Wednesday, February 04, 2015

Numbers don't lie

During a briefing session to economists and media reps in Putrajaya International Convention Centre on 20 Jan 2015 that was held after Prime Minister's Special Address Budget 2015 2.0, a couple of words from Bank Negara Governor Tan Sri Zeti Aziz caught my attention.

I mean, she is the world's best central banker. Every word that she says carries more weight than any other individual in Malaysia and we should pay attention.

In her reply to a few questions on Malaysian Ringgit's performance against the US Dollar, Tan Sri said:

  • "Of course, when we built up our reserves, we were criticized for accumulation of too much reserves which were far in excess of those required by a country of our size... and this is what reserves are for, that is why we built up buffers."
  • "......the ringgit should strengthen to reflect our underlying fundamentals which remain solid and strong"

She is right. Just compare the two Press Releases by the Bank - one issued in 1999, another just a couple of weeks ago (summarized below)

22 Oct 1999 (
  • as at 15 Oct 1999, international reserves amounted to RM113.9 billion or USD29.9 billion
  • adequate to finance 6.2 months of retained imports.

8 Jan 2015 (
  • as at 31 Dec 2014, the international reserves amounted to RM405.5 billion or USD116.0 billion
  • sufficient to finance 8.4 months of retained imports

Countries must maintain a healthy level of reserves to protect themselves against shocks and external economic crises. Today, our reserves have grown almost 4 times since 1999 and can cover 8.4 months of retained imports which makes us almost as strong as India’s import cover.

I did a quick check on IMF's spreadsheet on official reserve assets and other foreign currency assets. Out of all the reporting countries, based on the consolidated official and confirmed November 2014 statistics, Malaysia has
  • the 9th largest international reserves in Asia and
  • the 18th largest international reserves in the world

Hisham (@econsmalaysia) is right. The turnover of foreign currency market transactions averaged at USD241.1 bil monthly in 2014. Speculation, if true, at USD1.4 bil (less than 0.6% of total turnover) is just a drop in the ocean. It could also be easily managed by the Central Bank (costs them just 1.2% of their total reserves) and send a strong signal to speculators – pay up your losses and go home. This is the strength of our Government, Central Bank and economy.

Two weeks ago on 22 January, in Fortune magazine with a readership of 5 million globally, they said “Meanwhile, in Malaysia, an incumbent government is offering credible pledges for smarter economic management”. Four days later on 26 January, Moody’s Credit Outlook was positive again on Malaysia and I quote, “Malaysia's revised budget leaves sovereign's fiscal consolidation trend intact”.

The underlying fundamentals of our economic structure remain strong and solid. Despite the global economic conditions and challenges, we must not forget that:

  • Malaysia remains on the steady growth path at 4.5% - 5.5%
  • Inflation will come in at 2.5-3.5%, a level that is manageable
  • Najib’s message that we are committed to reduce fiscal deficit from 3.5% last year to 3.2% this year, on track to balanced budget in 2020
  • Debt to GDP will be kept below 55% of GDP (self imposed limit)
  • And most controversial of all, even if Government guaranteed debt becomes an issue, our debt to GDP ratio will come in at 70%-75% of GDP only (go find out what other countries debt to GDP ratios are)

The problem here is the Government and friendly parties own many assets especially the media. Have we used them to amplify some of these key messages? Are we or real investors so easily swayed by 1-2 media outlets when credible institutions had positive comments on the Barisan Nasional Government’s economic management skills?

The strength of our nation today was not built in a day but after years of careful balancing of economics, social and politics through both the Barisan Nasional Government’s fiscal policies and the Central Bank’s monetary policies. If I have to choose one reason to be “bersyukurlah” (I know, I don’t like it too), itis for this reason and only this. And remember, numbers don’t lie.

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