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Thread: Economy: Malaysia Illicit Outflow & Debt - Sinking deeper and deeper

   
   
       
  1. #11
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    Hutang Negara Malaysia 2012 (RM456.1 Bilion) : 2 Syarikat RATINGS AGENSI ANTARABANGSA Beri Amaran Kepada Malaysia!!

    http://beritasemasa.com/hutang-negara-malaysia-2012




    by Staff Berita Semasa on May 9, 2012
    in Berita Ekonomi


    Apabila pemimpin politik menasihatkan rakyat jangan risau, memang kita mesti risau sebab masaalah besar akan wujud kelak.

    Ketika ini hutang negara berada pada paras RM456.1 bilion di mana bersamaan 53.5 – 54 peratus daripada Kadar Dalam Negara Kasar daripada had yang telah ditetapkan Kementerian kewangan (MOF) setakat ini iaitu pada paras 55%. Walaubagaimanapun jawatan balas Timbalan Menteri Kewangan (Datuk Seri Awang Adek) di Dewan Rakyat menasihatkan rakyat Malaysia tidak perlu risau.

    Tahap hutang negara yang tinggi untuk tempoh yang berterusan, sebenarnya boleh memberikan kesan ekonomi dan kewangan negara dalam tempoh jangka panjang. Keadaan ini akan bertambah buruk jika wang yang telah dipinjam dibazirkan untuk tujuan projek-projek mega yang sebenarnya tidak perlu pada masa sekarang, tetapi diperuntukkan semata-mata untuk “mengenyangkan” suku-sakat dan kroni.

    • Tetapi dalam pada masa yang sama, tiada satu iltizam yang benar-benar menunjukkan keyakinan kepada semua yang Malaysia sedang berusaha mengatasi kadar hutang negara yang tinggi ketika ini
    • Akhirnya, kita akan terus melihat kadar hutang negara terus bertambah daripada tahun ke tahun selama 15 tahun lamanya


    Jika kerajaan tidak melakukan pelan pengurangan fiskal yang mampu memberikan keyakinan kepada semua, implikasi yang jarang-jarang kita diajar dan dididik di kaca televisyen & di akhbar arus perdana, di mana Malaysia bakal menghadapi risiko penurunan gred penarafan kredit.

    Terkini semakan kami kepada laporan berita daripada Channel News Asia bertajuk (Malaysia faces credits rating cut) yang dimuatkan di ruangan perniagaan menunjukkan telah terdapat beberapa syarikat-syarikat RATINGS AGENSI ANTARABANGSA yang telah memberikan “peringatan dan amaran awal kepada Malaysia”. Antaranya ialah seperti:

    1. Standards & Poors
    2. Moody’s Investors Service

    Kedua-dua agensi ini telahpun memberikan amaran kepada kerajaan Malaysia bahawa “RATINGS” bagi BON-BON TERBITAN KERAJAAN PUSAT di arena antarabangsa besar kemungkinan akan diturunkan daripada :
    “Rating ( A- ) diturunkan kepada ( BBB )”


    Ini semuanya berpunca daripada HUTANG NEGARA yang terkini sudah mula mencecah kepada paras 54% daripada KDNK (Keluaran Dalam Negara Kasar). Tetapi, persoalannya apa implikasinya kepada Malaysia jika rating tersebut diturunkan?

    Sekiranya ia terus berlaku tanpa perubahan yang radikal daripada sekarang, antara implikasinya ialah :

    • Nilai matawang ringgit di pasaran antarabangsa akan mula jatuh dan jumlah hutang luar negara merujuk kepada ekonomi Malaysia secara keseluruhan akan menjadi lebih sukar untuk dibayar. Ini kerana kadar pertukaran wang asing menjadi lebih tinggi dan sektor import akan mengalami kerugian yang teruk
    • Apabila nilai matawang ringgit mula jatuh dan kita boleh mengalami kegawatan ekonomi yang serius disebabkan kekurangan “KECAIRAN” dalam SISTEM KEWANGAN di Bank-Bank tempatan, sehingga boleh menyebabkan kadar faedah pinjaman di Bank-bank tempatan melonjak tinggi. Kesannya akan berbalik kepada rakyat Malaysia juga
    • Akhirnya, ia akan turut mengakibatkan banyak sektor-sektor lain mengalami kemelesetan kerana IMPORT UTAMA dari negara-negara maju oleh kebanyakan negara membangun seperti Malaysia yang menggunapakai TEKNOLOG TINGGI yang digunakan di sektor-sektor pembuatan seperti perkilangan dan lain-lain
    • Seterusnya., ada kalangan anda di sini mahu berkongsi maklumat?

    Video Laporan Berita Channel News Asia : Keadaan Hutang Negara Malaysia Terkini
    py

  2. #12
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    Malaysia faces credit ratings cut


    http://www.channelnewsasia.com/stori...197885/1/.html

    By Melissa Goh | Posted: 27 April 2012 2051 hrs

    MALAYSIA: Concerns have been raised about Malaysia's high national debt, which currently stands at 54 per cent of its gross domestic product (GDP).

    International ratings agencies Standard Poor's and Moody's are warning of a possible credit rating downgrade if Kuala Lumpur does not rein in its federal government debt.

    Continuous government spending to gain public support ahead of the upcoming general election may have put Malaysia at risk of a credit downgrade.

    A rating cut would be its first in 15 years.

    However, Malaysia's central bank has brushed aside that concern.

    It said the national debt level at 54 per cent of GDP is manageable, given Malaysia's sound economic fundamentals, improved foreign direct investment (FDI) inflows, and growth of a forecast four to five per cent this year.

