Serious deficits that cannot be financed could lead to bigger global crisis!

A bigger global crisis possible

GEORGE TOWN: A global financial crisis bigger than the one in 2008 is conceivable in five to 10 years.

Value Partners Group chairman and co-investment officer Cheah Cheng Hye said the crisis, which would not be V-shaped in nature, would bring about capital flights, volatile markets, rising inflation and social unrest.

“The global financial crisis would have to do with the very serious deficits that cannot be financed.

Developed and developing countries have over the years accumulated such deficits by making promises that cannot be realised in order to get re-elected.

“These deficits would sow the seeds of future social and political unrest,” he said at a public lecture entitled From Journalist to Fund Manager, which was officiated by Penang Chief Minister Lim Guan Eng.

Also present was Penang Institute chief executive officer Zairil Khir Johari.

On Malaysia, Cheah said Value Partners was not bullish about the country.

“Malaysia’s Government and household debts are higher than those in Indonesia, China and Thailand. Half of the country’s government bonds are held by foreigners, who would be the first to run in a crisis.

“The Malaysian workforce is now less productive than the workforce in Thailand and the Philippines. Malaysia is also importing more oil than selling it,” he said.

On making investments, Cheah advised investors to have well-diversified portfolios.

“They should have investments in gold, real estate and a high level of cash of at least 25% of their savings to prepare for future uncertainties,” he said.

Cheah attributes his success to being at the right place at the right time more than the decisions he chose to undertake.

Born in Penang, Cheah, 59, has been dubbed the “Warren Buffett of the East” by the media in Hong Kong.

A Penang Free School boy, Cheah had worked as a journalist in The Star in the early 1970s.

- Contributed by DAVID TAN  davidtan@thestar.com.my

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Bank Negara revises downwards Malaysia's GDP to 4.5~5.0% for 2013, Currency volatility manageable, Current account slumps

KUALA LUMPUR: Malaysia’s economy in the second quarter of the year grew at a slightly faster pace, but below market expectations, as prolonged weakness in the external environment remains a drag to domestic economic activity.

Gross domestic product (GDP) for the three months to June grew 4.3% year-on-year (y-o-y), sustained by domestic demand, as compared with market expectations of a 4.7% y-o-y growth for the period in review, and a GDP growth of 4.1% y-o-y in the first quarter of the year.

“While domestic demand in the Malaysian economy has remained strong, the overall growth performance has been affected by the weak external sector,” Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz said at a press conference.

She noted that the phenomenon was not unique to Malaysia, as growth in several economies in Asia, particularly those that were export-oriented, had also moderated in the second quarter, as the prolonged weakness in the external environment had started to affect the countries’ domestic economic activities.

“For the Malaysian economy, the prolonged weakness in the external environment has affected the overall growth performance of the economy, going forward,” Zeti said.

“While domestic demand is expected to remain firm, supported by sustained private consumption, capital spending in the domestic-oriented industries and the ongoing implementation of infrastructure projects, the weak external in the first half of this year would affect our overall growth performance for the year,” she added.

Consequently, Bank Negara has revised downwards the overall GDP growth target for Malaysia in 2013 to 4.5%-5.0% from its earlier target of 5%-6%.

“We are expecting a challenging environment, with little improvement in the second half of this year,” Zeti said, adding that domestic demand was expected to remain on its steady growth trajectory and would continue to be supported by an accommodative monetary policy.

Meanwhile, Malaysia’s current account surplus for the second quarter of the year narrowed to RM2.6bil from RM8.7bil in the preceding quarter. This was due to lower goods surplus as well as sustained services deficit and outflows in the income accounts.

Zeti said Malaysia would likely remain in a surplus position through the year, as the expected recovery in external demand, albeit at a moderate pace, would help improve the country’s current account balance.
In addition, Zeti said the Government was considering various options to improve Malaysia’s current account balance. These include scaling back some large projects that had high import content, increasing the country’s economic competitiveness and diversifying its export markets.

