GDP - Is UMNO-BN borrowing to increase spending to increase GDP? Debt RM908.7 Billion, Reserves RM426Billion only?

UMNO-BN government have been relying on Malaysia's GROSS DOMESTIC PRODUCT(GDP) to give the impression that all is well in Malaysia but is it true or a lie. Many do not know what really is GDP and how it is calculated, and so I have done some research and hope this will help you understand a bit more.

A person with increasing debt is certainly not a person who is economically good. Malaysia's external debt is now RM908.7bil in 2016(according to the government)...and it looks that Malaysia's reserve(US$95bil (RM426.3bil) is not sufficient to cover the debt...

GDP values can be 'manipulated' - one way to do this is allegedly 'pumping in more money' into the economy...Has Malaysia been borrowing and 'pumping in money' to maintain the impression that the current UMNO-BN is doing a 'good' job? The people of Malaysia must start educating themselves ...about the more important realities - and decide for themselves...what they want...

Is it Malaysians that are contributing to GDP - or is it really foreign companies? GDP certainly is not reflective of economic wellbeing of Malaysians and their families...

How did Malaysia come to this state - it maybe too simplistic to blame oil prices - more justified to blame the UMNO-BN government ....
 

GROSS DOMESTIC PRODUCT - A lie or the truth of the well being of the Malaysian people?

Definition: Gross domestic product is the best way to measure a country's economy. GDP is the total value of everything produced by all the people and companies in the country. It doesn't matter if they are citizens or foreign-owned companies. If they are located within the country's boundaries, the government counts their production as GDP. - thebalance.com

So, if a German company is situated in Malaysia, and it produces RM1 billion worth of products - we take it into consideration for Malaysia's GDP? In fact, what Malaysians get would only be the salaries of Malaysian workers, the levy and other fees imposed on migrant workers working there, taxes and duties imposed, land tax, 'cukai pintu' , cost of Malaysia's own citizens-made products, profits made by the supply of products by Malaysian-owned companies...What a foreign company produces really do not belong to Malaysia or Malaysians, does it? Likewise what foreigners earn, save for taxes imposed, belongs to foreigners?

Well, GDP has also various different calculation methods, but it should all give the same result. Let's look at what is said to be the most common method of calculation...

Gross domestic product can be calculated using the following formula:

GDP = C + G + I + NX

where
C is equal to all private consumption, or consumer spending, in a nation's economy, G is the sum of government spending, I is the sum of all the country's investment, including businesses capital expenditures and NX is the nation's total net exports, calculated as total exports minus total imports (NX = Exports - Imports).

C is consumer spending - Thus, if we spend more it improves our GDP. Well, the government actions and/or failures results in the increase of the cost of living - then naturally the spending increases, would it not? Kopi O Ice used to cost RM1, now it is RM2.30?

G is the sum of government spending - well, then the government simply have to spend more and it will make our GDP look better. It looks at spending, so if Malaysia borrows billions and spends it - it will improve the GDP, irrespective of the rise of Malaysia's debt. Recent Bank Negara report now puts Malaysia's external debt at RM908.7 billion. About two third in foreign currencies, so drop of the ringgit will increase this debt..and 25% of Malaysia's export earning is used to pay back loans and loan interest... In the GDP calculation, it seems to be not bothered about the country's debt - only the spending. So, did Malaysia just simply borrow and borrow more to just to spend more and keep our GDP high? Well, in my opinion, that will mean that the economic well being have really not improved..During the Mahathir era, our debt was stable at about RM40 billion - after Pak Lah and Najib took over, it has been increasing at a dangerous rate - now, according to Bank Negara, it is as high as RM908.7 billion in 2016 - now possibly even higher...

Malaysia’s total external debt rose 9% to RM908.7bil in 2016, Bank Negara said, which is equal to 73.9% of the country’s gross domestic product (GDP).

Slightly less than two-thirds of the country’s external debt are denominated in foreign currencies. About a third of this debt is made up of interbank borrowings and foreign currency deposits in local banks. 

Excluding the valuation effects, Malaysia’s external debt was 6.2% higher.