    Bank Negara also noted more than 90 per cent of the debt is domestically funded, which means Malaysia's external exposure is very minimal.

    Bank Negara Malaysia governor Zeti Akhtar Aziz said: "The government external indebtedness is only two per cent so it's very low.


    "Very often, countries have problems because foreign borrowing is very high. For us, the borrowing in mainly domestic, our financial system has been able to absorb this."

    Still, there are concerns the government's spending spree ahead of a general election may drive federal government debt level to above 60 per cent.

    Observers said the next cabinet voted into power must seriously take concrete steps to reduce its huge subsidy bill exceeding US$10 billion as well as to introduce a hugely unpopular goods and services tax to shore up the government's revenue.

    While a credit rating downgrade will hurt investor confidence, a weak mandate at the polls means the government will find it difficult to push through some of its tough structural reforms.

    Malaysia must call its next election before May next year.

    - CNA/wk
    py

  3. #13
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    Malaysia’s debts a potential time bomb, say economists


    By Lee Wei Lian
    July 18, 2012
    Malaysia’s debt levels may limit Najib’s ability to respond to financial crises. — File pic


    KUALA LUMPUR, July 19 ― The government’s debt, which nearly doubled since 2007 to RM421 billion, pose a fiscal risk to the country if not managed carefully as it impairs Malaysia’s resilience to economic shocks, analysts and economists have said.

    They say that while government debt ― currently at about 54 per cent of gross domestic product (GDP), and the second highest in Asia ― has not significantly impacted the country and its credit standing yet, the volatile nature of global markets may manifest such a risk at any time.


    While the Najib administration has vowed not to let federal government obligations exceed 55 per cent of the country’s GDP, there is increasing worry that when government-backed loans or “contingent liabilities” are taken into account, the government’s total debt exposure rose to about 65 per cent of GDP last year ― above the comfort level for many analysts.


    RAM Ratings chief economist Yeah Kim Leng said that while Malaysia’s debt levels are currently considered moderate, it should still be vigilant against the possibility of debt levels hitting the “tipping point” whereby it could be punished with higher borrowing costs.


    “The threshold at which the market sentiment can turn against you is unknown,” said Yeah. “If market sentiment does turn against Malaysia, it could result in very high borrowing costs and capital pull-out.”
    The reason we have not had a higher debt burden is because we have a piggy bank called Petronas. — Cheong Kee Cheok, senior research fellow at University of Malaya’s Economics and Administration Faculty.
    He added that careful management of debt levels could inject greater resiliency into the economy, which was desirable given the increasing frequency of economic shocks that characterises the global economy today.


    “It’s not just about economic growth but also the country’s ability to withstand shocks,” he said.


    Figures from the Federal Treasury’s Economic Reports shows that the federal government’s domestic debt almost doubled in the space of less than five years ― from RM247 billion in 2007 to an estimated RM421 billion in 2011 ― far outpacing its revenues which only grew 31 per cent or from RM140 billion to RM183 billion during the same period.

    In contrast, 2001 to 2005 saw domestic debt level growing from RM121.4 billion to RM189 billion, or just 56 per cent.

    Government-backed loans rose rapidly as well between 1985 to 2010 ― from RM11 billion to RM96 billion ― representing a growth of 8.7 per cent per annum.


    Cheong Kee Cheok, a senior research fellow at University of Malaya’s Economics and Administration faculty, said that while Malaysia’s debt level of 55 per cent of GDP is “not an outright disaster” when compared to countries like Greece, he expects the level of debt to continue to rise.


    “The rise in this debt level over the past few years is worrying though, and so far, I have not seen any effort to try to rein in spending given that revenue sources have not expanded,” he said. “The reason we have not had a higher debt burden is because we have a piggy bank called Petronas.”


    Wan Saiful Wan Jan, chief executive of the Institute for Democracy and Economic Affairs (Ideas) said that politics played a role in why Malaysia is grappling with debt.


    He said that while deficit spending was “completely wrong”, as long as governments could roll over their debt, there was little urgency to address the issue as politicians rarely look beyond the next election.


    Wan Saiful blamed the government’s deficit on pork-barrel politics. — File pic

    “Politicians will spend what they need to win elections,” he noted.

    He added that his was not a criticism only of the Najib administration as he found Pakatan Rakyat’s many promises even “more reckless”.


    “Pakatan Rakyat say that they can pay for spending by removing corruption but if you want to be responsible, you should plug the hole and pay the debts not plug the hole and spend the money,” he said.


    The country’s fiscal track record has apparently already affected investor confidence, as evidenced by the weakness in the country’s currency and relatively high yields on government bonds.


    Despite Malaysian government securities offering higher yields than either Singapore or the US, investors last week still flocked to the two perceived safe havens over places like Malaysia, sending the ringgit markedly lower in recent weeks.


    Countries with strong credit ratings such as Switzerland can even afford to offer negative yields to investors due to their perceived comfort factor while weaker countries, such as Italy and Spain, have a harder time raising funds even when offering vastly superior yields due to the perceived higher risks involved.


    While Malaysia is not yet in the category of Spain or Italy, it is notable that investors prefer to switch their money to US and Singapore assets rather than Malaysia’s in times of uncertainty despite the 10-year MGS (Malaysian Government Securities) offering a yield of about 3.4 per cent as compared to less than 1.5 per cent for both 10-year Singapore government bond and 10-year US Treasury bonds.


    This generally means that investors harbour stronger doubts over Malaysia’s ability to pay back its debts, and outflow of funds led to the ringgit slumping to a 14-year low against the Singapore dollar and also saw the currency lose ground to the greenback.