She said that Malaysia continued to enjoy a steady flow of foreign direct investment, which could contribute positively to the country’s current account balance.

Zeti and other Bank Negara officials during the Second Qtr 2013 GDP press conference in Kuala Lumpur on Wednesday. - Sia Hong Kiau/The Star 

On another note, Malaysia’s inflation, as measured by the increase in consumer price index (CPI), remained modest in the second quarter of the year. The CPI grew 1.8% y-o-y, compared with 1.5% y-o-y in the preceding quarter, due to price increases in the food and non-alcoholic beverages and housing, water, electricity, gas and other fuels categories

-  Contributed by CECILIA KOK  cecilia_kok@thestar.com.my

Malaysia can manage currency volatility 

KUALA LUMPUR: Malaysia had the capacity to manage its currency volatility, Bank Negara said, as it brushed off concerns of an Asian contagion risk.

“We had demonstrated our ability to handle such a weakness at the height of the global financial crisis in 2008/09, and therefore, would be able to do the same in the current environment,” the central bank governor Tan Sri Dr Zeti Akhtar Aziz said at a press conference.

In highlighting Malaysia’s strengths that would enable it to deal with the present volatility, Zeti said: “Firstly, we have strong intermediaries, and a well-developed financial market.

“Our bond market is one of the largest in South-East Asia, and we have a strong presence of institutional investors who can absorb any selling of our Malaysian Government securities. In addition, our reserves level currently is at its strongest ever and we have a low level of external indebtedness.”

In line with the performance of some regional currencies, Malaysia’s ringgit has weakened against the currencies of major economies in recent months.

Year-to-date, for instance, the ringgit has fallen around 7.7% against the US dollar to close at 3.2947 per US dollar yesterday, compared with 3.0580 per dollar at the start of the year.

Said Zeti: “We are seeing highly destabilising capital flows and this is within our expectations because we had earlier seen huge inflows into our financial system, as experienced by most emerging markets, when quantitative easing (by major developed countries) took place. We received something like RM70bil in inflows in search of higher returns.

“Now that there are discussions on tapering the quantitative easing, some of these funds would return to their respective economies, in particular, the United States. We expect that there would be reversals (of capital).

“This is not the first time we are seeing this phenomenon. Previously, at the height of the financial crisis in 2008/09, we also saw huge surges of capital flows. But then, deleveraging set in (as major developed nations attempted to reduce their indebtedness), which resulted in a significant reversal of funds, and that precipitated a depreciation in our currency and a significant decline in our reserves.

“But we demonstrated during that time that our financial system was able to cope with this (volatile condition), and therefore, we would be able to do the same in the current environment,” Zeti said.

She added that when global economic recovery improved further, the country’s financial markets would eventually move to reflect fundamentals.

“Our domestic economic fundamentals are strong. We have been able to have strong and resilient domestic demand, which grew at 7.2% year-on-year during the second quarter of this year.

“The private-sector investment is still growing at double-digit rates and investment activities are still holding up well. We have low price pressure in this environment and our labour market conditions remain stable,” she said.

- Contributed by CECILIA KOK  cecilia_kok@thestar.com.my 

Malaysia's Current Account Slumps In Q2, GDP Growth Picks Up 

KUALA LUMPUR: Malaysia's current account surplus plunged in the second quarter on weakening exports, overshadowing a slight acceleration in economic growth and highlighting the country's vulnerabilty to market selloffs that have rocked several other Asian economies.

The Indian rupee hit record lows this week and Indonesia's stock market and currency plunged on concerns that their worsening current account deficits left them exposed to an expected withdrawal of U.S. super-loose monetary policy.

Fears that Malaysia and Thailand could join that club have pushed their currencies to multi-month lows in recent days, raising concern that the market contagion could spread to economically healthier countries in Southeast Asia.