Meanwhile, the country’s debt service ratio, or which includes payment of principal and interest, went up to 25% of its export earnings, compared with 22.6% in 2015 and 19.1% in 2014.- Star, 24/3/2017

I is the sum of the country's investment - not too sure what it means? Are we talking about foreign investment into Malaysia? It includes capital expenditure as well? Would capital expenditure also include wages? But foreign investment is really 'unstable' - because foreign MNCs can so easily run to another country - so, to keep them here, Malaysia has to make Malaysia attractive - low wages, weaker unions, precarious employment (easy fire?easy terminate?), maybe even lower water and electricity tariff? Maybe even lower 'taxes'? Preferential treatment for foreign MNCs without providing the same to locally owned companies, will make it more difficult for locally owned businesses to survive...and they die.

NX is the nation's total net exports - well, it not the money earned by the government by way of taxes, duties, etc. A Japanese company imports materials from overseas, and exports its products - What does Malaysia really gain save for the taxes....?

In short, GDP is far from a real indicator of the economic well-being of Malaysians...For that we need to look at actual earnings of Malaysians, and actual earnings of the Malaysian government through taxes, duties and various fees charged. 

What is REAL state of the economic wellbeing  of Malaysia and Malaysians - give us the real statistics of Malaysian individuals and family earnings - How many families earn less than RM1,000 per month, How many earn less than RM2,000 and so on... Now all that government generally provide is the MEAN earnings which is the average, and it gives no clear picture when the richest may be earning RM1 billion per month, and the poorest RM50...MEDIAN gives a better indicator, but still not a complete picture, a median is the list of earnings of say 100 persons, lowest to highest - and the median is what the 50th person earns...

Did the UMNO-BN government borrow money to pump it into the Malaysian economy to give us the 'false' impression that Malaysia is doing well? Looking at the ever increasing external debt, that possibility is very real? On the face of it, Malaysia seems to be 'always' growing - but then our debt has skyrocketed. Loans need to be repayed with interest and this government may really not be bothered to what happens to Malaysia in the future...pumping in money into the economy also can result in the increase in the cost of living..Now, Malaysia's expenditure annually to make loan payments and interest have been increasing...

According to standard macroeconomic theory, an increase in the supply of money should lower the interest rates in the economy, leading to more consumption and lending/borrowing. In the short run, this should, but does not always, correlate to an increase in total output and spending and, presumably, GDP. The long-run effects of an increase in the money supply are much more difficult to predict. There is a strong historical tendency for asset prices, such as housing, stocks, etc., to artificially rise after too much liquidity enters the economy. This misallocation of capital leads to waste and speculative investments, often resulting in burst bubbles and recession. On the other hand, it is possible money is not misallocated, and the only long-term effect is higher prices than consumers normally would have faced. - Investopedia

Bank Negara says that ' Malaysia’s total external debt rose 9% to RM908.7bil in 2016' - but I wonder, whether we have considered how much Malaysia is committed as guarantor? Malaysian government stands as 'guarantor' for many loans taken by others ...how much is that? Gov’t has guaranteed RM177.8b worth of GLCs' debts? WHY? GLC not government-owned?

DOES MALAYSIA HAVE SUFFICIENT MONIES TO SETTLE OUR DEBTS?

Bank negara says that we have international reserves of US$95bil(RM426.3 bil), and I am afraid, as currently at end of 2016, our debt was RM908.7 billion > NOT ENOUGH EVEN TO SETTLE OUR DEBTS?  Would that mean, Malaysia may need to sell its lands and assets to settle its debts?

At the end of 2016, Bank Negara’s international reserves stood at US$94.5bil (RM423.9bil).As at Feb 28, 2017, the reserves amounted to US$95bil (RM426.3bil). The central bank said the reserves were ample to facilitate international transactions and sufficient to finance 8.5 months of retained imports and were equivalent to 1.1 times the short-term external debt.- Star, 24/3/2017

RM423.9bil equal to 1.1 times the short-term external debt - that is very scary to me. Remember also that some debts do not have fixed interest rates - for example Bonds. See earlier post:- 1MDB, Malaysian Bonds, Moody, Credit Rating - More Worries for Malaysians?