    With both its debt and budget deficit among the highest in Asia as a percentage of GDP, it would be difficult for the government to pare down debts without it either raising taxes or cutting spending, both options which are likely to make it unpopular with the public at large.
    The saving grace for the government is that it can tap into the vast savings pool of Malaysians instead of going outside the country and the revenue it gains from oil and gas.


    Hydrocarbon income, however, could be under threat this year as petroleum prices have weakened significantly due to the economic uncertainty.


    Should another global economic crisis hit, it is unclear how much fiscal space the Najib administration has left to implement stimulus measures given its commitments to reduce its budget deficit and keep a lid on debt.


    Another issue is that the RM96 billion in government-backed debts is likely to grow even more in light of an expected raft of rail and road infrastructure projects, which some reports have estimated will cost as much as nearly RM100 billion over the next few years.


    Even Malaysia’s National Higher Education Fund Corporation (PTPTN) is going down the route of government-backed debt, recently selling RM2.5 billion of federally-guaranteed Islamic debt as it looks for financing to provide more loans to a growing number of eligible students entering university.


    The PTPTN scheme, however, has been a source of controversy as only 84 per cent of students are reported to be repaying their loans as at February this year.


    For the moment, investors are still willing to buy Malaysian government bonds used to raise money for the country’s development.


    The question is whether falling petroleum prices, stubborn fiscal deficits or rising contingent liabilities could one day shake their confidence.
    py

  4. #14
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    Malaysia lost RM893b in illicit outflows, research show


    Monday, 23 July 2012 Super Admin





    Clara Chooi, The Malaysian Insider
    A colossal RM893 billion was siphoned out of Malaysia’s economy into tax havens abroad between 1970 and 2010, a London-based research has revealed, placing the country among the top 20 nation in the developing world labelled as “losers” of capital flight.


    The sum is more than triple that of Malaysia’s national debt total, which amounted to RM257.2 billion in 2011, according to previous media reports.


    In the study commissioned by Tax Justice Network (TJN), a London-based organisation of professionals including economists and tax consultants, Malaysia is now ranked 12th on the list, two rungs above Singapore’s RM533 billion outflow and three below Indonesia’s RM1 trillion.


    According to researcher James Henry in UK’s The Guardian today, the “offshore economy” is large enough to leave a major impact on the estimates of inequality of wealth and income in any nation, as well as the estimates of national income and debt ratios.


    “Most importantly ― [it would] have very significant negative impacts on the domestic tax bases of ‘source’ countries,” Henry was quoted as saying in the daily.


    The former chief economist at consultancy McKinsey, in preparing the research report titled “The Price of Offshore Revisited” for TJN, had perused data from the Bank of International Settlements (BIS), the International Monetary Fund (IMF) and private sector analysts to conclude that over the past four decades, an alarming estimate of RM66 trillion or possibly RM100 trillion has flooded out of their home countries across the globe to seep into “the cracks of the financial system”.


    According to The Guardian, this was even larger than the size of the entire American economy.


    The paper noted that the sheer scale of hidden assets abroad by those seeking to evade taxes suggests that the official Gini coefficient of a country suffering from capital flight would not reflect a true picture.


    “Standard measures of inequality, which tend to rely on surveys of household income or wealth in individual countries, radically underestimate the true gap between rich and poor,” The Guardian reported.
    TJN member John Christensen told the daily that this meant that inequality was likely to be “much, much worse” than official statistics have sho
    wn.


    “But politicians are still relying on trickle-down to transfer wealth to poorer people.


    “This new data shows the exact opposite has happened: For three decades, extraordinary wealth has been cascading into the offshore accounts of a tiny number of super-rich,” he was quoted as saying.


    In December last year, US-based watchdog Global Financial Integrity reported that Malaysia had lost RM150 billion through capital flight in 2009 alone, the fourth highest in the developing world.


    The watchdog also found that Malaysia had lost a total of US$338 billion (RM1.08 trillion) over the first decade of the century while RM930 billion had left the country between 2000 and 2008, growing to RM218 billion per year from an initial RM71 billion in that period.


    The federal opposition has long railed against the ruling Barisan Nasional (BN) over its alleged fiscal irresponsibility, claiming its relentless spending and massive illicit capital outflow would soon plunge the country into a debt crisis.
    py

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    Wednesday, 25 July 2012 08:48

    M'sia's national debt & Umno crony Syed Mokhtar: CLEAR-CUT MISGOVERNANCE



    Written by Sam Chee Kong, Malaysia Chronicle







    The Income Inequality have always been a thorny issue for the past few thousand years. During the Middle Ages in Europe, they have the bourgeois (higher class includes the Church) and the proletariat (ordinary folks). In ancient China they too have different class with the merchants and the artisans, court officials, laborers and etc. Needless to say the bourgeois and the merchants controlled most of the wealth.


    Even during the ancient Babylonian days they also do have this problems. In George Clason's 'The Richest Man in Babylon', it describe how those who know how to accumulate Gold succeeds while the rest are mere laborers. To find the answer to the puzzle on why ordinary citizens don't know how to accumulate Gold, King Sargon summoned Arkad, who is the richest man at that time and accumulated the most Gold. Arkad disclosed to the King on how he managed to accumulate so much gold through 'Seven cures for a Lean Purse'.


    The following are the Seven cures for a lean purse.
    1) Start thy purse to fattening
    2) Control thy expenditures
    3) Make thy Gold Multiply
    4) Guard thy Treasures from loss
    5) Make of thy dwelling a profitable investment
    6) Insure a future Income
    7) Increase thy ability to earn

    The above are the classic guide on how to be Financially Independent. It has been proven to this day after more than a few thousand years in existence.


