Pemandu: We didn't lower 2009 GNI figure

COMMENT Pemandu has responded to Pakatan Rakyat leaders’ recent criticisms of the ETP, reproduced here in full:

1. Pakatan leaders have accused Pemandu of deliberately misleading the public by lowering the GNI per capita for 2009 in order to demonstrate exaggerated growth between 2009 and 2012. Is it true that this is deliberately done by the prime minister and Idris Jala of Pemandu in order to mislead the public?

No, we did not deliberately lower the GNI per capita figure for 2009, and did not have any intention to mislead the public. We take exception to the accusation and confirm that the GNI figures we reported are the official figures as published by the Finance Ministry and Bank Negara Malaysia (BNM).

On 26 May 2010, the government released its official GNI per capita figure for 2009 as US$6,686 in its Q1 2010 quarterly report.
http://www.treasury.gov.my/pdf/ekonomi/sukutahun1_2010.pdf

This document was the latest released prior to the ETP lab, which was conducted in June-July 2010. When the ETP Roadmap was published in October 2010, we referenced the official GNI per capita figure for 2009 and rounded it up to US$6,700.

2. Are you aware that the Finance Ministry and BNM have subsequently revised the GNI per capita figure for 2009 to US$7,059? If so, why did Pemandu not change the GNI per capita accordingly?

We confirm that our GNI per capita figure of US$6,700 (rounded up from US$6,686) was correct at the time we referenced the official Q1 2010 Finance Ministry report.

Beginning 2012, the Malaysian government adopted the System of National Accounts 2008 (SNA 2008) to align Malaysia’s national accounts with the latest international practices, during the rebasing exercise from year 2000 to 2005. Many countries in the world have done so as this is a standard exercise by statistics agencies worldwide. Some of these countries include South Korea, the United States, the Philippines and Singapore.

In line with this new methodology, historical figures were adjusted in 2012 from the latest base year (another exercise that is of international practice). For Malaysia, the new base year is 2005.

As a result of this conceptual and methodological change, retroactive changes were made to the GNI per capita figures for the years proceeding from 2006. In other words, changes were made to all the GNI per capita figures previously announced by the government between the period of 2006 and 2011.

We emphasise that no one in the government had any intention to mislead anyone. As a general principle, in assessing performance against set KPI, it is important not to move the goal post in midstream. For this reason, we chose to keep the baseline KPI of US$6,700 per capita in our ETP Annual Report.

Using this 2009 baseline, GNI per capita has risen 49 percent in three years. Even if we are to take the revised 2009 GNI per capita of US$7, 059, GNI per capita growth of 41 percent is an excellent measure by any standards.

3. Why did you not choose to use 41 percent GNI per capita for your reporting purposes and instead went with the 49 percent?

When we were setting our targets for all NKEAs in January 2012, the projections and targets were based on the pre-rebasing exercise data. Additionally, towards end 2011, we were in the midst of preparing for the NKEA Budget 2012. By then we had allocated resources towards achieving these targets.

When the rebasing exercise was completed and historical data were made publicly available by second quarter 2012, we were midway into the year in delivering on the targets set for the year.        

As mentioned above, changing our figures midstream will be disruptive to the momentum of project implementation. We measure our performance and improvement strictly on the targets and KPIs set in the beginning of 2012, using the latest publicly available 2009 GNI per capita figure at the time. As such, we maintained the same base in our 2012 Annual Report i.e. 2009 GNI per capita of US$6,700.

4. Why did you choose 2009 as the base year to make your comparison when this was the year of global economic downturn? Was this year selected so that you could show exaggerated economic growth?

It is a baseless allegation that 2009 was selected in order to show exaggerated growth. In Q2 2010, the government released its official GNI per capita for 2009 as US$6,686 in its Q1 report for 2010. This document was released before we conducted the ETP lab, which took place between June and July 2010.

When we released the ETP Roadmap in October 2010, it was natural that we referenced the official GNI per capita figure of USD6,686, which we rounded up to US$6,700 as the base figure for 2009 to make our economic projections for 2020. We used the official GNI per capita figure for 2009 as published in the Finance Ministry’s Q1 2010 report.

5. Pakatan pointed out that Malaysia’s GNI per capita figures reported by the government are higher than the figures reported by the World Bank. Why are these figures different?

Pakatan economists also need to be aware that there are a few methodologies designated by the World Bank to calculate GNI per capita, to be exact, the World Bank has four methods of calculating GNI per capita:

i. GNI per capita Atlas method is the gross national income of the country converted to US dollars by the Atlas conversion factor (to smooth fluctuations in prices and exchange rates) divided by mid-year population

ii. GNI per capita PPP is the gross national income of the country converted to US dollars by purchasing power parity rates divided by mid-year population

iii. GNI per capita constant US$ is gross national income at constant prices converted to US dollars and divided by mid-year population

iv. GNI per capita LCU is the gross national income of the country in local currency units, which in Malaysia’s case is Ringgit Malaysia

In calculating GNI per capita for any given year, the World Bank takes the average of Malaysia’s exchange rate over the past three years for calculating the GNI per capita for any given year. The Finance Ministry, on the other hand, uses an average rate of US$ to RM of that particular year.

Whilst the government uses the current GNI figures, under the Atlas method, the World Bank adjusts Malaysia’s GNI by taking into account our inflation as well as the inflation in all G5 countries to ensure that fair comparison can be made between countries by the World Bank.

For our domestic reporting purposes, what we need to understand is how income levels are growing in Malaysia, and there is no cause for us to make comparisons with other countries. Essentially, both the government and World Bank’s GNI per capita figures are correct. They merely employ differing methods of calculations to address different purposes.

