My Economic Vision For Malaysia
1. As we approach Budget 2018, I would like to share some thoughts about the challenges Malaysia has faced over the last few years and how I have tried to steer our country towards a prosperous, sustainable and inclusive future for all.
2. I want to explain my thinking ahead of the Budget on Friday and the plans we will announce then which, as always, will be for the benefit of all Malaysians.
3. My entry into the world of politics was abrupt and unplanned. It was prompted by the sudden death of my father, Tun Abdul Razak Hussein, when I was 23.
4. I had idolised him for his achievements and for his relentless dedication to see our nation and our people progress. Since then, my goal in life has always been to do my best to follow in his footsteps and serve the country.
5. Like my father, I too want to put Malaysia in the global stage; to be among the top 20 nations in the world by 2050. No accomplishment can ever be greater than putting Malaysia on the best track for its future. That is my vision for our Transformasi Nasional 2050 (TN50) initiative.
6. And we have certainly made huge progress. This is why the World Bank endorsed what this Government has been doing, and why it concluded in its last country report: “The Malaysian economy is progressing from a position of strength.”
7. Yet when I became Prime Minister in 2009, the economic challenges we faced were enormous. When I took office that April we were right in the middle of the great global recession, the worst since the 1930s. Being an open economy and dependent on international trade, Malaysia was severely affected. Our exports dropped 20% while our economy contracted sharply by 6.2% in the first quarter of 2009.
8. There were serious structural and legacy issues that had led to low wages which did not catch up to inflation, expensive cars, high poverty rates, income inequality, frequent highway toll-rate hikes, declining education standards, poor public transpiration, lop-sided Independent Power Plant (IPP) agreements, and rampant crony capitalism. All of this combined was damaging the people’s welfare.
9. We were also over-dependent on oil and gas and commodities, and development in the country was unequal, with Sabah, Sarawak and the Peninsular east coast states lagging behind. The situation required decisive action and clear direction.
10. So, first of all we immediately implemented two big economic stimulus packages worth RM67 billion to pump money into our economy, to revive it and save it from an even deeper contraction.
11. Through this decisive action we saved the Malaysian people from the pains of going through a deep recession, such as happened in 1997. Then, the KL Stock Exchange plunged by more than 50 percent, thousands lost their jobs, businesses went bankrupt, and there was real and widespread suffering.
12. The Global Recession of 2008-2009 was devastating to many countries, including advanced nations that have still not recovered today. Because we were swift to act, however, Malaysians were relatively shielded from its impact. It was nothing like 1997.
13. The stimulus packages did lead to a 10% jump in our Debt-to-GDP ratio to above the 50% level. But the measures worked and Malaysia recovered quickly. By the year’s end, our economy started growing again. This was a remarkable turnaround.
14. That ratio has stabilised at below 55%, which is well below the level of most developed nations – the UK’s last year was nearly 90%, for instance. The opposition, however, tries to use this increase in debt to mislead Malaysians and claim we are going bankrupt. This is ridiculous. In 1986, Malaysia’s Debt-to-GDP ratio reached 103%, and we didn’t go bankrupt then! This shows that when they speak about the economy, the opposition mostly just spread propaganda and blatant lies for their selfish political interest. This has a name – economic sabotage.
15. Secondly, we knew that we had to undertake wholescale reform. We knew that to escape the middle-income trap and achieve our goal of becoming a high income status nation, we had to have an overarching, prudent economic plan – a roadmap, with key performance indicators and measurable outcomes so that we could test our progress and make sure we were keeping on track.
16. That plan was the National Transformation Programme, with its key component, the Economic Transformation Programme, or ETP. Some people have called that “Najibnomics” – I didn’t come up with the name! But I don’t mind people using the term, as seven years on we can see that the plan – which has the good of the Malaysian people at its heart and is its overriding aim – has delivered, and continues to deliver.
17. Gross National Income has increased by nearly 50%. We have narrowed the gap towards the high income target from 33% to19%.
18. 2.26 million jobs have been created, of which more than one million are high income jobs.
19. This March, our exports reached RM82.63 billion – the highest monthly figure for Malaysian exports ever recorded.
20. Inflation and unemployment have been kept low. Due to a policy of engagement abroad, we have attracted unprecedented levels of Foreign Direct Investment, which shows the confidence the world has in Malaysia.
21. In 2017 alone we have seen 14 business MOUs between Malaysia and China worth RM144 billion, 31 business MOUs between Malaysia and India worth RM158.4 billion, as well as a USD7 billion investment in Malaysia by Saudi Aramco. These will bring thousands of new jobs, transfers of skills, and improved standards of living for countless families.
