Monday, 17 May 2021

What’s More Urgent Than Being in a Middle-Income Trap?


Paolo Casadio from HELP University and Professor Geoffrey Williams from Malaysia University of Science and Technology pointed out in their latest article – ‘The trap of the ‘middle-income trap’’ that among mature economists, the classification of countries into high-, middle- or low-income economies has no particular economic meaning and formally it is simply a way of deciding whether or not a country will be eligible for financial assistance from international agencies.

For 2021, the high-income economies are those with a Gross National Income (GNI) per person of US$12,536 (RM51,341), using a statistical calculator called the World Bank Atlas method which adjusts for exchange rates and purchasing power.

High-income status doesn’t tell us much about the level of development and, for example, some high-income economies, including the oil exporting countries of the Middle East, are classified as developing countries. It tells us nothing about how the high income was achieved and among the 83 high-income countries we find many oil-based economies with little or no manufacturing and financial services or high-tech industries touted as the future of growth.

The average income per person also tells us nothing about the distribution of income with massively wealthy elites and desperately poor masses in even the highest income countries. The US$12,536 limit is best viewed as a bureaucratic cut-off point, an achievement rather than a policy target.

The World Bank has projected Malaysia to join the club of high-income nations, but at a slower pace than its predecessors. For a vital and dynamic economy like Malaysia with historical growth close to five per cent, reaching this threshold is more a matter of time than a measure of extraordinary performance. Therefore, the authors pointed that focusing on high-income as a policy target is not only misleading, it can be a dangerous distraction from the more urgent underlying challenges in economic growth, development and distribution.  

The challenges, for example, the downward trend in growth rate for Malaysia, must be placed above the high-income target. Structural unemployment rises with slower rate of growth. Why? The economy has insufficient capacity to accommodate the flow of people entering the labour market. And with automation and substitution of workers due to the Fourth Industrial Revolution (IR4.0) this could get worse. Meanwhile, many college graduates are underemployed, suffering from low wages coupled with ever higher cost of living.

The second implication of lower potential growth is the further contraction of the fiscal space. When the government targets a fixed level of debt and deficit to GDP, lower growth constraints resources available for economic and social interventions.

We need to be more creative and innovative in our economy. We should move away from labour intensive investment to digital infrastructure. And skills upgrading on a continuous level to prepare the workforce for the new knowledge economy. Solve current issues including Covid-19 and political instability to attract more foreign investments. So, instead of focusing on a high-income target which will happen anyway, its best to resolve urgent concerns of the current lower underlying growth.



1.     Paolo Casadio and Geoffrey Williams, The trap of the ‘middle-income trap’, 4 May 2021, Malay Mail

2.     Malaysia: On track for long-term growth, 20 March 2020, Standard Chartered




Wednesday, 12 May 2021

Malaysia: Is Inflation Inching Up?


Many economists expect inflation to rise in 2021. What are the Government’s options? And what has been the official rate for the last 4 years?


Rate (%)










For 2021, the expectation is a rise of 2.42% (some say it may go higher to 3% p.a.). About 20 million Malaysians will get ready to celebrate Hari Raya Aidilfitri by 13th May, and concerns arise of cost of necessities. The economy is still fragile – drifting between CMCO and MCO, unemployment is still on the rise and others are having to suffer pay cuts or a “freeze”.

In March 2021, the headline rate increased to 1.7%. Why? Petrol and diesel prices were higher than a year ago. Then the weak ringgit has made imported products – food and intermediate goods-- more expensive. And if consumer demand recovers, which is unlikely, then that may add further fuel to the small fire.

The Government is subsidising fuel prices, extended sales tax exemption for cars and electricity bill discounts to June 2021. Is that enough?

Price control enforcement, targeted cash transfers to the B40 group and a higher exchange rate policy will reduce cost of imports and mute any nascent advance of inflation. Keeping it below 3% will reduce the burden of the most vulnerable low-income group. The other is to improve savings deposit rate to above 3.5% p.a. for a fair return to savers. It then suggests OPR to move up from 1.75% currently. Inflation currently is a “cost-push” development than a monetary phenomenon. Nevertheless, a higher OPR will improve exchange rate and reduce effects of any imported inflation.