    The question is how can we measure Income Inequality? Fortunately it can be measured with a statistical approach known as the Gini Coefficient.The Gini Coefficient was developed by a statistician named Corrado Gini, and it is a measure of the income distribution of the population in a country. It range between 0 and 1 with 0 being in perfect equal and 1 being highly unequal. It helped define the gap between the rich and poor nations. The income distribution of a nation can also be represented graphically with the Lorenz curve below.



    The upward sloping 45 degrees sloping line represents the equal distribution of wealth. An example will be the intersection point of the 20% of the income distributed and the 20% of the population. On the y-axis (vertical) you have the income distribution as expressed in decimals and on the x-axis you have the wealth of the nation. The area that is shaded in red represents the ‘area of inequality’ in income distribution. So the flatter the Lorenz curve the bigger will be the 'area of inequality' and hence income distribution.


    An example of unequal distribution is where the 11% of income intersects with the 40% of the population on the Lorenz curve. This shows that 11% of the income is distributed to 40% of the population.


    How Malaysia compared to the rest?


    Anyway as of 2009 Malaysia is ranked 102 out of 136 countries surveyed by the CIA for the most unequal income distribution. The following is the income distribution of different ethnic in Malaysia and also its Gini coefficient from 1995 till 2009.


    Column1 Column2 Column3
    GINI Coefficient Of Malaysia

    Etnicity
    2004
    2009
    Bumiputra
    0.452
    0.44
    Chinese
    0.446
    0.425
    Indian
    0.425
    0.424
    Others
    0.462
    0.495
    MALAYSIA
    0.462
    0.441

    Source : Economic Planning Unit 2009
    The performance of Malaysia’s Gini Coefficient from 1995 – 2009

    Source : Department of Statistics Malaysia

    According to World Bank, Malaysia was one of the few East Asian countries that reverse its income inequalities over the past decades but unfortunately reverses its direction since the 1990s. In other words policies drafted by policy makers since then are not effective.


    This may be due to the bias policies that are drafted to the benefit of the ‘Bumiputra’ community while neglecting others and also the emergence of a new ‘ruling class’ that are make up of political cronies. This new group are given special treatments and are encouraged by the ‘powers to be’ to gobble up much of the nations strategic and big businesses in order to make up what they called the ’30 percent Bumiputra quota’.


    Needless to say the end result is the re-emergence of the old Colonial type of ‘Rent Seeking’, businesses where being the monopoly or duopoly is the order of the day. As we know being in a position to monopolize any sector of the economy will only resulted in being contented. No incentive for being innovative and competitive made these conglomerates being redundant and badly managed and in the end left to decay.


    Good examples include MAS, PERWAJA STEEL, PROTON and Bank Bumiputra just to name a few.


    What are the Consequences?


    Effects on economic Growth


    1. High inequality in income will have negative effects on economic growth.


    One study done by economist Andrew Berg and Jonathan Ostry of the IMF recently found that the countries with higher inequality of income tends to have a shorter spell of economic growth than those that with more equality.


    Getting the economic growth going is easier than maintaining or sustaining it. This is because there are many economic policy tools that can start an economic growth like embarking on a loose monetary policy and expansionary fiscal policy. However maintaining a sustainable economic growth for a certain time period say 10 years is a task not to be taken lightly because after a certain time period certain economic policies tend to run its course and boom will be followed by bust.


    To maintain the level of exports in an export oriented economy during economic downturns, policy makers normally will have to devalue their currencies against their competitors or reduce the interest rates in the domestic banking sector. The problem is how much interest rate can you reduce? Even economies like Japan and the U.S that are running close to ZIRP (Zero Interest Rate Policy) but yet still failed to increase its exports and turnaround their economies. In the case of Japan, it is worse off as its economy went into a tailspin and pushed its economy into a deflation mode.


    Coming back to the IMF study, they found that in order to reduce income inequality by a certain percentile say 10% then the number of years of sustainable economic growth will have to be doubled. It can be shown by the following graph.




    The Vertical axis is the number of years of sustain growth and the horizontal axis is the Gini Coefficient. As you can see if you want to reduce the Gini coefficient from 48 to 44 you have to increase the years of sustainable economic growth from 5 to 10 years. So if a country have a high Gini coefficient then it is very difficult for it to reduce its income inequality because it will need a prolong sustainable economic growth. This can explain why Malaysia’s income inequality remains high throughout the last 20 years because it is very difficult to maintain a high economic growth rate for many years. Moreover its economy had been experiencing a few boom and bust cycles for the past decades.


    2. Due to income inequality the wealth of the nation will be concentrated to a few individuals which constitute the top 1% of the population.


    As a result more people are forced to borrow more and more to meet ends need. With the top 1% controlling most of the country’s wealth it is no surprise to see the mean income remained low or unchanged for the past decades. As a result since most of the population are in the lower end of the income spectrum it will be difficult to see any increase in spending to uplift the economic activity that is needed to drive economic growth.


    A good example will be the amount of wealth held by some of the political cronies such as Syed Mokhtar. He is the favored crony of UMNO (United Malay National Organization) party and is said to have his hands into almost every major business in the country. He controlled a few public listed companies such as Tradewinds, MMC, Bernas and etc in the KLSE.


    Through many Mergers and Acquisitions with Proton (the National Car) being the latest addition to his stable of companies, he managed to
    accumulate debts to the tune of RM34 billion. It is said that his borrowings are equaled to 10% of all loans that are made by all banks in Malaysia. However, it is only backed by about RM 7.8 billion in cash and assets.


    Is Syed Mokhtar Highly Geared?


    To find out we shall use the following formula.


