KUALA LUMPUR: Rebounding export and gross domestic product growth rates in 2017 have brought a positive outlook to the Malaysian economy, with Malaysia’s official reserves at US$101.5 billion last October.
However, an analysis in East Asia Forum said the benefits of this strong growth were not flowing down proportionately to all Malaysians.
The analysis, by Malaysian Institute of Economic Research’s senior research fellow Shankaran Nambiar, said there was substantial dissatisfaction with the rising cost of living, particularly among the bottom 40% of income earners in urban areas.
Low-income households are also concerned about car ownership, housing, healthcare and other unavoidable expenditures that cut into household income.
Nambiar said while both healthcare and affordable housing were long-term issues, the more immediate concern was Malaysia’s high household debt.
The household debt-to-GDP ratio now stands at “a staggering” 88.4%.
“Equally worrisome is Malaysia’s high public debt. In 2016, the public debt-to-GDP ratio was 52.7%.
“One can take comfort in the fact that this is not necessarily a high ratio by international standards. Italy and India’s public debt-to-GDP ratios are 134.7% and 69.5% respectively.
“This may indicate that Malaysia is in a ‘safe zone’, but such a comparison is hardly meaningful in the Malaysian context.
“The government’s commitment to high contingent liabilities compounds Malaysia’s debt issue. Government-guaranteed liabilities stood at 13% of GDP in 2011 and 15% in 2016, but such a comparison might miss the complexities of the risk that are specific to each country. Even if the government is selective in its choice of projects, high contingent liabilities expose the economy to risk.”
Nambiar said more could be done to improve the public healthcare system as demand currently outstripped the system’s capacity.
A major obstacle to healthcare reform, he noted, was the presence of government-linked companies that competed to provide healthcare to the top 20% income bracket.
“These providers tend to run expensive private hospitals that are too costly for most Malaysians.”
Noting that housing costs were rising faster than household incomes, Nambiar said: “This may be exacerbated by the ill-advised government policy of directing government-linked companies to compete in more lucrative housing markets such as medium- and high-cost units. These market segments should be left to private-sector developers.”
These issues need to be addressed in 2018.
Nambiar said the factors that contributed to growth in 2017 included the depreciation of the ringgit and increased exports, especially of electrical and electronic goods, with net exports surging from a negative growth rate of –14.5% in the first quarter of 2017 to 1.4%.
Private consumption and domestic demand also played a significant role in driving Malaysia’s economic growth, he added, noting the efforts of the government to narrow the fiscal gap.
“The 2018 budget showcased political acumen but occasionally compromised on fiscal prudence. The budget is an election budget, so it is only to be expected that the government would want to be generous in extending assistance and incentives of various sorts.”