There have been countries that have shown an increasing GDP but in reality the real situation was bad...There can also be 'lies' - now there are allegations that China is lying about the GDP. What about Malaysia? 

What is the real state of economic wellbeing of individuals and families in Malaysia today. Have Malaysians been led to believe that we have been well - when we really are not? Are government borrowings being used to 'pop-up' our GDP? 

Sadly, Malaysian politicians (backbenchers and Opposition politicians especially) have mostly not been keeping us all informed about the economic reality of Malaysia - WHY? Incompetent and inefficient? Illiterate about such 'serious' matters? Do we need better politicians and political parties?

UMNO-BN government have been slowly denying us relevant information. 

How many Malaysians earn less than RM500? RM1,000? RM1,500?...per month...

How many Malaysian families earn less than  RM500? RM1,000? RM1,500?...per month...

What is the poverty line income in Malaysia for an individual? for a family?...Very hard to get this information ...Why? What is the UMNO-BN government hiding?

What is the number of petty crimes like theft, etc - many a times this also is an indication of the economic wellbeing of Malaysians... Petty crimes usually increase when the number of desparate poor that find difficulty earning an income to support themselves and their families...(now we have 'crime index' - and no real statistical details of the number of crimes...) What is the government hiding..

Cost of living has really increased - but at the same time income including wages have not increased at the same rate...hence, have real wages and/or income of Malaysia really gone down...

Many Malaysians are really in debt - they are purchasing things on credit cards and by getting loans...But then, there is a decline on stable employment - regular employment until retirement...Retrenchment have been increasing...and note that when you do not make your monthly payments, you can lose your homes, your cars, your telephone services, etc...

TELL US THE TRUTH - What really is the state of economic wellbeing of Malaysians and their families...We know that Members of Parliament and State Legislative Assembly Persons are earning well...but what about the rest of Malaysians... ?

Friday, 24 March 2017

Bank Negara: External debt remains manageable

Currency weakness: The weaker ringgit adds to higher cost of foreign debts

PETALING JAYA: The weaker ringgit contributed to the higher cost of foreign debts.

Malaysia’s total external debt rose 9% to RM908.7bil in 2016, Bank Negara said, which is equal to 73.9% of the country’s gross domestic product (GDP).

Slightly less than two-thirds of the country’s external debt are denominated in foreign currencies. About a third of this debt is made up of interbank borrowings and foreign currency deposits in local banks. 

Excluding the valuation effects, Malaysia’s external debt was 6.2% higher.

Meanwhile, the country’s debt service ratio, or which includes payment of principal and interest, went up to 25% of its export earnings, compared with 22.6% in 2015 and 19.1% in 2014.

In its 2016 annual report, the central bank said the country’s external debt remained manageable, given its currency, maturity and balance sheet profiles.

“The profile of Malaysia’s external debt remained healthy with more than one-third of total external debt being denominated in ringgit, thus limiting the risks arising from foreign exchange fluctuations.

“The remaining portion of the external debt, which is denominated in foreign currency, is mostly hedged either naturally using export earnings or through the use of financial instruments,” it said.

Most of these debts, it said, were offshore borrowings, which were raised mainly to expand productive capacity and to improve the managenent of financial resources within corporate groups.

At the end of 2016, the country’s offshore borrowings fell to 42.7% of the GDP compared to 60% of GDP during the Asian Financial Crisis.

Bank Negara said the rollover risks were also contained, as 58.6% of the total external debt was of medium to long-term maturity.

“In addition, not all short-term external debts pose a claim on reserves due to the availability of export earnings and external assets which enable borrowers to meet external obligations without necessarily creating a claim on international reserves,” it said.

At the end of 2016, Bank Negara’s international reserves stood at US$94.5bil (RM423.9bil).

As at Feb 28, 2017, the reserves amounted to US$95bil (RM426.3bil).

The central bank said the reserves were ample to facilitate international transactions and sufficient to finance 8.5 months of retained imports and were equivalent to 1.1 times the short-term external debt. - - Star, 24/3/2017