Data on Wednesday confirmed that Malaysia's current account surplus is evaporating fast, falling to 2.6 billion ringgit ($790 million) in the second quarter from 8.7 billion ringgit in the first three months and 22.9 billion ringgit before that, reflecting plunging exports and solid imports.

Still, the decline was not as much as some economists had fears.

Economic growth accelerated slightly to 4.3 percent in the April-June period from a year earlier, helped by pre-election government spending and a pick-up in activity after the May polls, but fell well short of economists' expectations of 4.9 percent.

In a nod to the deteriorating growth prospects, the central bank cut its forecast for full-year growth to 4.5-5.0 percent from 5-6 percent.

Malaysia, which is heavily dependent on its exports of commodities such as palm oil, could soon be recording its first current account deficits since the 1997 Asian financial crisis.

"I think the era of strong double-digit current account surpluses is over," said Lee Heng Guie, an economist at CIMB Investment Bank in Kuala Lumpur.

"Unless an export recovery materialises and is supported by a revival in commodity prices, the surplus will still be narrowing for the next two years."

CAPITAL OUTFLOWS

Central bank Governor Zeti Akhtar Aziz said that Malaysia was expected to maintain a current account surplus this year, and could cope with the current "highly destabilising" capital flows.

"This is not a new phenomenon. We coped with it before," she said, adding that the economy was expected to remain supported by strong domestic growth.

Sales of Malaysian bonds by foreigners, who hold almost half of the country's government debt, could be absorbed by Malaysian institutions including the insurance industry, she said.

Other data on Wednesday showed that inflation ticked up to 2.0 percent in July from 1.8 percent in June, in line with market expectations.

Manufacturing output rose 3.3 percent in the second quarter after subdued growth of 0.3 percent in the first, while mining activity picked up 4.1 percent after shrinking in the first three months of the year.

Many businesses put investment plans on hold in the first quarter ahead of the tense national election in May that was narrowly won by the long-ruling National Front coalition.

Investment has been rising strongly as Prime Minister Najib Razak pushes through his $444 billion Economic Transformation Programme aimed at doubling per capita incomes by 2020, but that has also pushed up imports, undermining the current account.

While economists note that Malaysia has a much stronger external position than Indonesia, its weaknesses include a stubborn fiscal deficit, a relatively high government debt of 53 percent of GDP and one of Asia's highest household debt levels.

Najib faces a possible leadership challenge from within his ruling party in October, raising uncertainty over his pledge to cut the budget deficit of 4.5 percent of GDP. He has pledged to announce steps to improve the fiscal position in his budget address in October.

Malaysia's ringgit has tumbled more than 7 percent this year to three-year lows around 3.3 to the dollar and is among Asia's worst performers this year. On Wednesday, it weakened further ahead of the data, falling 0.2 percent to 3.2940.

"It is just a liquidity event that hurt everyone," Abdul Farid Alias, the chief executive of Malayan Banking Bhd (Maybank), Malaysia's biggest bank by assets, told reporters on Wednesday.

"The fundamentals of the economy in Malaysia, of our organisation, remain strong."

The Malaysian data follows Thai gross domestic product figures released on Monday that showed a surprise contraction in second-quarter growth, partly due to weakening exports.

Regional economies have built up hefty foreign reserves and sharply reduced foreign currency debt since they were devastated by the Asian financial crisis in 1997, making them less vulnerable to flighty foreign capital.

Data from the Bank for International Settlements shows Malaysia has enough reserves to cover four times its short-term external debt, while Thailand has 6.8 times. Indonesia has only 1.7 times.

Kelvin Tay, regional chief investment officer Wealth Management Southern Asia-Pacific, said that while Asian debt levels had risen since the 2008 financial crisis, they were mostly sustainable because of higher growth rates.

"We have actually gone up (in debt) but don't forget the economies here are at growing at 6.5-7 percent as a whole," he said. "If you have growth of that kind of level you can certainly sustain the debt levels. If your growth falls to 4-4.5 percent then, yeah, you are in trouble."

