Malaysia: Just Playing Poker with 2010 GDP Projections

Amresearch has been going hyperbole in their projection of the 2010 GDP for Malaysia.

They based their projection on the underpinning of household spending and exports that is driving Malaysia’s economic growth to levels unseen since 1996.

Amresearch’s revised forecast follows announcements by the Malaysian Institute of Economic Research (MIER) and financial services firm JP Morgan that also upgraded Malaysia’s economic growth in 2010.

Strengthening domestic and external conditions led Amresearch to upgrade Malaysia’s economic growth to 8 per cent in 2010 from 5 per cent previously. It also predicted GDP growth of 6 per cent for 2011.

Amresearch said that first quarter growth “probably” expanded at 8.9 per cent which would make it the fastest in a decade.

“With prospects of a disappointing global upswing getting dimmer, real GDP will be sustained at around 6 per cent in 2011,” said Amresearch senior economist Manokaran Mottain in a report today.

He also sees the ringgit ending the year at RM3.10 to the US dollar which, he says, will be reflective of its fair value.

Interest rates are expected to rise to 3 per cent due to the stronger economic momentum and higher inflation rates but they are not expected to affect growth.

“It (the overnight policy rate) will not choke the recovery process,” said Manokaran.

Inflation, meanwhile, is expected to rise to 2.5 per cent in tandem with improving economic conditions and potential adjustments to prices.

Manokaran said he expects the manufacturing sector to be the main growth driver this year, led by the electrical and electronics sector at 12.3 per cent growth followed by the services sector which is expected to expand by 7.1 per cent due to stronger demand arising from the positive wealth effect from the financial markets, stable employment conditions and rising income levels.

He also expects private consumption to grow at 4.5 per cent versus just 0.8 per cent last year.

“Private consumption is expected to rise on the back of improvements in the labour market, disposable incomes and consumer confidence,” said Manokaran.

He also sees exports and imports posting double-digit growth of 15 per cent and 16 per cent respectively in 2010 as well as a higher current account surplus of RM125 billion or 20 per cent of GDP.

The World Bank had on Monday released a report saying that Malaysia could grow by as much as 5.7 per cent this year but warned that growth could stall if economic reforms were not implemented.

MIER last week revised its GDP growth forecast for 2010 to 5.2 per cent from 3.7 per cent due to improving business and consumer sentiment. JP Morgan had earlier this month also revised Malaysia’s GDP growth forecast to 7.7 per cent from 6.8 per cent previously.

I will take these projections with a chunk of salt.

Malaysia: The National Debt Audit

PM Najib has just disclosed the national debt of the nation as at 31 December 2009. It amounts to RM36.4 billion or 53.7% of the GDP. Of this, RM348.6 billion,equivalent to 96.2% was domestic debt while RM13.9 billion (3.8%) was external debt.

“The small amount of external debt is in line with the government’s current policy which prioritises domestic borrowings to finance the country’s development projects as the cost is cheaper and there is less exposure to foreign exchange risk,” he said.

Najib said these debt instruments were subscribed by financial institutions, insurance companies and social security institutions.

On the borrowings for projects, he said the financiers were multilateral institutions such as the World Bank, Asian Development Bank and Islamic Development Bank while the bilateral institutions included Japan For International Cooperation (JBIC).

He said the interest rates varied and depended on the tenure of the loan and the prevailing market conditions when the bonds were issued.

Najib said the government’s contingent liabilities meanwhile were in the form of guarantees for the borrowings of statutory bodies and government companies.

As of Dec 31, 2008, the contingent liabilities of the government stood at  RM69.2 billion comprising domestic borrowings of RM59.3 billion (86 per cent) and external borrowings of RM9.9 billion (14 per cent),” he said.

He said the guarantees involved two statutory bodies and 16 government-linked companies.

Meanwhile Bank Negara disclosed Malaysia's international reserves was US$95.7 billion (RM313 billion) on April 15 compared to US$95.3 billion on March 31.


The reserves were enough to finance 8.8 months of retained imports and were four times the short-term external debt.

So, do you get a picture of our reserves and indebtedness now?