— Ong Kian Ming
The Malaysian Insider
May 24, 2012
MAY 24 — I love this quote from one of the basic rules of journalism — “If your mother says she loves you, check it out”. It’s a warning to journalists to develop a healthy dose of scepticism and to always verify facts even though it’s from a supposedly trustworthy source. I’m not a journalist but I’ve developed my own sense of scepticism after being exposed to academics in the United States, most of whom will jump at every opportunity to dismantle the supposed “proof” or “evidence” behind any new theory. It is perhaps not surprising that we in Malaysia have not developed the same healthy dose of scepticism when presented with a piece of information since we are taught from very young not to question authority figures. But when we are bothered enough to be healthily sceptical and make the extra effort to verify certain facts and figures, the results can be quite enlightening.
Take, for example, the Economic Transformation Programme’s (ETP) Annual Report, which was released in April 2012. According to Exhibit C of this report (pg.8), the nominal Gross National Income in 2011 of RM830 billion surpassed its target of RM797 billion by RM33 billion or 4.1 per cent. In the same exhibit, nominal private investment in 2011 of RM94 billion was shown to have surpassed its target of RM83 billion by RM11 billion or 13.3 per cent. These figures together with other impressive results from the 12 NKEAs led many analysts to praise the ability of the ETP to over-deliver on its targets.
But surprisingly, no one bothered to find out how the GNI and private investment targets were calculated in the first place, especially since the methodology of calculating these projected targets were not revealed in the ETP Annual Report (nor were they revealed in the ETP Roadmap Report which was released in October 2010). If one had bothered to do a bit of research, one would have realised that the RM797 billion nominal GNI target for 2011 seemed a bit low. After all, according to the Ministry of Finance’s Economic Report 2010/2011, which was published together with the 2011 Budget, the projected GNI in 2011 was RM811 billion. This was updated to RM820 billion in the Economic Report 2011/2012, published together with the 2012 Budget.
Some simple maths would have shown that the RM797 billion is even lower than what the target would be using PEMANDU’s target of a 6 per cent real growth rate and a 2.8 per cent inflation rate. Since nominal GNI was RM739 billion in 2010, a nominal growth rate of 8.8 per cent would give us a target of RM804 billion, not RM797 billion (try it out for yourself, if you don’t believe me). Only with a nominal growth rate of 7.8 per cent, which is far lower than what the Ministry of Finance was projecting in 2010 as well as in 2011, would one arrive at the RM797 billion.
In addition, a little bit of triangulation would have allowed us to see that the “achievement” of surpassing the nominal GNI target by 4 per cent is not a great accomplishment given that the real GDP growth rate of 5.1 per cent was at the bottom end of 5 per cent to 6 per cent real GDP growth rate projected by MoF in the Economic Report 2010/2011 and the 5 per cent to 5.5 per cent real GDP growth rate projection in the Economic Report 2010/2011. In fact, real GNI of RM540.9 billion was actually lower than the RM546 billion projected in the Economic Report 2010/2011 and the RM545.5 billion projected in the Economic Report 2011/2012. One’s suspicion would also have been raised by the fact that the real GDP growth rate of 5.1 per cent was shown in Exhibit 3 even though the economic output targets are expressed in GNI terms. Might it have something to do with the fact that real GNI growth was just 4.7 per cent in 2011, far below the 6 per cent real growth target set by the ETP?
What about the RM83 billion private investment target? I found problems with this figure too. In the MoF’s Economic Report 2010/2011, private investment was projected to be RM86 billion in 2011. This was raised to RM94 billion in the Economic Report 2011/2012. A private investment target of RM83 billion assumes an increase in private investment of a mere RM4.3 billion or a 5.5 per cent increase from RM78.7 billion in 2010, lower than the projected nominal GNI growth rate. It seems quite unrealistic to assume that private investment would grow at less than the overall growth rate given that most companies would want to investment in new equipment and infrastructure when the economic is growing. (Note that private investment here refers to gross fixed capital formation such as buying new plant equipment and transportation vehicles.) Furthermore, under the 10th Malaysia Plan, nominal private investment was projected to grow at 16.2 per cent (Appendix, Table 4, pg362) which would give a target of RM91.4 billion in 2011 rather than the RM83 billion shown in the ETP Annual Report. The private investment figures for 2011 were indeed impressive. It grew by 19.4 per cent in nominal terms and 14.4 per cent in real terms surpassing the 10th MP targets of 16.2 per cent and 12.8 per cent respectively. But it grew by only 3.2 per cent above the 10th MP nominal growth target and not by 13.3 per cent, using the RM83 billion target indicated in the ETP Annual Report.
I must admit that I had help in making these calculations and clarifying some concepts. I emailed a few friends who were economists. I also emailed a Bank Negara representative when I spotted an error in their private investment figure for 2011 which was published in their Monthly Statistical Bulletin (they corrected it almost immediately). I emailed a director in the Economic Planning Unit (EPU) to ask about the private investment figures and targets in the 10th MP (he also responded almost immediately). Finally, I emailed two directors at PEMANDU to ask how they calculated their GNI and private investment targets. Sadly, almost two weeks later, I have yet to hear from them.
Perhaps what surprised me most is that all of the analyst reports I read did not even question the GNI and private investment targets as reported by the ETP. All of them praised the ETP for overachieving their targets including the GNI and private investment targets. I expected more from experienced economists whom I assumed would be very familiar with economic data and forecasting. Perhaps they should also take heed of the same basic rule outlined at the start of this article and develop a healthy scepticism towards information that is presented to them?
* This article first appeared The Edge Financial Daily on May 24, 2012.