    Gearing Ratio = Debt/Equity
    Gearing Ratio = 34/7.8 = 4.35



    As for the gearing ratio,
    anything above 3 is considered high and 4.35 is what I called ‘Highly Geared’. It is quite impossible to maintain such high gearing during trying economic times like now. Any further downturn in the economy will cut into the operating profits and will severely affects his group of companies cash flow. In addition he will also need cash to service his debts regardless of how bad the company is doing.


    The end result will be another bailout by the government and we will see a rerun of the 1998 Asian Financial Crisis saga where the government bailout many of its political cronies business empires. This will represent another attempt by the Government to use taxpayer’s money to artificially prop up uncompetitive companies. It is another classic case of throwing good money after bad money. A good example will be Halim Saad’s Renong Group of Companies which is a diversified conglomerate that is worth to the tune of more than RM 20 billion. Although initially being bailed out by the government however eventually it still failed to survive the crisis.


    In view of the impending collapse of the Syed Mokhtar’s empire, how can we take advantage of the situation?


    How to go 'short' on Syed Mokhtar?


    There are two possibilities whereby it can cause the collapse of the Syed Mokhtar Group of Companies.


    One, it is the expected defeat of the current ruling coalition or Barisan Nasional (National Front) in the soon to be held election this year.A good example will be the former Premier Badawi's son counter Scomi and his crony's Equine. During his tenure both are high fliers but today they are no where to be seen.


    Two, it will be the current ongoing global financial crisis. With such high gearing you don’t even need the collapse of the Global Financial Crisis to push it over the cliff. It will collapse eventually because most of his businesses are not ‘cash rich’ and recession proof in nature unlike a casino. Other than rice distribution and toll operations, his other businesses in ports, car manufacturing, hotels, manufacturing and etc are not only ‘cyclical in nature’ but also 'capital intensive' and will be influenced by the ups and downs of the global economy.


    So when either of them happens then we shall do the ‘Syed Mokhtar Short’. First you need to sell off your stocks in the KLSE and then load up the short contracts on KLCI futures in KLOFFE. In other words we perform a short selling on the KLCI futures. A word of caution though because such maneuver is only for those in the know or the professionals. If you have no experience in the Futures market then we suggest the best strategy is to cash out and wait for the downturn to run its course and this may take 6 months to 2 years depending on how severe is the downturn. After that then you load up on the stocks.


    3. There will be class warfare


    It will create what we call the ‘Elites’ which belongs to the 1% and ‘the rest’ and there will be tensions among them. The Government will find it difficult to get the support of ‘the rest’ group to follow its policies such as to promote savings or spending because they afraid in the end it only benefits the ‘Elites’. A good example is the Government’s recent launch of its recent Bon Malaysia which pays a 5% yield. Although it pays higher than the commercial bank’s term deposit rate of about 3.2% on average but it is still under subscribed because the population believed that the funds raised will be channeled to unproductive ventures like bailing out crony companies, coming election campaign funds, paying for subsidies and etc.


    Another unintended consequence arising from this class warfare is ‘distrust’ of the lower income group in the Government’s effort to reduce income inequalities either through taxation or salary redistribution (minimum salary). For any income redistribution system to work, the government must ensure that those people enlisted to such responsibility should be competent, trustworthy and transparent in their process. If this can be accomplish then people will not mind policy makers taking a portion of their money through taxes for the greater good and in this case a rebalancing of the income inequality in the society. If not then people will be less willing to part with some of their money by under declaring their taxable income.


    4. Effects on Health


    Due to the big disparity in the income distribution needless to say those belong to the lower rung in the income distribution table can least afford better healthcare. Those who belong to the top 5% in the income distribution can afford better private healthcare and hence life expectancy. By relying on public healthcare it will further burden the government by allocating more funds to build more hospitals, employ more nurses and doctors and hence less funds can be diverted to other development projects.


    With Malaysia’s high Debt to GDP of about 53.5% in 2011, it will be a difficult task for it to reduce its debt because the growth of debt will always be faster than economic growth. Why is this so? This is because Debt servicing in the form of interest rate grows exponentially through what we called ‘compound interest’ while economic growth only grows organically due to the boom and bust cycles. Economic growth can be likened to the shape of the Sine Wave or S curve below.



    The following graph depicts the difference between the growth of Money or Debt versus the growth of the real economy.

    From 53.5% Malaysia's debt can easily shoot to 70% SOON


    As can be seen from the above, once the growth between compound interest and the real economy (GDP) starts to diverge then the gap between them will start to widen. This implies that once our Government’s debt reaches a certain level to GDP then its ability to pay back its debt will very difficult if not impossible.


    From empirical evidence in the last few years from the ongoing financial crisis in Europe, whenever a country’s Debt/GDP reaches above the 70% threshold then there is a very high probability that its economy will go into a tailspin in the next few years. This is because once the Debt/GDP ratio increases it will decreases the country’s ability to service its debt because more money will be needed to repay its interest and hence less will be directed towards the real economy that will help generate more income.


    Moreover when a country’s Debt/GDP ratio increases, its Sovereign ratings risk being further downgrade by Ratings Agencies. Whenever a country’s Sovereign ratings being downgraded then its ability to raise funds in the international market will be dampen because its cost of funds has increased. Bond holders will need to be compensated for holding the higher risked Sovereign Bonds now and hence the yield (interest rate) will be higher.


    In Conclusion


    With Malaysia’s Debt/GDP being 53.5% and without any real effort to address this problem, it will
    soon shoot up to the 70% threshold. If left unchecked then in a few years time Malaysia will be heading towards the path taken by Ireland, Greece, Portugal, Spain and the soon to join the club Italy.


    Again another key area that the government needs to do is to gain the Trust of its people. Since most of the government revenues are raised from taxes and if it wants to collect more then it will need to give them the assurance that the money will be spend wisely and on projects that will further improve their life in the future.