Malaysia's central bank left its key policy rate unchanged at 3.0 percent at its last meeting in July, but warned that the weak global environment may hurt growth prospects. However, a pick-up in inflation and further weakness in the currency could prompt it towards a tightening bias- Reuters 

Malaysia-Market Factors To Watch On Aug 21

NEW YORK: Following is a list of events in Malaysia as well as news company-related and market news which could have an influence on the Malaysian market. 

GLOBAL MARKETS-U.S. bond yields retreat from 2-year peaks; Wall St recovers SE Asia Stocks-Indonesia near year-low; Thai stocks drop 2 pct WHAT IS HAPPENING IN MALAYSIA, IN TIMES LOCAL FOLLOWED BY GMT: Statistics Department releases July 2013 Consumer Price Index at 1700pm (0900). * Bank Negara Malaysia releases second quarter 2013 GDP at 1800pm (1000). Central bank governor Zeti Akhtar Aziz holds press conference earlier at 1545pm (0745). Malaysia Airlines' Business Plan update, Malaysia Airlines Academy, Kelana Jaya, 1200 pm (0400). Maybank Group half-year financial results announcement, Menara Maybank, Kuala Lumpur, 1300pm (0500).
MARKET NEWS
Nikkei tumbles to 7-week low on Fed uncertainty, emerging mkt fears US STOCKS-Wall St bounces to end four-day skid; retailers gain TREASURIES-Yields fall as buyers step in, emerging markets roiled FOREX-Dollar slides against euro and yen ahead of Fed minutes; PRECIOUS-Gold turns higher as dollar down ahead of Fed minutes; U.S. oil drops on pipeline outage, contract expiration; VEGOILS-Palm oil eases after rally, export demand caps losses.
MALAYSIA IN THE NEWS: PREVIEW-Malaysia Q2 GDP seen growing but current account in focus Malaysian planter Kulim's offer blocked for London-listed New Britain Malaysia's Aug 1-20 palm oil exports up 12.3 pct -SGS Malaysian Airline posts Q2 net loss of 175.98 million ringgit Muslim Rohingya asylum seekers escape Thai detention centre Malaysia's Aug 1-20 palm exports up 10.3 pct -ITS - Reuters

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Fitch downgrade bad for Malaysian stockmarket

People in the market are aware of the issue revolving around Fitch Ratings’ downgrade, hence it did not result in any immediate implication.

The situation, however, is a temporary hiccup, say market observers 

THIS week was a rough one for Malaysia. The stock market fell the most in seven weeks, the ringgit dropped to the lowest in three years and the yield of Malaysian government’s 10-year debt paper increased to the highest point since January 2011. That reaction stems from Fitch Ratings downgrading its outlook for Malaysia’s credit rating.

Market observers agree that the revised outlook is bad news for the stock market, but they also agree that the situation is a temporary hiccup.

The FTSE Bursa Malaysia KL Composite Index (KLCI) closed 1.25% or 22.46 points lower at 1,7772.62 on Wednesday. But on Thursday, the local bourse rebounded to close 0.3% or 5.2 points higher to 1,777.82. It continued its uptrend yesterday, advancing 0.26% or 4.69 points to 1,782.51 yesterday.

Inter-Pacific Research Sdn Bhd head of research, Pong Teng Siew tells StarBizWeek over the phone that there was a massive “knee-jerk” pullout by foreign funds in the equity market the day after the revised outlook by Fitch Ratings.

“On Wednesday, RM436.5mil foreign selling took place and it continued on Thursday at RM262.1mil,” he says.

He explains while foreign investors are prone to a cash out their positions in the market, the situation is instead cushioned by the local investors.

Yet, the sell-off could represent a temporary hiccup because Malaysia’s public finance (the reason for Fitch Ratings to downgrade its outlook) is considered old news, Pong notes.

He adds that people in the market are aware of the issue, hence it did not result in any immediate implication. “It would not hold the market from advancing”.

