Source: The Star
Date: 28 March 2011
BANK Negara’s annual report is always a welcome read for its deep analysis and professionalism.
Governor Tan Sri Dr Zeti Akhtar Aziz and her staff have long enjoyed a reputation for integrity in their assessments of the state of the economy.
However, in making projections for the future i.e. for 2011 and further on, there can be optimistic and pessimistic or neutral assumptions made.
Hence, I believe that this time around Bank Negara has veered too much on optimistic forecasts.
Estimating economic growth at 5%-6 % is not only quite ambitious but playing safe, as the margin of error in the projections are about 20% (between 5% and 6%)!
Given the grave uncertainties of the global economy and the fact that we are an open economy (176% of the GDP in 2010), we need to be much more cautious and less complacent.
Bank Negara should not want to be too generous in socio-economic and political assumptions and then give our businessmen and critics some grounds to question the credibility of their analysis.
This can raise issues of national and international confidence especially in the critical private sector’s role in both domestic and eforeign investments.
For instance, what is the basis for estimating private investment growth at 9.7% this year. Have the Government and Economic Transformation Programmes really been significantly impacting the economy so far?
With inflation projected at a higher and wide average growth of 2.5% to 3.5% this year, how do we assume that private consumption can grow strongly by 6.9%?
The actual inflation figures have always been viewed cautiously if not with some suspicion.
Now it is feeling worse as the ordinary consumer feels the pinch of rising prices in the dry and wet markets.
Some senior officials may not fully appreciate these rising prices as they don’t shop themselves!
How do we also think that employment will improve when we are grappling with the problems and relatively low salaries, poorly qualified graduates, the brain drain and the high corruption, all of which do not promote growth and employment.
We have to increasingly be concerned with the total socio-economic environment, and not purely economic factors that have a powerful influence on our national goals for better growth, employment and income distribution.
What about the negative effects on investment and consumption and even exports, due to our problems arising from religious intolerance, racial animosity and injustice, unacceptable high crime rate, deteriorating environment and too much politicking etc?
I think the danger in making economic projections lies in inadequate appreciation of some of these serious imponderables and the global uncertainty in economic, finance and security. These can adversely affect our somewhat high expectations and undue confidence,
Hence, I would urge caution and stress the need for us to do even more to urgently overcome underlying fundamental problems that can erode our confidence for optimistic socio-economic projections.
TAN SRI RAMON NAVARATNAM
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