We wish to point out that all countries adopting the SNA 2008 employ the same exact method as Malaysia to calculate their GNI per capita figures. For example, the Singapore government’s GNI per capita as reported by Statistics Singapore on their website is different from the World Bank’s figures as follows:



Differences in reporting between statistical/national agencies and the World Bank
The fact that the figures are different does not mean that the leaders in the government of Singapore are deliberately trying to mislead the public. What it means instead is that countries use a different method of calculation from the World Bank in line with their national requirements.

6. Assuming we use the World Bank's more conservative Atlas method of calculating GNI per capita, do you still believe that Malaysia will reach high income status before 2020?

Based on our modelling and economic forecasting using World Bank's Atlas method of calculating GNI per capita, we are confident we can still reach high income status before 2020.

The transformation of our economy is going according to plan, and investments continue to pour in. The ETP is meant to have a catalytic effect in the economy where investments in the non-NKEA areas are triggered by projects under the ETP.

Whilst Pakatan leaders are busy assigning letters of the alphabet to rate the ETP, we are puzzled why they have failed to appreciate that overall private investments in 2012 surpassed its RM127.9 billion target to reach RM139.5 billion, demonstrating domestic and foreign investors’ continued confidence in the Malaysian economy.

In addition, over the last two years, we also achieved record high government revenue, amounting to RM207 billion in 2012. We have also been successful in improving our fiscal position over three consecutive years since 2009. Our economic growth in 2012 was 5.6 percent, up from 5.1 percent for the previous year, an achievement made more remarkable in the midst of a global economic slowdown.

The ETP has only just concluded its second year and we are pleased to report that we have been able to successfully sustain the momentum of implementation and results.

7. Pakatan has also repeated its accusation that Pemandu should set the 2020 target on GNI per capita in US$ and not in RM. Our domestic income and expenditure are in Ringgit. Would it not make more sense for us to have our GNI per capita reported in Ringgit?

From the beginning and throughout its implementation the ETP’s target has been towards achieving a high income nation status for Malaysia by 2020. Our high income target is based on the amount set by the World Bank, which classifies all countries with a GNI per capita of above a certain fixed threshold as “high income”. The standard currency used by World Bank to measure high income threshold is in US$.

By 2020 the value of this threshold is projected by Pemandu to be US$15,000. This is derived by using the CAGR of the historical high-income threshold by World Bank, for which the GNI per capita of high income for 2020 is computed to be US$15,000.

We have repeatedly explained the rationale on many occasions though there are a few who choose to interpret otherwise.

8. Pakatan has alleged that Pemandu’s projection of US$15,000 is invalid, in moving the nation towards high income by 2020.

There must be a fixed target that we need to set our sights on. Our goal is to achieve high income status and the high income threshold is determined by the World Bank. We took the annually revised historical threshold for high income classification and projected it towards 2020 based on the regression forecast of two percent, to arrive at approximately US$15,000.

This is a perfectly valid way of projecting into the future for planning purposes, and Pakatan’s politicking over the approach and figure is disappointing and destructive. It could be that the Pakatan economists are clueless as to how they would calculate the high income threshold. We urge them to put their efforts to good use by openly sharing with the nation, their detailed plan for implementation to take us to high income in the soonest possible timeframe.

9. Pakatan politicians have also accused the federal government of irresponsibly increasing public sector debt though off balance sheet borrowing via NFPEs.

The government only borrows for investment purposes and this applies for borrowings for on-balance sheet as well as off-balance sheet.

The increase of off-balance sheet borrowings in the last few years has been entirely due to investments in infrastructure and productive assets that serve to benefit the country for the future, and generate revenue.

The Golden Rule states that ‘over the economic cycle, the government will borrow only to invest and not to fund current spending. In layman’s terms this means that on average, over the ups and downs of an economic cycle, the government should only borrow to pay for investments that benefit future generations.’

Borrowings for investments such as the Rapid and MRT projects are carried by the companies and their debts are serviced by their own earnings, not by the government.

Strictly speaking, conflating the government’s contingent liability with its debt is a technical error. Under the financial reporting standards used in Malaysia and aligned with international standards, contingent liability is only recognised if contingencies are actually realised. That is why they are termed as ‘off-balance sheet’ in the first place.

It would do well for Pakatan economists to acquire a better grasp of the basics of accounting practice before stepping onto the soapbox.

10. Pakatan also accuses that Pemandu should not have calculated private investment growth based on the current price series and instead should have adopted the convention for growth rate calculations

We use current prices in the planning and operational process of the work we do, as business and investors also use current prices instead of constant prices. Constant prices are primarily useful for economic analysis.

A business or an investment decision cannot be based on historical constant prices as the business and investment community simply do not use constant prices in their dealings.
This is also reflective of why DOS reports their national accounts and growth in percentage terms in both current and constant prices.

11. Is Pemandu concealing sluggish exports and imports by citing total trade numbers?

The fact that import growth is outpacing export growth, resulting in a reduced trade surplus, must be seen in the context of the overall economy. We are investing for the future. Our reduction in the trade surplus is due to growth in imports of capital goods and equipment, as this is done to produce goods which can then be traded. This is reflected on the growth of our investment, both from domestic and foreign sources.

However, if the trade surplus is predominantly due to imports of consumption goods, it is not value accretive to the domestic economy. In our case, the growth trend of consumption goods imports have not deviated from its trend over the last 10 years, compared to the substantial shift in imports of capital goods starting from 2010, signifying a surge in investment.

The Performance Management and Delivery Unit (Pemandu) was formally established on Sept 16, 2009 and is a unit under the Prime Minister’s Department.