Areca Capital chief executive officer Danny Wong says that the stock market will bounce back again because the country’s strong economic fundamentals and corporate earnings are still robust.

“Those factors will drive the stock market to recovery,” he adds.

He notes that the foreign investors may use the downgrade as a reason to exit Malaysia.

“There is a concern that the downgrading may affect foreigners to exit Malaysia in a big way,” he says, noting that the impact could be minimal in the stock market but a greater concern for the bond market.

Public Finance

High debt levels have been a growing concern in recent years for the country, as the government’s debt-to-GDP ratio is among the highest in South-East Asia.

Malaysia debt-to-GDP ratio is almost touching its ceiling limit of 55%.

The country’s budget deficit had widened to 4.7% of GDP in 2013 from 3.8% in 2011, Fitch notes. It said the downgrade in its outlook was because it feels Malaysia’s public finances are its “key rating weakness”.

“I believe that the Government will pursue its target to reduce the budget deficit by 4% this year, or at least show a sign of reduction,” says RAM Holdings Bhd chief economist Dr Yeah Kim Leng.

The ringgit has depreciated further to RM3.25 against the US dollar as the greenback strengthens.

CIMB Research in a report says the depreciation of the ringgit benefits exporters, such as plantation, rubber glove and semicon players, as well as those with foreign currency revenues.

“Malaysia’s current account balance is expected to narrow to around 3% of GDP or lower this year,” its chief economist Lee Heng Guie tells StarBizWeek.

Since the first quarter, the current account surplus had narrowed to 3.7% of GDP. In 2012, current account surplus stood at 6.1% of GDP compared with 14.4% of GDP in 2005 to 2010.

He adds that the downward pressure on the current account is due to the slowdown in export growth and an increase in imports as the domestic demand grows.

“Going forward, we expect two developments in the balance of payments to influence the direction of Malaysia’s current account, which includes export earnings volatility and private investment growth picking up as a result of the Economic Transformation Programme implementation and import of investment capital goods for the construction, oil & gas and service sectors.

“The sustained inflows of private capital and a large war chest of foreign reserves will provide a strong buffer against the weakness in the current account,” he says.

He notes a deterioration in the balance of payments should not be a cause for alarm. “It is the speed, magnitude and cause of deterioration that should warrant a pre-emptive action”.

“Nevertheless, further erosion of the current account surplus and given that Malaysia also incurs persistent years of budget deficit, the emergence of ‘twin deficits’ if they materialise could flag investors’ concerns about their sustainability and net external financing issues to bridge the gap. This underscores the urgency for the government to take remedial action to contain the budget deficit,” he explains.

Response

On Thursday, Fitch Ratings head of Asia-Pacific sovereign Andrew Colquhan over a conference call said that a downgrade in Malaysia’s credit rating is “more likely than not” over the next 18 months and 24 months, after cutting the Malaysia’s outlook, highlighting a concern over the Government’s commitment for fiscal consolidation and budget reforms step.

“It is difficult to see the Government pressing forward any of those steps after the general election,” he says, adding that the rating could reverse if action was taken to address the fiscal issue.

Meanwhile, on Thursday, Prime Minister Datuk Seri Najib Tun Razak gave his assurance that the Government would address the concerns over the Fitch Ratings outlook in his budget speech this year.
“We have already put in place a fiscal committee, which is looking into some of this challenges that we face, and all these will be addressed shortly, especially in the forthcoming Budget,” he said yesterday.
Budget 2014 is expected to be tabled on Oct 25.

Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz says Malaysia has the capacity and capability to address its fiscal vulnerabilities in a gradual and sequenced manner.

“Malaysia still has time to do it, but of course it is now more urgent because the global environment has become more challenging,” she said, adding that policymakers were putting emphasis on increasing national resilience and boosting its potential to sustain economic growth.

The Government has targeted to reduce budget deficit to 4% this year, 3.5% in 2014 and 3% by 2015.

