STUPID ECONOMISTS There are a lot of comments, both in the printed press, as well as social media crying that the economy is, using a word that was used in a letter to The Star today, beleaguered. The two biggest issues raised are budget deficit and the shrinkage in Malaysias foreign reserves. First, the Government has been reducing the deficit by 0.5% every year in the last six years. For 2015, the budget deficit is now being reduced to 3.2% instead of the previous target of 3.0%. This adjustment upwards of 0.02% is considered minor and has not triggered any revision of the countrys debt ratings. The ultimate target is to achieve a balanced budget, i.e. 0.0% by 2020. Second, all of the comments in regards to the foreign reserveas are made by dumb people who do not understand that one does measure foreign reserves by the absolute amount but by the number of months that the amount can finance retained imports. As at September 15 2014, Bank Negara’s international reserves amounted to RM422.3 billion. This is sufficient to finance 8.9 months of retained imports. The standard global benchmark is 6 months. as such, we are almost one-third above the benchmark.This a HUGE buffer. The other way to measure is how many times of the foreign reserve can cover our foreign debt that is due for repayment in the next three months. Presently, the foreign reserves can cover 1.2 times the countrys short term external debt. Moreover, none even appreciate the fact that with the weaker ringgit, Malaysias exports will grow. With increased exports, the country will earn further foreign currency. This will, in turn, increase further our foreign reserves. A beleaguered economy is when the countrys exporters close down, practically all exports dry up, domestic consumption spending shrinks in double digits. If you want to know what beleaguered means, go to Greece. So, next time before anyone of you want go on and on about the Government lying about the countrys economic fundamentals, please do yourself (and all of us) a favour - go buy yourself a macroeconomics and public finance/central bank policy book for beginners.
Posted on: Tue, 27 Jan 2015 08:39:22 +0000
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