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?

Splash Offer Unlikely to be Accepted

The revised offer from construction outfit Gamuda Bhd’s 40%-owned associate, Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (Splash), to the Federal and Selangor governments for the takeover of the water services industry in the state is unlikely to go through.

Analysts believe that the stumbling block remained the compensation payable to Syarikat Bekalan Air Selangor Sdn Bhd (Syabas), a 70%-owned subsidiary of Puncak Niaga Holdings Bhd, as the former’s concession would be terminated after the acquisition.

Gamuda had told Bursa Malaysia on Tuesday that the revised offer still stood at RM10.75bil but with the water assets to be parked under the Federal Government’s Pengurusan Aset Air Bhd (PAAB) to comply with the asset light policy under the Water Services Industry Act 2006.

Splash would then lease the assets from PAAB at a rental rate of 6% per year with an annual escalation of 2.5% under a 30-year operating licence.

Currently, the state’s water assets are parked under four concessionaires – Syabas, Splash, Puncak Niaga (M) Sdn Bhd and Konsortium Abbas Sdn Bhd.

Looming over the takeover of Selangor’s water assets, which has been ongoing for the past two years, is a water tariff hike. The increase was initially supposed to be implemented in January last year, then deferred to March but has yet to happen due to the issues surrounding the takeover.

An analyst with a local investment bank said this arrangement would not be very attractive to Puncak Niaga as the company was also looking to obtain the licence to operate and maintain the state’s water infrastructure.

“The offer price will have to reflect some form of compensation for Syabas’ loss of the concession, which in effect means Puncak Niaga exiting the business,” he told StarBiz.

OSK Research Sdn Bhd analyst Vincent Lim agreed, saying the compensation issue would have to be resolved or further talks would not get anywhere.

He said one option was for PAAB to make a higher offer.

Lim said in a report yesterday the revised offer only involved a net book value pricing for Syabas’ water assets but did not take into account the compensation payable to the company from the loss of future profits.

“Although the new offer is favourable to Splash in terms of a lower capital outlay and it being an asset light licensing model, we think that Puncak Niaga, as an indirect party to the offer, will not agree to the terms as it does not make clear Syabas’ compensation status should its concession operation cease after the restructuring,” he said.

AmResearch Sdn Bhd analyst Mak Hoy Ken said in a report that the possibility of other water entities including Puncak Niaga directly negotiating with PAAB to migrate their water assets and liabilities could not be precluded should the former not take up Splash’s offer.

He added that the valuation basis for Splash’s offer had yet to be ascertained nor had there been a specific timeline mentioned.

Mak said the deal would still need the approval of the stakeholders of the state’s fragmented supply chain including the Selangor government, which holds 30% of Splash, 55% of Konsortium Abbas and 30% of Syabas.

Peter: It Is Your Call!

I am not political but it is time that they settled this water fragmentation mess left over from the former government of Selangor. Many hidden hands were involved but that is history and the people wants to know when they can get clean water and to ensure that the water subsidy scheme remains in place.

The person everyone is looking at for a solution is Peter Chin, the Federal Minister of Water. What ever happened to the restructuring exercise?

Let us look at some of the salient points involved here.

The Selangor people wants the best solution. They want the best deal. They are hoping that with the powers vested in him viz the Water Services Industry Act (WSIA), he may work out something good.

“Section 114 of WSIA, if invoked, gives the minister the power to force the water players to hand over the assets in the name of national interest.”

So far there have been three offers. Let us look at them at close range.

i.  The Selangor government’s offer to restructure the state’s water industry.

Apparently it is fair to all water concessionaires as well as benefit the rakyat guaranteeing  no tariff increases for the foreseeable future. This is structured in such a manner due to the lower proposed leasing cost by the state government from PAAB of approximately five per cent. Compare this with Gamuda’s cost of six per cent.

Further cost savings can be realised by “the lower cost of acquiring all assets of water concessionaires”, previously estimated at between RM9.2 billion and RM10.3 billion.

The State Government acquisition is based on the principle and philosophy of not  seeking to “maximise profits but instead maximise returns” to the public. Compare this to Gamuda Bhd's offer that will instead guarantee equity returns in excess of 10 per cent per annum.

