REPLY TO THE PRIME MINISTER’S SPECIAL ADDRESS ON CURRENT ECONOMIC DEVELOPMENTS AND GOVERNMENT’S FINANCIAL POSITION
The Prime Minister and Finance Minister, Dato’ Seri Najib Razak, in his special address on the current economic developments and the Government’s financial position this morning, denied the nation’s economy is in crisis while reducing the Government’s operating expenditure by RM5.5 billion through reprioritising expenditure. However, the Prime Minister maintains that GST will commence as scheduled in April 2015.
The Prime Minister did not touch on the growing external debt. It is an area of great concern as the external debt has shot up to 740 billion in Q3 2014 compared to the average of about RM43 billion from 1990 to 2013. The Prime Minister ought to have explained the cause for the sudden jump in the external debt. Even though Bank Negara Malaysia (BNM) revised the definition in May 2014 to include non-residents holding ringgit-denominated securities, the effect of the falling Ringgit to the US dollar has an adverse impact to the Government’s financial position and the nation’s economy. I call on the Prime Minister to address this issue of the increasing external debt and to identify the Government-linked agencies such as 1MDB that have exposure to foreign lenders or foreign currency denominated loans and steps to correct the situation.
The Prime Minister said that he is confident the exchange rate will over time adjust to reflect the nation’s strong economic fundamentals. However, the Prime Minister did not address the concern that the exchange rate of the Ringgit to the US Dollar has fallen to the level that was experienced during the 2008 economic crisis. The Prime Minister has also not addressed the fact that Malaysia’s foreign exchange reserves have also fallen during the same period. The Prime Minister should announce whether the reduction in the foreign exchange reserves is caused by the Government using the reserves to defend the Ringgit against the Dollar and whether such a defence can continue in the long term.
EXCHANGE RATE OF USD TO RM
The Prime Minister in his special address stated that the Government is confident our diversified economy is able to weather the decline in oil prices. He also said that the shortfall in commodity receipts is expected to be cushioned by increased demand for manufactured goods and that the Government is confident that the current account will remain in surplus, although smaller in the range of 2% - 3% of the Gross National Income (GNI). However, the Prime Minister has failed to address the issue of the growing deficit in Malaysia’s balance of trade. The current trade balance is one of the worst in the past ten years. Malaysia has suffered a sharp decline in trade surplus from RM8.23 billion in October 2013 to RM1.18 billion in October 2014. One of the reasons has been the declining competitiveness of our nation which has not achieved its declared objectives of the National Economic Transformation Programme after 6 years under the helm of Dato’ Seri Najib Tun Razak. This lack of competitiveness is shown by the low current account to GDP due to the nation’s increasing imports and declining exports.
The Prime Minister announced that the Government will undertake expenditure rationalisation measures such as deferring the 2015 Program Latihan Khidmat Negara and reschedule the purchase of non-critical assets and would assist the victims of the recent floods by an initial allocation of RM500 million for rehabilitation works and welfare programmes and a further RM800 million for repair and reconstruction of basic infrastructure. However, the Prime Minister needs to address the increasing hardship faced by ordinary Malaysians due to the rising cost of living. It is clear that the ordinary Malaysian does not have sufficient savings to overcome emergencies and the effects of an economic crisis. The savings rate of Malaysians has dropped drastically since 2008 while the household debt has risen to record levels. This is also reflected in the declining growth in bank deposits by business, household and foreign entities. The resulting financial squeeze can be seen from the increasing number of bankruptcy cases in the country.
Malaysia Savings Rate
I call on the Prime Minister to address the rising cost of living and to alleviate the suffering of the ordinary Malaysians especially the lower income group and the poor by deferring the implementation of GST.