A STRENGTHENING ringgit and higher share market do not mean better times for Malaysians, said an economist.

DM Analytics founder and chief economist Dr Muhammed Abdul Khalid said the two factors were not the only indicators of a recovering economy. 

“Just because the ringgit strengthened from RM4 to RM3.9 to the US dollar does not mean the economy is in good shape. Those who say so have poor memory and narrow thinking.

“They forgot that between 2011 and last October, the ringgit fell almost 40%. In 2016, the ringgit fell 5%, and the year before that, it fell 23%. The ringgit is still weak compared with a few years ago,” he told The Malaysian Insight in Kuala Lumpur. 

Muhammed, who authored The Colours of Inequality: Ethnicity, Class, Income and Wealth in Malaysia, said more reliable indicators of a recovering economy included improved skilled job opportunities, wage increases, improved living standards and a more equitable distribution of wealth.

“We need to take a long-term view. It’s not just about having a weakened US dollar. In fact, our currency has weakened against that of some of our neighbours.

“Since 2012, our currency has weakened compared with the Filipino peso, the Thai baht and we’ve fared worse even against Bangladesh’s currency,” he said. 

Earlier this month, the ringgit rose to its highest level to the US dollar since last August due to rising crude oil prices. 

Some economists have said the coming 14th general election (GE14) and strengthening of the ringgit caused the rise in the FTSE Bursa Malaysia KLCI Index, which recorded its best performance this month. 

Muhammed, who previously served with Khazanah Research Institute (KRI) and the Institute of Strategic and International Studies (ISIS), said if rising stock market indexes were used as an indicator of a good economy, then Venezuela’s economy could be used as a comparision. 

“Last year, which country saw the largest rise in its stock market? Venezuela rose almost 4,000%. It’s economy shrank 20% the previous year,” Muhammed said. 

GDP or the people’s well-being?

According to Muhammed, in assessing how well an economy is doing, a fundamental aspect that needs to be considered is: are lower income groups benefitting?

“I stress less reliance on GDP, like those bank analysts. They are engrossed with GDP.

“GDP only reflects the output of a country. It does not tell us if the growth is due to increasing debt, whether we have polluted the forests and rivers or whether the growth is truly benefitting the people.

“Cutting down tress so we can export more timber, polluting rivers so we profit when we export bauxite and so on may be good for GDP numbers, but is that what we really want?

“A few years ago, Italy’s GDP increased 1% because they added prostitution and drug sales into its GDP tabulation.

“GDP is not an indicator of the people’s well-being. Equating GDP with that is rather foolish. The issues on the ground – jobs and equal opportunities – that’s more important,” he said. 

Muhammed said although Malaysia’s economy growth was projected to increase in 2018, he was doubtful that lower-income earners would experience any improvements. 

“The government has the right goals, as outlined in the 11th Malaysia Plan, but it should be judicious in implementing those policies. 

“One good indicator would be that lower-income households (B40) would benefit more compared with the middle or upper classes,” said the Penang-born economist. 

According to Muhammed, the economy of a country is in good shape when all strata of society benefit.

“Everyone should benefit, not just those at the bottom, but those at the top as well. However, the effects of economic growth should be higher for lower income groups.

“This has not happened recently. Why do I say this? Because even though, between 2014 and 2016, the economy grew, the gap between the poor and rich didn’t change,” Muhammed said. 

“In fact, data from the Economic Planning Unit (EPU) showed that actual income in the lower income group actually fell, not increased,” he said. 

The 2016 household income report by EPU had showed that share of total income for B40 households fell from 16.8% in 2014 to 16.4% in 2016. 

“So, should we be proud about GDP when the poor are being left behind? The clear answer is ‘no’.” – January 21, 2018.