When inflation is too high it will reduce the value of money unless interest rates are higher than inflation. It is the real return that savers look for unless the Government is deliberate in its actions to “move” people from savings to investments! The key effects of inflation could be described as:

         Erodes purchasing power – not too surprisingly some in the public sector are oblivious to this idea and look at nominal value rather than present value of a stream of projected cashflow for a project. Price of nasi lemak today and 10 or 20 years ago is significantly different;

         Encourages spending, investing – a predictable response to declining purchasing power is to buy now rather than later. If cash is to lose value, then shopping is better now than later.

Businesses may do capital investments now than later, since costs may look more manageable today than later.

         Continued rise in inflation – with the urge to spend because of inflation, it tends to boost more inflation – a disastrous feedback loop.

         Raises cost of borrowing – central banks’ may damper rising inflation with higher interest rates. That raises cost of doing business.

         Unemployment may fall – as the Phillips curve suggests there is an inverse relationship between unemployment and inflation.

For Malaysia, inflation is not on a “runaway” trend right now, but savers and lower income groups are impacted by sustained increase in price. The Government must keep a close watch on price movements and devise targeted measures to mitigate any adverse development.


Ganeshwaran Kana, Inflation Inching Up, 27 April 2021, StarBiz


Tuesday, 11 May 2021

Opportunities for Digital Banks in Malaysia


The Monetary Authority of Singapore (MAS) has approved four digital bank licenses in 2020, and surprisingly three out of four (Grab, Sea, and Ant) are non-banking players. In Malaysia, the deadline for the submission of applications for digital banking licenses is set for June 30, 2021. Five digital banking licences will be granted by the first quarter of 2022. This will be one of the biggest disruptions to the financial services market in decades.

Unlike Singapore or Hong Kong, Malaysia has larger rural areas with unbanked population. Therefore, a digital bank will definitely help Malaysians, especially under the pandemic.

The increasing internet and mobile phone penetration rates as well as the rise in popularity of mobile and internet banking, even before the pandemic, offers a highly supportive environment for digital banks and fintech to flourish. The country is a market awash with mobile wallets. There are now 53 such wallets, but 85% of payments are still settled in cash, according to Mastercard (2020).

Given the lower capital threshold required in Malaysia of RM300 million versus Singapore’s S$1.5 billion, it added that smaller fintech companies with strong technology are also well-placed to succeed.

The diversity of population, high internet penetration rate and low capital threshold requirement create significant opportunities for digital-only banks to develop in Malaysia. The introduction of digital banks will expand market access and optimize SMEs’ business performance. And with more investment in technology, we could be ready for fintech!



1.     Ahmad Naqib Idris, Significant opportunities for digital-only banks in Malaysia’s 'fertile ground for fintech', says S&P Global Ratings

2.     Dashveenjit Kaur, Digital banking gets real in Malaysia in 2021, 6 Jan 2021,

Monday, 10 May 2021

The Deficit Myth: Should You Worry?


The Deficit Myth, a new book by Stephanie Kelton, a leading Modern Monetary Theory (MMT) theorist is genuinely mind-blowing. The book argues that when it comes to government spending, both liberals and conservatives are worrying about the wrong things. From an MMT lens, what matters is not debt, but inflation. Today’s article is a book summary extracted from Book Review - The Deficit Myth: Modern Monetary Theory and How to Build a Better Economy by Devika Dutt and 3 Reasons to Read 'The Deficit Myth' by Joshua Kim.

The key point Kelton makes in The Deficit Myth is that government spending does not use the money collected in the form of taxes, but rather spending creates the purchasing power which can then be partially taxed back, if necessary. In many ways, the government creates money much like a bank does: by creating deposits, in keeping with the Keynesian insight. Banks do not wait for people to deposit money to create loans, or in other words, simply collect and disburse savings; instead, banks use loans to create deposits.

Government budgets are not like household budgets, where we were asked to spend less than we earn. This should not be applied to nations with a sovereign currency as they cannot run out of the currency that they issue. The only limitation on government spending is inflation. Kelton tells us that government deficit or debt are not evidence of overspending, but that inflation is. If inflation is kept in check, year-to-year budget deficits and accumulated debt matter little.

Next, the book claims that the idea of tax revenues collected are to fund government expenditure is wrong. The government can always print money to pay for everything it does. This situation will not be a problem if people and businesses can trust that the government can meet its obligations using money that will not lose its value. This trust depends not simply on the mismatch between tax revenues and expenditures (as with persistent deficits), but also on the ability of the government to create money and real resources needed to meet its obligations.

