Malaysia’s Spectacular Drop in Inequality, is it for Real?

Kamal Salih's Comments - My colleague Dr. Lee Hwok Aun (HA) from the Department of Development Studies at FEA, University of Malaya, wrote this piece which expresses some doubt about recent official figures relating to inequality in Malaysia.

HA together with Dr. Muhammed Abdul Khaleed and I co-authored the first UNDP Malaysian Human Development Report 2013, which was released last year, analysed many of the underlying factors in Malaysian Inequality situation.

The EPU also calculated the Gini Coefficient based on the latest Household Expenditure Survey (HES) instead of the Household Income Survey (HIS) and found that the HES Gini is even lower at 0.33 compared to the 0.401 according to the HIS data.  We had counted that the improved figure is due largely to the debt component in the household fiscal capability (purchasing power) figure.  This is consistent with high household debt levels in Malaysia.  This too should not distract us from Hwok Aun's incredulity at the official inequality assessment.


Lee Hwok Aun

The Malaysian Insider

Published: 16 October 2015 9:45 AM

Income inequality has fallen sharply in Malaysia. The divide between rich and poor phenomenally narrowed the past few years. If only you knew.

Judging by public discourses and perceptions, most people do not know. And most of the time we talk about inequality, we hear the opposite: inequality has been rising and rich-poor gaps are widening.

Writings on our socioeconomic condition, such as the commendable "Rich Malaysia, Poor Malaysians" by Anas Alam Faizli, largely argue that the benefits of economic growth trickle down to the masses much less than the affluence sucked upwards to the rich.

The government knows about this massive decline in inequality; our official statistics plot out the trend. The Gini coefficient, a figure between 0 and 1, is a widely used, simple and effective measure of inequality. The higher the Gini, the more unequal the distribution.

Visualising it helps. Malaysia's Gini coefficient series shows a clear downward trend in household income inequality from 2004 to 2012, after which it falls off a cliff. In 2014, inequality plunged to the lowest level ever.

These calculations are based on the Household Income Survey, a large and nationally representative dataset, and the best resource for computing income statistics. But are we handling the dataset properly?

The latest inequality figures painfully stretches the limits of plausibility. The data have been reported, without any attempt to explain possible causes for such a spectacular outcome. Even if we can rationalise this downtrend in inequality, could it have dropped so steeply?

Kamal Salih on Ringgit Sense TV3

Risk of Global Financial Crash has Increased, Warns IMF

Phillip Inman

The Guardian, Global Economy

Published 7 October 2015, 15.08 BST

The risk of a global financial crash has increased because a slowdown in China and decline in world trade are undermining the stability of highly indebted emerging economies, according to the International Monetary Fund (IMF).

The Washington-based lender of last resort said the scale of borrowing by emerging market countries, whose debts are vulnerable to rising interest rates in the US, mean policymakers need to act quickly to shore up the financial system.

José Viñals, the IMF’s financial counsellor, said the threat of instability and recession hanging over economies including China, Brazil, Turkey and Malaysia was one of a “triad of risks” that could knock 3% off global GDP. The second, he said, was the legacy of debt and disharmony in Europe, while the third is centred on battered global markets that are more likely to transmit shocks rather than cushion the blow.

At the very least, central banks would need to remain vigilant and be prepared to increase their stimulus programmes should difficulties in emerging market countries spill over into the financial system.

Addressing the prospect of an interest rate rise in the US, Viñals said there was little reason to tighten monetary policy before Christmas while inflationary pressures and wage rises remain low. “The risks of a premature tightening are greater than those of waiting two or three more months,” he said.

The warning follows a summer of turmoil in global markets triggered by China’s attempt to increase its flagging exports with a currency devaluation. The move sparked panic in stock markets, which tumbled around the world, as investors recognised for the first time the impact of China’s slowing economy.

Earlier this week, the IMF downgraded its forecast for global growth in 2015 to 3.1%, which would mark the weakest performance since the trough of the downturn in 2009.

Viñals said the IMF’s latest Global Financial Stability report showed western economies had regained some momentum in the past year and reduced their exposure to global shocks.

But those gains were underpinned by low inflation caused by a slump in oil and other commodity prices, with knock-on effects for oil and mineral-rich countries that rely on the income from commodity sales.

The IMF is especially concerned that corporations and banks in some emerging economies continue to rely on massive debt financing to maintain growth, making them vulnerable to further falls in commodity prices and declines in trade.

Malaysia at Risk in Event of Global Financial Crash, Says Report

Malaysian Insider

Published 10 October 2015 10:49 AM

Malaysia is one of several emerging economies at risk in the event of a global financial crash because of its high debts and unstable economic situation, the International Monetary Fund (IMF) said.

In a report by The Guardian, the fund highlighted corporations and financial institutions which relied on massive debt financing to maintain growth, adding that Malaysia was one example of countries allowing their their largest corporations to borrow heavily.

Other emerging economies included Brazil, Turkey, India and Argentina.

IMF financial counsellor Jose Vinals was reported as saying that the threat of instability and recession shadowing such countries could knock 3% off global gross domestic product (GDP).

“A collective effort to deliver a policy upgrade is needed urgently to face up to rising challenges in an uncertain world, to ensure financial stability and better growth prospects. Three per cent of global output is at stake,” he was quoted as saying.

This year, the ringgit has fallen nearly 20% against the dollar and the nation’s foreign reserves dropped by about the same percentage, to below US$100 billion (RM413 billion).

“It’s almost like a perfect storm for Malaysia,” Minister in the Prime Minister’s Department Datuk Seri Abdul Wahid Omar said in a report by Reuters.

A widening political scandal and tumbling currency have steadily taken their toll on investor sentiment towards Malaysia, unnerving its neighbours despite the central bank’s efforts to contain the damage.

Bursa Malaysia has also been wiped out since July, primarily by the escalating political fallout from allegations of graft and mismanagement swirling around indebted state fund 1Malaysia Development Bhd (1MDB).

The scandal has amplified concerns that the country is emerging as the weakest link in a region struggling with falling commodity prices, feeble global demand and impending interest rate rises in the United States. – October 10, 2015.