is still a long way ahead in closing the budget gap, positive steps towards that goal have been taken.

However, from a political economy perspective, the impact of multiple price revisions within a very short timeframe has eroded support for the government. The perception is that price inflation will impact the lower-income groups the most, as essentials make up a bigger portion of their expenditure. The increase in cash assistance programs that the government began in 2011 only partly offsets the increase in household costs and taxation. Moreover, the implementation of the petrol subsidy cut was somewhat botched, leading to the impression that the government hadn’t thought it through. The result has been a restless populace and consumer inflation that is likely to exceed 3.0 per cent in the very near future, compared with just 1.2 per cent at the end of 2012.

So where now from here?

From a policy angle, there’s little to complain about. The government is keeping to its commitment towards fiscal consolidation, building fiscal space to deal with potential future crises and generally putting government finances on a more solid footing. Household incomes are rising fast enough to deal with the acceleration in price increases — for the moment. The economy is benefitting from higher private and public investment, and should be given a further boost from the improvement in the external economic environment.

However, there is a growing trust deficit with the administration and a gap in communicating government policies to the people. The necessity for hard decisions has not been explained fully or clearly, especially as the Malaysian populace has become increasingly plugged into non-traditional communications channels. Whatever good intentions and sound policy the administration may have are lost in this disconnect.

Again, there are parallels with history. Marie Antoinette never actually said the words that were attributed to her; some historians believe they were uttered by another French queen generations before her time. She may have been profligate with public funds, but much of that money also went towards charitable works, and by all accounts she was truly sensitive to the needs of the people. The vilification of Marie Antoinette occurred because she was an easy target as a foreign princess and through her status as queen, not because of her true character or actions; it was as a symbol that she was brought to the guillotine.

That’s a tragedy, and a mistake, that shouldn’t be repeated.

Nurhisham Hussein is an economist based in Malaysia. He writes a blog on the Malaysian economy at Economics Malaysia.