    A corrupted government like Malaysia will find it tougher to achieve such a goal because it first needs to overhaul its political system to make it more transparent in order to win the trust of its people. Further increases in taxes will be countered with more revolts as people felt more burdened by increase in their cost of living.


    The bottom line is that like Syed Mokhtar, Malaysia too is in a precarious position due to its high gearing. Financial collapse is inevitable unless steps are take to tighten the belt and pare debt.


    Malaysia Chronicle
    Related Stories:
    Idris Jala: National debt still MANAGEABLE, only 53.8% not yet 55%
    CLICK HERE TO FOLLOW SAM CHEE KONG

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    Donald Lim: Capital outflow study just 'for reference'



    1:03PM Jul 24, 2012

    (Admin: He said that the figures may not be correct. He did not say they are not correct.)



    Deputy Finance Minister Donald Lim has dismissed the finding of Tax Justice Network that Malaysia is among the top 20 countries in the world with the highest capital flight to tax havens from 1970 to 2010.


    "Foreign media or institutions have the freedom and right to present and publish their reports. We can't stop them. These are just for reference," Chinese daily Oriental Daily News today quoted Lim as saying.


    According to the report, Lim said the Treasury and Bank Negara have been closely monitoring the inflow and outflow of capital.


    The reports by foreign research institutions are just their views and may not be correct, the senator said.


    Bank Negara, according to Lim, has a rigorous mechanism and monitoring system for it to collect the relevant statistics.


    "We are a free and open economy with high trade with foreign countries. We are also one of the major trading nations in the world."


    Lim was responding to the report by London-based Tax Justice Network's researcher James Henry that an estimated US$283 billion (RM892 billion) has been transferred out of Malaysia to tax havens from 1970 to 2010.


    In comparison, the amount is three-and-a-half times more than Malaysia's foreign debt of RM257.2 billion in 2011 and is second to Nigeria's US$306 billion (RM964 billion).
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  7. #17
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    Malaysia’s finances facing added squeeze, says Fitch Ratings


    By Lee Wei Lian
    August 08, 2012

    The agency said further increases to the debt ceiling would affect Malaysia’s credit rating. — File pic



    KUALA LUMPUR, Aug 8 ― Already weaker than its similarly rated peers, Malaysia’s finances could come under further strain and experience increasing drag on its profile, Fitch Ratings said today.

    The global ratings agency also said that the rising negative fiscal pressures may eventually offset the country’s credit strengths unless structural weaknesses in public finances are addressed.


    Fitch said that revenue collections have been “muted” even as the size of its debt has grown and interest payments are expected to equal 10 per cent of revenues in 2012, which restricts the government’s ability to allocate fiscal resources to sectors that could support Malaysia’s long-term growth, and potentially arrest the sustained increase in the debt-to-GDP (gross domestic product) ratio.


    “Fitch is concerned that the authorities may seek to raise the debt ceiling rather than implement austerity measures to remain within the existing fiscal framework,” said the report. “Thus, alterations to the current debt ceiling would be viewed as a credit negative.”


    The report said that federal government debt is expected to rise through to 2016 if there is no material fiscal reform but is still expected to remain below the existing federal debt ceiling of 55 per cent of gross domestic product (GDP) until 2014. Putrajaya has been spending money on a slew of programmes for various demographics ahead of the Budget 2013 to be tabled next month.


    It added, however, that the federal debt ceiling was raised from 45 per cent to 55 per cent of GDP in July 2009 following the global financial crisis, and prior to that, the ceiling was also raised in April 2008 from 40 per cent of GDP. It warned that raising the debt ceiling again would be viewed negatively.


    But the ratings house said Malaysia’s strengths include low domestic interest rates, high current account surpluses and ample liquidity in the banking system, which have allowed the government to finance its deficits through mostly MGS (Malaysian Government Securities) and government investment issues.


    It added that Malaysia’s ringgit-denominated treasury debt is now about 50 per cent of GDP with most on a long-term maturity and fixed rate basis.


    Fitch noted that national pension fund Employees Provident Fund (EPF) is a particularly strong support to funding conditions, holding one-third of outstanding MGS.


    The report also noted that Malaysia’s debt-to-revenue ratio is now on par with more heavily-indebted “A” range sovereigns such as crisis-hit Italy.


    It said that the poor debt-to-revenues ratio stems from a narrow revenue base.


    At 22 per cent of GDP, federal government revenues are on par with the Emerging Asia peer median. Compared with both the ‘A’ and ‘BBB’ range medians of 34 per cent and 32 per cent of GDP respectively, however, Malaysia’s fiscal resources appear significantly lower.


    Some economists previously said that the federal government’s debt ― which nearly doubled since 2007 to RM421 billion, far outpacing revenue that only grew 31 per cent from RM140 billion to RM183 billion during the same period ― could impair Malaysia’s resilience to economic shocks, which appear to be occurring with increasing frequency.


    While the Najib administration has vowed not to let federal government obligations exceed 55 per cent of the country’s GDP, there is also worry that when government-backed loans or “contingent liabilities” are taken into account, the government’s total debt exposure has been estimated to have already hit 65 per cent of GDP last year.

    py

  8. #18
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    Malaysia yet to show ‘credible’ plan to tackle deficit says Fitch



    By Lee Wei Lian
    August 21, 2012
    Fitch earlier warned that Malaysia is now on par with more heavily indebted ‘A’ range sovereigns, such as crisis-hit Italy, on some measures.


    KUALA LUMPUR, August 21 — Malaysia has yet to present a convincing plan to tackle the twin fiscal threats of its federal budget deficit and federal debt even though strains on its credit profile are increasing said Fitch Ratings in a report yesterday.

