KUALA LUMPUR – June 1, 2017: Two economists have rubbished a claim that the country’s declining current account surplus was due to weak global demands for Malaysian exports, non-competitive maritime industry and the prevalence of foreign workers.
Responding to an article by The Malaysian Insight (TMI), macro-economic consultant Dr. Hoo Ke Ping said the surplus downward trend from 2014 was solely due to the slump in global oil prices, which has even crippled the growth of wealthy Gulf countries.
“It is purely because of the petrol price crash. Thirteen per cent of our GDP (gross domestic product) is dependent on mineral-related exports, of which nine per cent of it comes from petroleum-based exports,” Hoo explained.
On the purported weak global demand for Malaysian exports, Hoo argued that the phenomenon was not something that exclusively affected the country.
“Despite these crashes (oil prices and trade) we still managed to earn billions last year form several sectors of our exports, particularly from electronics, timber and palm oil and that’s RM100 billion, RM20 billion and RM70 billion respectively,” he said.
Hoo added that country would not have been able to earn all this and recorded a surplus had it not been for the foreign workers.
“The surplus decline started after 2014. In that year, the country already had millions of foreign workers who had also contributed to the surplus.
“It’s true that they are remitting a lot of money from this country but they also generate more money for it. If that is not the case, do you really think the country can record a surplus for four years in a row?” he asked.
On the claim about the non-competitive maritime industry, Hoo argued that the sector has never been a big contributor to the Malaysian GDP, despite the country having among the busiest ports in the region.
“The combined earning from our top three ports (North, West and Tanjung Pelepas ports) only amounts to RM3 billion. Even Singapore, whose port has the biggest in terms of volume, contributes to a tiny three per cent of that country’s GDP,” he pointed out.
Economist-blogger HishamH of the Econs Malaysia rebutted TMI’s argument that a low current account surplus of the country would be bad for the people.
In an email to The Mole, the blogger explained that the viewpoint that a current account surplus is necessary for economic prosperity has long been discredited by economists.
He said surpluses are associated with weak domestic economies and wage suppression such as in Thailand after the 2014 coup which caused the collapse in imports and Germany after 2000 which forced trade unions to reduce wage demands.
“Malaysia’s current account surpluses since 1998 came with slower investment growth and weaker wage growth, consistent with economic theory that states current accounts are reflections of a nation’s savings-investment (im)balance,” the blogger pointed out.
In substantiating his view over the non-existent correlation between current account surplus and economic growth, the blogger cited Vietnam and the Philippines as an example.
“The two countries are the fastest growing economies in the region but their current accounts tend to fluctuate between surpluses and deficits.
“For that matter, the period when Malaysia was growing the fastest (first half of 1990s), we ran a consistent current account deficit. In fact, we did not run a consistent surplus until after the Asian Financial Crisis (late 1990s),” he wrote.
HishamH also argued that since current account surpluses are a form of corporate welfare, it should not be made into a policy objective if the government intends to maximise household welfare.