MMT tells us that what is important is not money, but the real productive capacity of the economy. This productive capacity is measured by how many goods and services can be produced, given the talents, resources and other inputs. With the pandemic hampering economic opportunity, there is lot of room for the federal government (the currency issuer) to run large deficits to get money into the hands of people.

To sum up, Kelton's book is an important and well-argued challenge to the conventional wisdom of government deficits and debt, especially at a time when policymakers may make a sharp turn towards austerity in response to the increase in the size of government debt. The Deficit Myth successfully argues that this would be a policy mistake. However, this framework has some gaps, which is not uncommon for an emerging and developing body of knowledge. Addressing these gaps is possible and should be done in order to strengthen and clarify this framework.



1.     Devika Dutt, Book Review - The Deficit Myth: Modern Monetary Theory and How To Build a Better Economy,

2.     Joshua Kim, 3 Reasons to Read 'The Deficit Myth',



Friday, 7 May 2021

George Monbiot’s Transformed Economy

The environmental journalist and campaigner George Monbiot has called for a complete transformation of the global economy away from capitalism towards a new system where we enjoy "private sufficiency and public luxury." (As reported by Brendan Montague in the

An example of this is homelessness. During the last 10 years of the Conservative government in the U.K., the number of people living - and dying - on the streets has increased. But when the rich perceive homeless people as potential carriers of Covid-19 the resources were quickly found to end the crisis.

"Suddenly, as soon as the pandemic hits, the money can be found. It was a question of the lack of political will," the writer and activist explained.

Monbiot pointed to the fact that the government and industry had claimed for decades that people would never give up luxuries such as international holidays and business flights. But very few people now even consider flying.

He said: "People are prepared to make big changes when they know it's for the good of humanity. But yet the changes we need to make to preserve our lives and all life on earth are far smaller than we have been asked to make to protect ourselves from the coronavirus."

The Second World War provided the perfect proof that the government too could be interventionist if there was the political will. The Conservative led national government forced factories to turn from the production for the market to production for the national war effort.


Monbiot argues that the same could happen now. "Laying the foundations of a completely new economy, an economy that lives within the planet's natural limits but that actually emphasises human wellbeing and the wellbeing of our life support systems." 

"This horrendous pandemic has to be a tipping point," he said. "This has to be a point to transform where we move from one system, an exploitative political and economic  system to a completely different one: private sufficiency and public luxury."

He explained that there are only enough basic natural resources - gold, steel, and sinks for carbon emissions - for very few people use wasteful luxuries such as yachts, sports cars and private jets. And - to put it bluntly - you are never going to be one of those few. 

And by squandering these natural resources, the super rich are denying the rest of humanity the very basics to meet human needs. "They are taking resources away from the rest of us," he pointed out.

He imagined a new future, where everyone has some access to enormous wealth. This might be an occasional stay in a grand hotel, or a visit to a spectacular museum. Public transport and other amenities could also be grand in scale and design. He envisaged "great public everything." (Looks like he envisioned an extreme form of socialism?)

He called for mass participation to end the corporate control of government and replace it with real democracy, where decisions are made and influenced by the citizenry. "Break the link between the power of government and the power of money," he dared the viewer.

George Monbiot’s transformed world will have difficulty to secure a buy-in from the rich and famous. It presupposes that everyone will submit to a greater good. Then how do we reward the exceptional, the entrepreneur, the risk-taker for a new project? It is worthy to “work-on” Monbiot’s ideas but why would Bezos or Gates agree to this?


George Monbiot: From coronovirus to public luxury, Brendan Montague, 11 June 2020,

Thursday, 6 May 2021

Why You Shouldn’t Do An MBA

The outbreak of Covid-19 caused a sudden increase in MBA applications. This is not uncommon since MBA applications usually go up when the economy goes down historically. But if you are thinking to advance your career through MBA, you may need to rethink about it. A master costs around USD 135,000 from world top business schools (Financial Times, 2016) – not to mention two-year loss of earnings for full-time study – may not worth the investment, especially after Covid-19. Why?

Before the outbreak of Covid, MBA applications were declining. Several business schools in the U.S. closed down their full-time MBA programs. University of Iowa’s Tippie College of Business, for instance, said it would abandon its full-time MBA program to focus on degrees like its part-time masters in business analytics.