    Fitch also said that data clearly shows public sector-linked activity has been a key driver of GDP growth for the last four quarters alongside robust private sector activity.


    It said that the ratio of federal government debt to GDP reached 51.8 per cent at end-2011 despite strong GDP growth but barring a further deterioration in the global economy, the Malaysian government should be able to meet its 2012 deficit target of 4.7 per cent of GDP.


    “Looking beyond this year, however, the Malaysian authorities have yet to outline a credible near-term plan to reduce the fiscal deficit to three per cent of GDP, and the debt/GDP ratio to 50 per cent, by 2015, in line with their official targets,” said Fitch.


    The ratings agency noted that Malaysia’s public finances already compare poorly with its similarly rated peers in both the ‘A’ and ‘BBB’ range medians and added that improving the nation’s fiscal position will be challenging without significant reform to address the cost of fuel subsidies, broaden the fiscal revenue base, or reduce dependence on energy-linked revenues.


    “Without such reforms, our base case is that the debt/GDP ratio will continue to rise until 2016,” said Fitch. “The federal debt ceiling of 55 per cent of GDP, which was increased from 45 per cent in July 2009 to accommodate fiscal stimulus, suggests that the room for fiscal slippage may be limited without further alteration to the debt ceiling. If this were to happen, it would apply additional negative pressure on Malaysia’s credit profile.”


    It said, however, that Malaysia still possessed several strengths such as a track record of macroeconomic stability, a strong net external credit position, and funding flexibility.


    Malaysia reported a surprisingly strong second-quarter economic growth of 5.4 per cent despite weakening exports largely due to the buffer of ongoing construction projects and increased spending attributed to civil servant salary hikes and government cash handouts said economists.


    They added that the difference in performance between the domestic and export sectors could point to uneven growth in the months ahead and lead to a two-speed economy


    While the Najib administration’s efforts to help tide the country over the rocky global economic environment with a longer term goal of transforming the country in a high income nation by spending more on salary hikes and kick-starting large infrastructure projects has helped boost GDP growth, analysts have noted that its debt has outgrown revenue since 2007.


    Figures from the Federal Treasury’s Economic Reports show that the federal government’s domestic debt almost doubled in the space of less than five years — from RM247 billion in 2007 to an estimated RM421 billion in 2011 — far outpacing its revenues which only grew 31 per cent, or from RM140 billion to RM183 billion, during the same period.


    While the Najib administration has vowed not to let federal government obligations exceed 55 per cent of the country’s GDP, there is increasing worry that when government-backed loans or “contingent liabilities” are taken into account, the government’s total debt exposure has already risen to about 65 per cent of GDP last year.

    Fitch earlier warned that the country is now on par with more heavily indebted ‘A’ range sovereigns, such as crisis-hit Italy, on some measures like debt-to-revenue ratio and a lack of progress on fiscal reforms and may lead to a ratings downgrade which could push up the country’s borrowing costs.
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  9. #19
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    Another warning, this time from Lee Wee Tak.

    Click on the attachment to see a simple picture.


    The debt driven 5.4% GDP growth in Q2 2012

    By Lee Wee Tak at 8/25/2012 02:45:00 PM

    The Q2 2012 Gross Domestic Product growth of 5.4% seems to be a pleasant surprise from 1Malaysia administration.

    The Second Finance Minister who is on top of the numbers pointed out the oil rigs are responsible.
    ----------------------------------------------------------------------------------------------------------------------------------
    http://biz.thestar.com.my/news/story...7&sec=business
    Tuesday August 21, 2012

    Husni: 5.4% Q2 growth a boost for Malaysia

    IPOH: The better-than-expected 5.4% growth in gross domestic product (GDP) in the second quarter is a confidence booster for Malaysia to perform better for the rest of the year.
    Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah attributed the current positive growth to the resumption of operations at oil rigs, which had affected the country’s production of crude oil previously.
    ----------------------------------------------------------------------------------------------------------------------------------
    According to Jabatan Statistik Malaysia, however, has more to say:

    http://www.statistics.gov.my/portal/...id=153&lang=en

    ECONOMIC GROWTH

    The Malaysia's economy strengthened further to 5.4 per cent against 4.9 per cent in the preceding quarter led by continued expansion in the Services and Manufacturing sectors. The robust growth in Gross Fixed Capital Formation (GFCF) has driven the demand side.





    The statistic seems to point to services as the catalyst, rather than oil rigs.

    Notice also that the Perbelanjaan Penggunaan Akhir Kerajaan growth vs Perbelanjaan Penggunaan AKhir Swasta growth. For 2010, the government’s growth in spending was 2.9% vs private at 6.6% but starting from 2011, the government spending growth exceeded the private sector and morphed onto double digits! Look at Q3 and Q4 2012 at 21.1% and 22.95% respectively.

    The increase in Najib administration’s expenditure is getting at very significant pace. When BN administration spend our tax payers' money, the usual stuff like Auditor General's horror stories, contracts awarded without open tender comes to mind.

    With regards to services sector, the Jabatan Statistik has this to say:

    SERVICES

    The Services sector rose to 6.3 per cent supported by Wholesale & Retail Trade and Finance & Insurance. The growth of 5.9 per cent in Wholesale & Retail Trade was led by the Retail segment. In addition, the growth in Motor Vehicles segment accelerated to 8.4 per cent during the quarter (Q1 2012: 0.2 per cent) propelled by the higher sales of motor vehicles.

    Finance & Insurance expanded to 6.6 per cent boosted by the higher fee income on banking activities and increase in premium income on insurance activity. Meanwhile, Business Services picked up to 8.8 per cent underpinned by professional services related to engineering activities.

