2012 and 2013 were economically fabulous years for Malaysia. Since Malaysia imports most of its public consumption and industrial equipment the Malaysian ringgit's strength against the dollar that was oscillating between 2.9 to 3.2 MYR to USD was highly celebrated. However since 2014 Malaysia has been on a downward spiral economically. 2014 was the year our economy was set for a boost in tourist spending as a Visit Malaysia Year which unfortunately turned sour with the loss of two Malaysian Airline planes. 2015 dragged down the ringgit to new lows as the MYR sank to more than 4 ringgit to the USD as commodity prices tumbled. 2016 is going to be another dismal year for the economy as the price of petrol stays sunk as around 30 USD a barrel.
Despite this environment economically I am fairing quite well. The main reason for this is that I changed most of my ringgits to Singapore Dollars when the ringgit was flying high in 2012 and 2013. I even advised many of my friends and family to do the same, to diversify their cash holding into other currencies, even the USD which was weak then. A few followed the advise and are quite grateful, most however ignored it. In 2012 and 2013, it concerned me that the Malaysian economy was being artificially propped up by big bond sales that was mainly being used to fund new transportation infrastructure in the Klang Valley. I regard public spending on transportation infrastructure projects as national service which is indirectly profitable by making connectivity more efficient in the country. So when the Malaysian government took into account their bond sale to fund the massive 50 billion ringgit KL MRT and LRT projects as part of the countries GDP growth, I got apprehensive about the rising ringgit. It seemed that whomever was forecasting the strength of Malaysia's economy was being very generous with the countries actual growth. One of the Finance Minister deputies even went on to brag about Malaysia's sterling GDP growth by adding figures of government cash handout to lower income citizens as part of consumer spending strength. That's like a failing bank saying they are outperforming expectations after receiving a generous bailout.
The fact is the Malaysian government has been in the habit of spending tons of money without care for returns. Accountability is not a word that is important when it comes to the National Budget. Just spend and spend. The following year spend more without taking into account what worked and what did not. Unfortunately the Malaysian economy's resilience to an unfettered spending habit is being reined in by tumbling commodity prices. Crude oil and palm oil prices are causing much consternation among the nations politicians and economist. Their big question is when are the prices going to rise again? But I think the real question to be asked is when the government revenue going to be properly accounted for the result of spending. The ringgit is tanking because the country is leaking money and nobody cares to stop the habit. Overseas undergraduate scholarships, an education system that is deteriorating, transportation infrastructure that cause more problems than solving them, a social environment that rewards political ball-carrying than actual productive performance and a government that can't keep its hands out of business.
Malaysia's ringgit new normal is going to remain about 4 to the USD before it tumbles to 4.5 in a few years. That's because even if commodity prices rise again wasteful spending is not going to stop, so the national debt that has lost all its buffers is going to rise with population growth and drying resources such as crude oil. So if you are betting on the ringgit to rise sell it when the ringgit crosses 3.8 to the USD.
The fact is the Malaysian government has been in the habit of spending tons of money without care for returns. Accountability is not a word that is important when it comes to the National Budget. Just spend and spend. The following year spend more without taking into account what worked and what did not. Unfortunately the Malaysian economy's resilience to an unfettered spending habit is being reined in by tumbling commodity prices. Crude oil and palm oil prices are causing much consternation among the nations politicians and economist. Their big question is when are the prices going to rise again? But I think the real question to be asked is when the government revenue going to be properly accounted for the result of spending. The ringgit is tanking because the country is leaking money and nobody cares to stop the habit. Overseas undergraduate scholarships, an education system that is deteriorating, transportation infrastructure that cause more problems than solving them, a social environment that rewards political ball-carrying than actual productive performance and a government that can't keep its hands out of business.
Malaysia's ringgit new normal is going to remain about 4 to the USD before it tumbles to 4.5 in a few years. That's because even if commodity prices rise again wasteful spending is not going to stop, so the national debt that has lost all its buffers is going to rise with population growth and drying resources such as crude oil. So if you are betting on the ringgit to rise sell it when the ringgit crosses 3.8 to the USD.
No comments:
Post a Comment