This offer  was the attempt by the  Selangor government, via its investment arm Kumpulan Darul Ehsan Bhd, to  take over the restructuring  of the water industry thereby fulfilling  its promise to provide cheaper water to its electorate.

The state’s offer of RM9.2 billion was accepted by water concessionaires, Konsortium ABASS and Splash, but was rejected by Syabas and Puncak Niaga Sdn Bhd (PNSB).

ii. The Federal Government Bid

Done through its Water Asset Management Company (PAAB). It made an “informal” offer to acquire all assets from the water concessionaires amounting to RM10.3 billion in March 2010.However, the offer was rejected by water concessionaires, Abass and Splash, while both Syabas and Puncak Niaga Sdn Bhd (PNSB) have missed the April 6 deadline to repond.

“The deal by the Selangor state government is the best there is for the rakyat as we have affirmed no tariff increases for the foreseeable future. This can be achieved due to the lower proposed leasing cost by the state government from PAAB of approximately five per cent, compared to Gamuda’s cost of six per cent.
Pua added that further cost savings would be realised by “the lower cost of acquiring all assets of water concessionaires”, which was previously estimated at between RM9.2 billion and RM10.3 billion.
He added that the state government was not seeking to “maximise profits but instead maximise returns” to the public. Gamuda Bhd has confirmed their offer will guarantee equity returns in excess of 10 per cent per annum.


iii. Gamuda also made a revised offer yesterday to acquire all of the state’s water concessionaires through its associate, Splash, and this would cost the conglomerate RM10.75 billion. This is the best in terms of the valuation of the water concessionaires, being the highest offer on the table. They have promised to freeze water tariff increase in the first year and increase only between 2-3 per cent annually for subsequent years.

The Pahang-Selangor  Water Transfer Project has already started a month back and yet we see a lack of will among politicians to resolve the problem of the restructuring of water concessionaires.

Who are we waiting for? Godot?

We must be a first world nation with a third world mentality.

Malaysia: The Traffic Back-pedal

We have become a nation of back peddlers. Soon we may just have an international event called Tour d' Langkawi for Backpeddlers. Wouldn't that be fun?

This latest backpedal from the government definitely has something to do with the Hulu Selangor by-election. We should the voters in this constituency for helping us removed three measures that will possibly cause more dismay and apprehension among the poor. I am talking abut the exorbitant traffic fines and the increase in age to 17 before you can drive.

Let us read some excerpts from a news item filed at the Malaysia Insider online  web-site today.

"A controversial increase in traffic fines has been withdrawn from amendments to the Road Transport Act 1987 today after it became a campaign issue in the Hulu Selangor by-election.

Minister in the PM's Deaprtment  Nazri Abdul Aziz revealed that the government has withdrawn three amendments for further revisions after objections raised by its backbenchers. But the DAP has made it a campaign issue, saying raising fines from RM300 to RM1,000 would be a burden to the poor.

This is also the latest laws being taken off from Parliament with the first being the Good and Services Tax (GST) Bill on the eve of the current sitting.

“I had received a letter from the BNBBC through chairman Tiong King Sing, stating their objections to the amendments of the Act. I read its contents and have negotiated with the Dewan and also obtained confirmation from the Prime Minister and the Deputy,” Nazri said, referring to the Barisan Nasional Back Benchers Club (BNBBC).[My toes are laughing!]

“So we have decided to withdraw the amendments to the next session to be discussed along with the objections raised by the BNBBC,” he added, saying the Bill will be retabled in the next parliamentary session.
The three amendments which have been dropped are:

1. Compound fines for vehicles, originally priced at RM300, amended up to RM1000 has been withdrawn.

2. The minimum age for obtaining a vehicle licence, proposed to be raised be 17 years has been retracted, keeping it at the present 16 years old.

3. Amendments to allow only JPJ (Road Transport Department) to assign a registration number plate to any vehicle registered under the act have also been withdrawn."

I do not have to list the string of backpedals beginning with the withdrawal of English as the medium of instruction for Science and Maths.

Australia’s central bank felt a coming boom in export earnings meant it could not delay a hike in interest rates earlier this month, leading investors to wager on a further rise by June at the latest.