    The growth in motor vehicles sales is due to lack of viable public transport, the need to preserve Proton and hence the Malaysian public is burden with overpriced cars that build on hire purchase loans and interest repayment.

    http://www.malaysia-chronicle.com/in...-home&Itemid=2



    The banking activities, however, have to be interpreted with the explanation on Construction further below:

    CONSTRUCTION

    The Construction sector expanded remarkably at 22.2 per cent from 15.5 per cent in the previous quarter. The growth was spearheaded by the robust performance in the Civil Engineering and Residential.

    The vibrant performance of Civil Engineering at 39.8 per cent was spurred by major infrastructure projects mainly in Sabah, Melaka, Pulau Pinang and Perak. During the quarter, Residential continued the strong momentum at 20.1 per cent driven by the high-end residential projects in Klang Valley.


    So residential housing is the key driver of growth but is this “growth” a quality growth i.e. improving the quality of life of the people? For a minority per yes but for the majority, house prices increase have far outstripped salary/earnings growth. Try asking for a salary increment that matches the house price increase and see what your boss say.

    Therefore, while it looks good when economic growth is measured on inflated house prices, the sentiment on the ground is very much different.

    Property market in certain parts of Malaysia, notable Klang Valley are subject of speculation.
    --------------------------------------------------------------------------------------------------------------------------------
    http://www.btimes.com.my/articles/20...00637/Article/
    Efforts to curb property speculation

    By Zaidi Isham IsmailPublished: 2012/08/15Share PDF

    THE government will initiate measures to address various issues gripping the property sector, including curbing rampant speculative activities in the market.

    Metro Kajang Holdings Bhd group managing director Datuk Eddy Chen Lok Loi said for example, a house built in Perlis cost RM250,000 but the same house using the very same materials but built in KLCC would cost RM1 million

    Meanwhile, National House Buyers Association secretary general Chang Kim Loong said all parties, including the government and developers, need to launch proactive measures to stop steep price increases in the property market due to false demand and excessive speculation fuelled by easy mortgages and low real property gain tax.

    "There is a huge mismatch between what the average household income can afford to buy compared to what is available in the market. A homeless generation will emerge and create various social problems," said Chang.

    Chang said the average rakyat in a major urban area was struggling to buy his dream home where the average household with income of RM5,962 in 2009 would not be able to qualify for a 90 per cent loan over a 30-year period.
    ---------------------------------------------------------------------------------------------------------------------------------

    The crazy property prices mean crushing housing loan debts. And it will also deprive families of having more money to be spent elsewhere, curtailing their purchasing power hence hindering other consumer commercial activities. The crazy house prices have made many Malaysians bearing housing loan debts at beyond reasonable level compared to their earning as well as what their counterparts in other countries as the article below shows:

    ----------------------------------------------------------------------------------------------------------------------
    http://www.consumer.org.my/index.php...it-sustainable

    Generally a debt service ratio of 30% is acceptable, i.e. one third of a household income is used to pay off debt (principal and interest). However, the Malaysian household debt service ratio was 9.1% in 2006, rose to 49.0% in 2009 and dropped slightly to 47.8% in 2010. This means that on average almost half of a household’s income goes to repaying debts. Thus after paying off the debt there is not much left to spend on food, transport, education, and for emergencies. Should the breadwinner fall sick or lose his job, the family will find it hard to make ends meet and loans may be defaulted.










    ----------------------------------------------------------------------------------------------------------------------------
    In fact, the GDP numbers hide the ever increasing debtsnational debts which have to be paid by tax payers, housing and personal loans which also have to be paid by tax payers. This is no more than debt fuelled pumped up growth


    That is why bankers are having a great day and it shows in their contribution to growth in GDP
    High net interest income – low fixed and saving deposits interest pay to responsible citizens who saves their earning s (if possible) vs high lending rates on housing loans, credit cards and commercial loans

    Huge government projects given out sans open tender requiring more bank borrowings
    Lack of viable public transport forces Malaysians to purchase their own cars and motorcycle making consumer loans growth inevitable

    http://www.theedgemalaysia.com/in-th...et-profit.html






    While some people might point to the increase of GDP and use it as bragging tool and even to justify for more uncontrolled spending (e.g. RM500 vote buying round 2?), it is worth knowing that our debts obligations are increasing at a much faster rate than the GDP.




    Attached Thumbnails Attached Thumbnails Click image for larger version. 

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  10. #20
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    Malaysia's 'hidden debt' bumps total debt to RM573mil

    Admin: It is nice to have some vindication.


    • Aidila Razak


    • 12:58PM Sep 27, 2012


    While the on-paper federal debt inches closer to the 55 percent of GDP threshold, senior lawyer Tommy Thomas said that “true debt” as of December 2011 was RM573 million, or a whopping 67 percent of the GDP.


    In a paper prepared for the International Malaysia Law Conference 2011 today, the corporate governance specialist said that this includes contingent liabilities like government guarantee and “off-balance sheet” borrowings.

    “In 2009, these hidden debts totalled RM84 million, which increased to RM117 billion in 2011.

    “Having regard to the crisis involving Greece and other European nations over the sovereign debt, this is highly irresponsible,” Thomas (left) said.

    The lawyer, who is senior consultant to the United Nations Development Programme on corporate governance, said Malaysia’s debt has nearly doubled compared to six years ago.

    In 2005, under then-PM Abdullah Ahmad Badawi, the national debt reached RM229 billion.

    “But in the six years, it nearly doubled to RM456 billion, representing 52 percent of GDP.

    “Thus the last two administrations have added more debt in six years than what took 48 years after Merdeka to accumulate!” the paper read.
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