Nurhisham Hussein outlines why it’s disingenuous and dangerous to dismiss economic data from Malaysia.
I read with some interest a recent article on New Mandala by Manjit Bhatia on the effect of the assassination of Kim Jong-nam on the political fortunes of Malaysian PM Najib Razak. That the assassination has distracted attention from Malaysia’s domestic political scene is not in doubt. However, the author makes some strong allegations regarding the veracity of Malaysian economic statistics, as well as making some misleading and outright untrue statements on the state of the Malaysian economy.
Let me deal with each of the statements I found problematic in turn.
The article makes the bold claim that, “Most credible economists, even the market type, know Malaysia’s official numbers are as rubbery as North Korea’s or China’s.” In my role as Chief Economist of the Employees Provident Fund (EPF), I meet nearly every market economist who covers Malaysia, as well as those in policy circles such as from the World Bank and IMF. I don’t know of any who have hesitated to take Malaysia’s official statistics at face value. One of the key tests to determine whether economic data is falsified is internal consistency and statistical irregularity. China for example fails on both counts. Malaysia does not.
The article further states that there is no data for the job participation rate in Malaysia. This is rather unconventional classification, as everyone else uses the term labour force participation rate (LFPR) instead. In any case, the article is completely mistaken. The LFPR for Malaysia has been available at monthly frequencies since 2009, quarterly since 1998, and annual frequencies going back to 1982. The annual numbers are further broken down by age, gender, education, and ethnic background. The data shows, far from a decline in labour market conditions, a steeply rising LFPR from 62.6 per cent in 2009, to a near record high of 67.6 per cent in 2016 (with a long term average of 65 per cent). It should also be noted that Malaysia’s long term average unemployment rate is just under 4 per cent. At the current rate of 3.6 per cent, the labour market would still be considered to be at full employment.
The article goes on to say that Malaysia’s minimum wage is scarcely enforced. On the contrary, data from the EPF, to which all salaried workers are required to contribute, show a massive shift in Malaysia’s salary distribution when the minimum wage was introduced in 2013. Fully 10 per cent of the workforce shifted from below the minimum wage to above it, and the wage effect was evident across the entire bottom half of the distribution.
Fourth, the article claims that, “In Kuala Lumpur alone, credible estimates put inflation at least twice the ‘official’ number”, and “inflation hits close to double-digits, in real terms, according to some investment banks’ research.” The second statement is nonsensical – there is no such thing as inflation in “real” terms, because in economics real prices of goods refer to inflation-adjusted prices. But the larger point – that inflation is perceived to be higher than official statistics – is actually well known. Well known because the same discrepancy has been documented nearly everywhere.
A recent Federal Reserve research note explicitly addressing this issue, found that US citizens perceptions of inflation were consistently twice as high as the official statistics. Why that is so is an interesting question in itself and would take far too long to explore, but the larger point is that differences between perception and official statistics cannot be taken as prima facie evidence that those statistics are false. There is plenty of evidence that the opposite is true, for example via MIT’s Billion Prices Project, that it is perceptions that are mistaken and not the statistics. Furthermore, research into the methodology and mechanics of constructing consumer price indices conclude that if anything, the CPI tends to overstate inflation, not understate it.
Fifth, the article claims Malaysia’s fiscal deficit and national debt are “ballooning”. In fact, the deficit has been halved since 2009, to just 3.1 per cent for 2016, while the debt to GDP ratio has been kept under the 55 per cent limit the government imposed on itself. Manufacturing, far from being routed, has continued to thrive, with sales breaching an all time high of ringgit 60 billion a month over the past few months. Moreover, Malaysia has been one of the very few countries in the region to record positive trade growth over the past two years.
In the Age of Trump, democratic institutions are under attack everywhere. Trust in public institutions has declined, not just in Malaysia, but globally. Globalisation itself is in retreat, and schisms and conflicts that we thought were gone, have arisen anew. Be that as it may, undermining confidence in public institutions without substantive evidence reinforces these troubling trends, and works against the very foundations of a democratic society. Without them, the very thing that Manjit Bhatia appears to be arguing for, becomes further from reality.
Nurhisham Hussein is General Manager, Economics and Capital Markets at Employees Provident Fund, Malaysia.