The MBA might be the only option you had, ten years ago, to accelerate your career path. But the market has shifted, the value of an MBA today is questionable. Some said that the MBA is largely irrelevant in today’s business world. By the time you finish your first year, technology changes and what you have learned may be outdated. And if this is the case, you are wasting not only the program fee in monetary terms, but the opportunity cost – missing out on the latest developments in a fast-moving industry.

Traditionally, a business school acts as a platform to connect future leaders and alumni. But due to lockdowns, most of the courses are conducted online now. This may limit down your opportunity to expand and diversify your network.

In Malaysia, an MBA costs between RM18,000 (public university) to RM80,000 (private university). The total compensation of a fresh MBA graduate with 1-4 years of experience, according to, is RM48,350 annually on average. An early career Data Scientist with similar years of experience on the other hand, earns an average total compensation of RM 58,439.

Pay scale of MBA graduates in Malaysia

 Source: / Study Masters (Note: report publishing year is unclear)

In short, obtaining an MBA may help you in the job market but will burden you with a hefty debt. If you are still insisting to pursue an MBA degree, consider a part-time one. Business schools are adapting to the change and many are introducing more specialized master programs. There are now MBAs with data analytics, cybersecurity, or financial technology. Think about it!



1.     Paulina Karpis, Is An MBA Worth It? After Covid-19, Absolutely Not, 25 Jun 2020, Forbes

2.   Kelsey Gee, M.B.A. Applications Decline for Third Year in a Row, 18 Sep 2017, Wall Street Journal

3.     Laurent Ortmans, MBA by numbers: inside the $200,000 cost, 15 Feb 2016, Financial Times

4.     Key statistics for MBA graduates in Malaysia, Study Masters

Tuesday, 4 May 2021

U.S. Corporate Debt at USD 10.5 trillion!


Since 2008, global debt has continued to rise. Corporate bond issuance has increased 2.5x over the past decade.

U.S. corporations now owe a record $10.5 trillion to creditors. This is in the form of bonds or loans. That’s a 30-fold increase from 50 years ago, according to a new BofA Global Research report. And the sum reported is more than 50% of US’ GDP.

The bulk of debt has been taken out by American companies with high “investment-grade” credit ratings of AAA to BBB. In this segment of the market borrowing has more than doubled in the past decade to roughly $7.2 trillion.

Half of investment-grade corporate debt, or $3.6 trillion, resides within the borderline BBB credit-ratings category, only a few notches away from speculative-grade, or “junk,” territory. A long time worry among investors has been that an economic downturn or a sustained cycle of BBB downgrades by credit-rating firms could swamp the junk-bond market.

To be sure, the outlook for corporate debt has brightened since March 2020, when the Federal Reserve’s raft of emergency funding programs was unleashed to keep credit flowing during the pandemic. This includes the Fed’s action to buy corporate debt.

Among the knock-on effects has been a deluge of capital flooding into the U.S. corporate debt sector, including from individual investors in bond funds and exchange-traded funds, as well as foreign buyers looking for yields, which have kept debt markets liquid.

The chart below breaks down the ownership of the U.S. corporate bond market as of the first quarter of 2020.

Not included is the flood of fresh debt issued by U.S. companies at ultra-low borrowing costs during the second quarter.

Foreign investors were the single largest holders of U.S. corporate debt, at 27% of the ownership pie. They were followed closely behind by funds with a 22% share, including mutual and exchange-traded funds. Another key concern of the decade’s long corporate debt boom has been the growing role of exchange-traded funds (ETFs). For the most part, the biggest U.S. corporate bond ETFs ended up performing as expected during the worst of the coronavirus-triggered downward spiral and subsequent recovery.

Global central banks have signalled to maintain spending in 2021 with ultra-easy monetary policies. The Fed is expected to keep its policy rate in a range of 0%-0.25%. The combination of lower hedging costs and higher yields is irresistible to some investors.

Jeff Franks, professor of economics at Royal Holloway, University of London, believes the U.S. government and the Federal Reserve have “grossly over-invested” in their reaction to the pandemic. But this is not shared by Janet Yellen, the new Treasury Secretary in the Biden administration. It is better to “overshoot” than “under impact” for sustaining a strong recovery. Inflation is for another day! On that score, it is possible for this “bubble” to expand further in the months to come.