Bond yields

The revised outlook by Fitch also pushed up the yield on the 10-year Malaysian Government Securities (MGS) to the highest since January 2011.

On Wednesday, the yield increased to 4.13% and remain above 4% on Thursday.

“The pullout by foreign funds started in June 2012 judging from the decrease in the foreign holdings in MGS to RM137.9bil in June from RM144.5bil in May.

“The downgrade of Malaysia’s outlook by Fitch Ratings has compounded the impact as local bond market is still digesting what had transpired in the US Treasuries (UST) market on possible tapering of assets purchase programme by the US Federal Reserve,” said Bond Pricing Agency Malaysia chief executive officer Meor Amri Meor Ayob in an email reply.

He says that the local bond market is sensitive to the spread between UST and MGS. “The UST yields have spiked up substantially for the past two months, so have the MGS yields”.

“That being said, in the longer-term perspective, the MGS yields will depend on the health of the economic fundamentals, such as GDP growth, inflation outlook, current account balance as well as fiscal and monetary policy,” he notes.

Zeti says there is not reason to overreact over the recent sell-off of Malaysian bonds.

She adds Malaysia is a highly open market and that it could cope with such volatility because its financial market is one of the most developed among emerging economies.

By INTAN FARHANA ZAINUL - The Star/Asia News Network

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Malaysia could go bankrupt by 2019?

Why Malaysia won’t go bankrupt

TRANSFORMATION BLUES By IDRIS JALA idrisjala@pemandu.gov.my
 
The Government is not in dire financial straits right now. By all measures its finances are good, but as in any situation involving finances, this is not to say it cannot be better.

I AM frequently asked why I said Malaysia could go bankrupt by 2019. I have had many queries asking for clarification and this has become one of my transformation blues.

In charting out our transformation journey in 2009, one of the first things the Prime Minister and the cabinet did was to list our current status, say where we want to be and set up a programme for transformation to get us there.

Amongst the many things on the list was a need to rationalise subsidy and so we ran a lab to do this.

During our open day, we engaged the public on the lab recommendation on the subsidy rationalisation. I wanted to be as frank as possible and to make it clear what the consequences of inaction would be.

Perhaps I was too frank but what I said has been misrepresented on a number of occasions, and I have since been saddled and hobbled with an unnecessary problem.

Habitual critics latched on to a small part of one of my first presentations where I said we have to change our spending patterns for sustained fiscal health.

Against a backdrop of several caveats and conditions, I said that we would be bankrupt by 2019 IF we continued to increase our subsidies and borrowings the same way we did before and IF our economy grows at less than 3% annually.

I've worked in Shell for more than 20 years, a company that is famous for its scenario planning techniques.

In layman terms, scenario planning means describing a future that could either be “good, bad or ugly” and doing our best to achieve the “good scenario” and avoid the “bad and ugly”.

My statement was heavily qualified but little or no mention was made of the clear caveats that I had put forward.

I still stand by what I said and it is important that my statement is taken together with the conditions.

This statement has been taken out of context so many times that it really gave me the blues - I have been talking till I turned blue in my face explaining what I meant!

Let me say in the clearest terms that my intention then was to illustrate the consequences of inaction when faced with tough decisions. We cannot continue to subsidise the way we have.

Let me also state that the Government is not in dire financial straits right now. By all measures its finances are good, but as in any situation involving finances, this is not to say it cannot be better. Here's why.

Our debt as at end 2011 is 53.8% of gross domestic product (GDP the sum of goods and services produced in the country) and the budget deficit is better than the 5.4% target of GDP.

Compare this with Greece's debt which stands at 110% of GDP and a budget deficit of 13% and it is obvious that we are not anywhere close to a crisis.

Subsidy rationalisation

Globally, many economists are cautioning the Governments against rising national debts. In 2009 the year for which the figures I used when I talked about subsidy rationalisation we had to increase government spending via our “economic stimulus package” in the face of the world financial crisis caused by the sub-prime mortgage problem in the United States.

