Malaysia's ambitious GDP blueprint will do little to dispel the credibility blues that have beset its government. Rather than be awed by Prime Minister Najib Razak's vision of prosperity, investors will remain nervous about the slide in the country's currency turning into a rout.
Presenting the Southeast Asian nation's 11th five-year plan in parliament on May 21, Najib vowed to raise per-capita income above $15,000 by 2020. Last year output amounted to less than $10,000 per person. An improvement of this magnitude would gain Malaysia an entry into the club of advanced economies. However, it has taken the country as long as a decade to make such gains in the past. It's hard to see how the commodity-exporting economy will beat anaemic global demand to become so much richer so quickly.
A bigger reason for scepticism is the sorry state of governance. A financial scandal at state investment fund 1MDB has undermined Najib's authority. Anwar Ibrahim, the main opposition leader, has been packed off to prison on sodomy charges. The government is using a sedition law to silence journalists. The simmering tension between the majority Malay Muslims and the minority Chinese and Indian communities shows no sign of abating.
Even with solid GDP growth of 5.6 per cent in the first quarter, Malaysia suffered capital outflows. The ringgit has lost 12 per cent of its value against the US dollar in the past 10 months. If the US Federal Reserve does raise interest rates this year, the risk of a sell-off in Malaysian assets - particularly bonds - is high.
One reason for optimism is the recently introduced goods and services tax, which might lessen the government's reliance on revenue from ageing oil and gas resources. Even then, cutting federal debt to 43.5 per cent of GDP by 2020, from over 53 per cent now, will require a surge in output.
That's where Najib's plan looks most fragile. Malaysia's faltering political institutions may not sustain either the 9 per cent annual expansion in private investment or the 20 per cent jump in labour productivity over five years upon which the optimistic projections are based. Those credibility blues mar the prime minister's bold blueprint.
Presenting the Southeast Asian nation's 11th five-year plan in parliament on May 21, Najib vowed to raise per-capita income above $15,000 by 2020. Last year output amounted to less than $10,000 per person. An improvement of this magnitude would gain Malaysia an entry into the club of advanced economies. However, it has taken the country as long as a decade to make such gains in the past. It's hard to see how the commodity-exporting economy will beat anaemic global demand to become so much richer so quickly.
A bigger reason for scepticism is the sorry state of governance. A financial scandal at state investment fund 1MDB has undermined Najib's authority. Anwar Ibrahim, the main opposition leader, has been packed off to prison on sodomy charges. The government is using a sedition law to silence journalists. The simmering tension between the majority Malay Muslims and the minority Chinese and Indian communities shows no sign of abating.
More From This Section
One reason for optimism is the recently introduced goods and services tax, which might lessen the government's reliance on revenue from ageing oil and gas resources. Even then, cutting federal debt to 43.5 per cent of GDP by 2020, from over 53 per cent now, will require a surge in output.
That's where Najib's plan looks most fragile. Malaysia's faltering political institutions may not sustain either the 9 per cent annual expansion in private investment or the 20 per cent jump in labour productivity over five years upon which the optimistic projections are based. Those credibility blues mar the prime minister's bold blueprint.