1. Joy Wiltermuth, U.S. corporate debt soars to record $10.5 trillion, 31 Aug 2020, MarketWatch

2. David Caleb Muta, Credit Investors Worldwide Are Piling into U.S. Corporate Debt, 29 Jan 2021, Bloomberg

3. Brendan Cole, A $10 Trillion Corporate Debt Bond is Waiting to Explode, Newsweek, 29 July 2020

Monday, 3 May 2021

Malaysia: What is the Nexus of State and Business?


IDEAS, the think tank, had a policy paper (No. 45) published in 2017 that touched on the above topic. Jayant Menon, the Lead Economist at ADB, propounded various issues in this paper.

The nexus between state and business in Malaysia is not only strong, but growing. Good governance poses a challenge where patronage keep institutions weak and subject to manipulation. GLCs not only operate within such a system but contribute to it.

The GLCs are, in fact, a complex ensemble of statutory bodies, foundations, trust agencies, investment enterprises and a sovereign wealth fund, as well as companies, with representation in a wide array of industries. These institutions, controlled by the central and 13 state governments in the Malaysian federation, officially function primarily as “enablers” of domestic firms, to nurture a dynamic privately-owned enterprise base. But GLCs also constitute an estimated 42 percent of total market capitalization of all publicly-listed firms. Approximately 67 quoted firms can be classified as GLCs.

Federal ministries, under the ambit of cabinet ministers, also control a vast number of quoted and unlisted GLCs that do a variety of things, including promoting development of strategic economic sectors, redressing spatial inequities by developing rural areas and industries, and financing research and development to drive industrialization.

At the state level, different public institutions own GLCs through the states’ chief ministers, i.e.  Chief Minister Incorporated (CMI). CMIs establish companies to undertake activities in specific constituencies to mobilize electoral support. Party members are liberally appointed as directors of these GLCs, a major source of political financing as their stipends are used for political activities. Through the CMIs, what had emerged was the fusing of bureaucratic and party apparatuses, allowing politicians to selectively channel government resources in a manner that would help them consolidate or enhance their political base. (This perspective was expressed by Prof. Edmund Terence Gomez in GlobalAsia).

Another factor that shaped modes of GLC development is a communal perspective to policy implementation. This is in keeping with the government’s long-standing affirmative action-based redistributive agenda to transfer corporate equity to the Bumiputera (Malays and other indigenous groups). Eventually, these GLCs became sites of political struggles among elites attempting to consolidate power through patronage, a reason why critics have persistently excoriated them as inefficient and loss-making concerns.

Interestingly, the GLC framework has become entrenched in the economy as well as the political system during Mahathir’s 22-year reign as prime minister, from 1981 until 2003. By the time of GE14, this GLC structure had become so huge — and so abused by the Barisan Nasional — that Mahathir himself described it as a “monster.”

GLCs therefore serve as instrument of Government policy. This is the legacy of NEP – an objective to have Bumiputra wealth ownership share of 30% by 1990. Under the guise that it has not been met, the policy has morphed into various names including “Shared Vision”.

All of it sounds good in theory but evidence suggests a rise in rent-seekers or cronies. In 2016, Malaysia had the second highest share of crony wealth as a share of GDP (the title went to Russia, according to The Economist). Despite numerous Government-supported programs, the expected Bumiputra SME sector remains nascent. And on unemployment, the highest is amongst Bumiputra graduates.

Affirmative action policies may improve horizontal inequality but tend to worsen intra-group and vertical or overall inequality. Although Malaysia’s Gini coefficient has improved to 0.399 (2016) from 0.456 (1995), it remains stubbornly sticky. Disparities between communities may have improved but inequality within communities has increased. What do you say when Shan, Daniel, Yusof or Tan have the best grades but fall through the cracks because their father is a gardener or odd job worker or itinerant stall vendor without a permit? In the current environment they may not even enter a university let alone find a scholarship!

The solution remains affirmative action. But it must be on a needs-based affirmative action for all communities that will result in a more united nation. And GLCs re-oriented and implementation mechanisms improved may justify continuance of a social action initiative for the harmony of all.



1.     Jayant Menon (2017), Government-Linked Corporations: Impacts on the Malaysian Economy, IDEAS

2.     Edmund Terence Gomez, Business as Usual: Regime Change and Government-Linked Companies in Malaysia, GlobalAsia