When will Malaysia achieve the economic goals of high income status?

Vision2020 envisaged a developed country in line with Tun Dr. Mahathir’s “Malaysian: The Way Forward.” That was a really good and positive target. As usual, our “Malaysia Boleh” politicians downgraded it to a nominal US$15,000 target under the Economic Transformation Program (ETP). Whatever the policy makers in Malaysia say, even this is unachievable. This article presents my argument.

On 29^th September, 2015 Pemandu published on its website an article which quoted the Science Adviser to the Malaysian Prime Minister Tan Sri Zakri Abdul Hamid declaring that Malaysia “is firmly on the path to developed country status.” This was after a high level meeting in New York of the country’s Global Science and Innovation Advisory Council (GSIAC), which apparently consists of a large panel of international sustainable development advisors to the government. Tan Sri Zakri raised two points in this statement, which are very reflective of the quality of work exhibited by our officials. Firstly, he said that the Malaysian per capita GDP (i.e. GDP per citizen) needs to increase by US$695 annually between 2015 and 2020 to reach the US$15,000. Secondly, he was confident that Malaysia was “firmly on the path to developed country status,” which he also linked to the US$15,000 per capita GDP target.

As for his derivation of US$695 annual increase in per capita GDP to achieve the US$15,000 target from US$10,830 in 2014, any child with some knowledge of arithmetic can do the maths easily. The point though is that although most Malaysian adults already knew that the ringgit had depreciated significantly during 2015, this knowledge appears to somehow have eluded the experts.   On December, 2014, the exchange rate was quoted at RM3.495 for US$1. On 15^th September 2015, the rate was RM 4.306 for a dollar. This was a depreciation of 23.2% in the ringgit’s value vis-à-vis the dollar. Any student in economics or business studies would have taken this event into consideration as it would surely be reflected in the 2015 GDP measurement in US dollar terms. Using the 15^th September, 2015, US dollar exchange rate, the per capita GDP of Malaysia in 2014 would have been only US$8,790. Following Tan Sri Zakri’s use of an arithmetic progression, the per capita GDP needs to grow by US$1,035 annually between 2015 and 2020 to achieve the US$15,000 target.

Now, this US$1,035 represents 11.8% of 2014’s per capita GDP of US$8,790. Does anyone really think of any country in the world that would have achieved double digit GDP growth in 2015? Do the GSIAC or any of the countless consultants advising the government of Malaysia really believe that Malaysia will achieve 11.8% growth in any of the years between now and 2020? Then how is it that these experts are confident of Malaysia achieving the target? An explanation will be most appreciated especially in the prevailing global scenario. If they are confident that the ringgit will rebound to the previous level, perhaps they can let the people know why and how this will happen.

Tan Sri Zakri Abdul Hamid also speaks of developed country status for Malaysia by 2020. The latter was well defined in Malaysian: The Way Forward in the Vision2020 statement of former Prime Minister Tun Dr. Mahathir in 1991. The vision for a developed Malaysia was “a united nation, with a confident Malaysian society, infused by strong moral and ethical values, living in a society that is democratic, liberal and tolerant, caring, economically just and equitable, progressive and prosperous, and in full possession of an economy that is competitive, dynamic, robust and resilient.” Many Malaysians would agree that the ideals set out have instead only devolved steadily, not least by the ex-Prime Minister himself.

Vision2020 envisaged a real GDP (in constant 1990 ringgits) of RM920 billion in 2020. Using data provided by the World Bank, the GDP of Malaysia in 2014 was RM1.1 trillion, which translated into RM458 million in 1990 real terms. Real GDP allows us to can take into account the effects of inflation.  To reach the Vision2020 target, the economy has to more than double in real terms between 2015 and 2020. Let us forget about achieving this “prosperous society” envisioned in Vision2020, and focus instead on that which is reasonable. To most conscious Malaysians even the gross national income (GNI) target of US$15,000 per capita (Do note that the science adviser used GDP instead, and that there are differences between GDP and GNI), which the government’s Economic Transformation Program (ETP) says will make us “high income,” is unimaginable. Good management practice entails that goals must be achievable. Unrealistic goals will only be counterproductive, something the long list of international members of GSIAC should have advised. We Malaysians, as are many others around the world, are facing very challenging times.  It is about time our government’s appointed officials and advisors start being more honest in their work.  It might still be possible to salvage the economic slide that the country is facing. However, a little honesty first will go a long way in building confidence in the government and its officials.

Epilogue:

I had written this piece a few months ago when I was contemplating the creation of this website. Since then the ringgit has come off its lows, and is presently hovering at the RM4.10 level for a dollar. Hence, the 2015 GNI per capita of RM36,285 (Malay Mail quotes Prime Minister, 27^th April 2016) translates to US$8,850 at the present rate.  Even if the ringgit appreciates significantly further, I do not see how we are going to achieve the US$15,000 target. Bank Negara forecasts GDP growth to be between 4% and 4.5% this year; this is a long way off what is required. However, the Prime Minister is still saying that he is confident of achieving the US15,000 ETP goal by 2020. What more can I say?