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25th October 2017

A father, who is the head of a family, borrows heavily to spend for his wife and children to keep every one happy. It is a delusion of grandeur and wealth, with the costs pushed forward. Our Most Honourable Prime Minister Datuk Seri Najib Abdul Razak, in his piece, 'My Economic Vision For Malaysia' (, 24 Oct 2017), has claimed that from the time of his premiership, the Malaysian economy has grown from leaps and bounds. Our PM has presented a very positive outlook attributing the achievements to himself and his government. Persatuan Patriot Kebangsaan (Patriot) would like to differ and look at the economy from a more balanced perspective. We caution against over enthusiasm, lest fatal mistakes in economic decisions be made. In this short piece, Patriot merely contribute a few important points in the debate on our nation's economy. We are sure other learned economists would have more to say in this discourse.

Heavy borrowing
It is true, as mentioned by the PM, the per capita income has increased significantly from RM27,819 in 2010 to RM40,713 in 2017. However, this increase is attributable to huge government spending from foreign borrowings. Malaysia's government debt to GDP in 2008 was 41.24%. In 2009 it shot up to 52.81%, right after Najib Razak took office. Since then it remained above the 50% range. The government's debt in 2016 amounted to a high of RM908.7 billion, or 53.2% to the GDP, just below the 55% threshold. Obviously very high public spending, as never seen in previous administrations, would cause the per capita income to also rise. There is a vast difference between creating the wealth from your own nation's human and natural resources and the notional wealth borrowed directly from foreign sources. Our PM also proudly mentioned the monthly median income reached RM5,288 in 2016. Take a random survey in the semi urban and rural regions and ask how many have monthly income of RM3,000 and above (not necessary RM5,000). The truth will hurt.

High growth a global phenomenon
Since 2008, with the world economic recession starting from the burst of sub-prime bubble in the US, there had been a series of four quantitative easing by the US Treasury. The US technically printed or electronically created money and flooded the banking system with very low interest rate, and the whole world followed suit. Practically every country was creating more and more fiat money and there was easy money flooding the economic system of the world. Therefore it was imminent that the GDP also rose, and not just our country. 

Inflation and interest rate disparity
The Statistics Department has just reported our country's headline inflation rate at 4.3%, a hefty jump from the previous quarter. Whereas the interest rate remains at 3%. Ideally interest rate should catch up with inflation rate for a cooling effect of the economic heat. Holding back the interest rate too long can cause distortion and misallocation of the economic resources. Of course, it serves the purpose of the ruling parties to see that the economy is booming. Bank Negara has to be bold and make independent decision for the good of our country's economy. 

Real growth
Malaysia's nominal GDP growth rate for 2016 was 4.2%. The real growth has to deduct from the inflation rate, i.e., 4.3%; which was a negative 0.1%. This means our economy was already stagnant from 2016.

Gold as hedge
Malaysia's gold reserves decreased to 38.26 tonnes in Q2 2017 from 38.57 tonnes in Q1 2017. Patriot sincerely hope that our government, particular Bank Negara, will safeguard our gold reserves. With so much of uncertainty in the world economy, and with so much of fiat currency, electronic creation of money, it would be prudent if our government accumulates more gold as a hedge for the potential explosive nature of the world economy.

The wise father of the household should not burden his children with debts.

Reference article from:

BG Dato Mohd Arshad Raji (Rtd)
President - Persatuan Patriot Kebangsaan