This had spill-over effects into 2010 as well. But the debt as a percentage of GDP has begun to level off while the budget deficit, again as a percentage of GDP, has begun to significantly decline and as our economy continues to grow. We are reversing the situation.

In a simplified system to assess whether countries are in a sovereign debt crisis, the Boston Consulting Group (BCG) uses a graphical representation to identify countries with a potential problem.

Public debt as a percentage of GDP is plotted on the vertical axis while surplus or deficit in the national budget as a % of GDP is plotted on the horizontal axis.

BCG identifies a potential problem looming if public debt is 100% or over of GDP while simultaneously the budget deficit is 10% or more of GDP (see chart).

The more a country is to the left of the chart and the higher on the vertical axis, the greater the risk of a potential debt crisis but note that a country has to be simultaneously in problem in both areas to be regarded as a big risk.

If you look at Singapore, public debt as a percentage of GDP is 100% in the problem area but only for one of the two criteria but there is hardly any budget deficit to speak of in the republic.

Nobody considers Singapore a financially troubled country.

For Malaysia, it is important to notice that it has moved to the right in 2011 compared with its position in 2009 and 2010 while there is hardly any upward movement. That indicates a move in the right direction.

Based on this analysis, we are better than the United Kingdom, the United States, Spain, Italy, Portugal and Japan, to name a few. We will get into the safe zone soon enough.

The problem I highlighted using 2009 figures, making the caveat that IF debt continued to increase at previous levels we can have a serious problem in 2019 and IF we grow less than 3% annually, does not exist anymore.

Making improvements

Why? Because we are making improvements on both counts.

Firstly, as a responsible Government, in 2010, we began the process of gradually reducing subsidies for fuel, sugar, electricity and so on, knowing fully well that this was unpopular.

Secondly, our GDP grew by 7.2% in 2010 and 5.1% in 2011 and that's an average of 6.2%; we are meeting our Economic Transformation Programme (ETP) target. Of course, we can and should do much more.

As I have pointed out in previous presentations very little of our subsidies amounting to billions of ringgit every year go to the poor, the rich get most of it. We must rationalise the subsidy system not do away with it and cut other extraneous expenditures.

However, we continue to help the poor via our GTP initiatives e.g. Azam programmes and BR1M for the low income households and rural infrastructure programmes.

On the other side of the equation, we must increase government revenue sources by introducing such measures as a goods and services tax (GST) and get more economic activity going. We can exclude necessities from the tax.

We are already succeeding. We have the ETP and we are growing our revenue we had additional tax revenue of RM26bil in 2011. This has allowed us to finance rakyat-centric programmes such as BR1M.

Why, if we continue to make progress by these measures, we may even be able to balance the budget come 2020 even though that will welcomingly surpass our own target.

I know there will be critics who will say that I have changed my mind on the bankruptcy issue. I haven't changed my position vis-a-vis scenario planning.

I always believe in describing the “good, the bad and ugly” scenarios (that hasn't changed) i.e. the “good” scenario is if we successfully implement our ETP, we will achieve high income status by 2020.
The “bad or ugly” scenario is if we don't do anything to avoid it, then we can go bankrupt.

The fact is we are doing a lot of things to transform our country. So, we will not go bankrupt.

With the implementation of the ETP, we must acknowledge that Malaysia is on the right track in transforming its economy. The average annual GDP growth in two years (2010 and 2011) is more than 6%. In 2011, we met our GNI and investment targets, trade reached a record high of RM1.27 trillion in 2011.

We cut our deficit in 2011. In April, our PM will be releasing our ETP and GTP annual reports which provide all the details of our country's achievement.

Let me conclude by quoting Dale Carnegie: “It is tragic when we put off living. We dream of a magical rose garden over the horizon and miss the roses blooming outside our windows”.

Datuk Seri Idris Jala is CEO of Pemandu and Minister in the Prime Minister's Department. Fair and reasonable comments are most welcome at idrisjala@pemandu.gov.my

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