The Reserve Bank of Australia (RBA) felt a hike to 4.25 per cent, the fifth in six policy meetings, was needed because surging prices for iron ore and coal exports would boost the economy more than expected just a few months ago.

The hawkish tone to the minutes of its April meeting led some investors and analysts to bet it may raise rates yet again by another 25 basis points as early as May.

“A swift move to get back to normal levels seems almost certain,” said Bill Evans, the chief economist at Westpac.

“We think that the next move will be in either May or June, and on balance, the very clear emphasis on the resources boom tips the scales towards May.”

The market seemed to agree that further rate rises should come sooner rather than later. The Australian dollar rose to US$0.9275 (RM2.97) after the minutes, from US$0.9256 before.

Implied rates showed the chance of a move in May edged up to 28 per cent, from 25 per cent, while interbank futures implied a 64 per cent of a hike in June.

The minutes showed the RBA thought at the April meeting that rates were “a little below average”, and that the April move was a step in the process of returning them to “normal” levels.

“The prospective rise in the terms of trade was now likely to be noticeably stronger than had been expected was a factor suggesting that it might be prudent not to delay adjustment,” the minutes said.

Many private-sector economists believe the “average” or “normal” level of rates that the RBA refers to is between 4.5 and 5.0 per cent.

That seemed to be in line with what the RBA thinks. Governor Glenn Stevens said last month rates may rise to between 4.5 and 5.0 per cent.

Yet, with the domestic economy growing so strongly, some economists predict the RBA may lift rates to beyond 5.0 per cent this year to shift policy settings to a tightening mode.

“The bank will inevitably pause at some point, but the boost to income from the boom in the terms of trade will see the cash rate lifted to 5.25 per cent by the end of this year and 6.25 per cent by the end of next year,” said Felicity Emmett, an economist at RBS.

That is more hawkish than the market’s bets for rates to rise to 5.0 per cent in 12 months time .

A record mining boom 

A healing world economy that is lifting factory production, as well as China’s insatiable demand for commodities, have helped Australian miners to win steep price hikes for iron ore and coal, the country’s two biggest exports.

Iron ore prices alone are set to rise 90 per cent or more this year, delivering extra export earnings worth perhaps two percentage points of Australia’s gross domestic product.

So big is the windfall that some analysts are calling it Australia’s biggest mining boom on record.
In line with that, analysts expect Australia’s terms of trade, or the amount earned from exports for every dollar spent on imports, to grow between 15 and 20 per cent over the next year.
That is far bigger than what the RBA anticipated in February, when it predicted growth of around 5 per cent or less.

Despite the trade surprise, the RBA stuck to its forecast for 2010 growth to come within trend levels, and for inflation to be at 2.5 per cent, right in the middle of its 2.0-3.0 target range. But some analysts reckon the RBA may soon have to raise its forecasts since the economy could well be growing above trend.

“It seems blindingly obvious that the Australian economy is already growing above trend - the unemployment rate falling for the past six months is as good an indicator of this as anything,” said Peter Jolly, an analyst at National Australia Bank who sees rates at 6.0 per cent by the end of 2011.

“Very soon they will need to shift their rhetoric and logic and start talking about taking interest rates to restrictive levels,” he said.

Hulu Selangor: Now Its Two for the Road

Well, as expected, the two independents chickened out and withdrew, leaving only the BN and the PR to sling it out.

Since nomination day, many things have happened. Some politicians got wounded on barbed wires and as the campaign started, Zaid got hit below the belt when focus was made of his drinking habit. This is anathema to Islam and BN wanted to capitalised on this big-time. The Election Commission have asked BN to take down such posters showing Zaid drinking alcohol.

On both sides, the big guns are coming and going. When Anwar left for Sibu, in came Hadi and now Guan Eng and Tok Guru Nik Aziz is on his way there too. On the BN side, Ibrahim Ali has made camp in Hulu Selangor with his Perkasa-leaning friends. PM Najib and the two independents that went with him to the US Parliamentary caucus will also be showing their faces in Hulu Selangor.


It  looks like we are reaching the climax of the campaign period.

An interesting  thing I read was there are yet to be posters of Kamalanathan in the Hulu Selangor constituency. Is something amiss here?