22. And over that time, despite the huge turmoil in the global economy, the oil shock, and the disastrous recessions that hit much of Europe, almost destroying some counties, we registered year upon year of healthy growth. The World Bank recently revised their prediction for Malaysia’s growth to 5.2% for 2017 – the second time they have done so this year!
23. Those are some of the major milestones the Government and millions of hardworking Malaysians have marked under the plan we put in place in 2010.
24. But there are many, many other more specific moves the Government has taken to improve standards and help the people.
25. We introduced education blueprints for our schools and universities; and now we are seeing our universities starting to move up the international rankings steadily.
26. We are a nation of road users, which is why we encouraged Khazanah Nasional and EPF to buy PLUS Expressway outright in 2010 from the private holders. This means that every Ringgit collected now goes back either to the Government or to EPF account holders.
27. PLUS-owned highways such as the Penang Bridge, the Second Link and the North-South Expressway have also not seen any increase in toll rates since the buyout in 2010.
28. At the same time the roads have been upgraded – for example, large sections of the North-South Expressway have been expanded to three or four lanes compared to two lanes in the past.
29. Other aspects of public transportation had, however, been severely neglected by one of my predecessors. He wasted billions on vanity projects instead of building the world class infrastructure that Malaysia needs, both to attract investors and to serve the people.
30. Under my Government the first phase of the Mass Rapid Transit project was completed at the end of last year, and the second phase of the Sungai Buloh-Kajang MRT Line was launched in July. We now have 51 kilometres of operational line with 31 stations.
31. These projects created 130,000 new jobs, of which 70,000 are direct employment. And best of all, they were completed ahead of schedule and RM2 billion below budget. We are now planning for MRT 2 and 3, while in a few years’ time we will also have the first high-speed rail link connecting Kuala Lumpur to Singapore, which will cut travel time between the two cities to 90 minutes, as compared to more than four hours by car.
32. But it’s not just about the Klang Valley or the west coast. Far from it. Our focus has been on other parts of Malaysia that had been neglected for far too long – because we wanted our development to be fairer, more inclusive, and to raise all sectors of the population and parts of our country.
33. Kelantan, for instance, had been deliberately starved of development funds and deprived of critically-needed upgrades to their water infrastructure for decades by a former leader, just because it was held by an opposition party.
34. To me, this is not fair, as clean water is essential for life and is the right of all Malaysians. Therefore, we helped Kelantan with a water restructuring agreement last year that will cost more than a billion ringgit.
35. The people in Kelantan had also suffered from poor transportation links – resulting in many people having to endure slow, congested and dangerous car journeys when traveling between states.
36. To address this, our Government is building the toll-free Central Spine Road to connect Kelantan with the rest of the peninsula, while phase 3 of the East Coast Expressway will soon extend to Kelantan.
37. The East Coast Rail Link will soon be yet another game-changer for the east coast states.
38. When it comes to Sabah and Sarawak, never has any Federal Government provided as much in the way of yearly allocations and development projects for them – unlike in the past. The Pan Borneo Highway, to take one example, will be a huge spur for development and connectivity in East Malaysia.
39. I strive to be fair to all states – including the opposition-held states. For example, the Government has entered into a water restructuring agreement with Penang and Selangor to help them reduce their state debts and provide much needed revamps of their water supply infrastructure.
40. In the case of Penang, the water restructuring package in 2010 involved helping the state government reduce its debt by RM655 million, while giving them an additional grant of RM1.2 billion to expand a dam. This allowed the DAP State Government to boast that they had reduced their state debt by 95%, although this was in fact due to the Federal Government’s efforts.
41. Our efforts to make sure all Malaysians benefit from a rising economy have helped us register a stunning reduction in our poverty rate. Hard core poverty in Malaysia dropped from 3.8% in 2009 to just 0.4% in 2016. In Sabah alone, we had managed to reduce the rate from 19.7% in 2009 to just 2.9% last year.
42. The people’s income per capita has also increased from RM27,819 in 2010 to RM40,713 in 2017. Our monthly median income has increased from RM4,585 in 2014 to RM5,288 in 2016. And we have also seen an improvement in B40 household income – which has grown to RM3,000 in 2016 from RM2,629 in 2014.
43. As a result, our GINI ratio – which measures income equality – dropped from 0.441 in 2009 to 0.399 last year, the lowest in Malaysia’s history. Malaysia’s income equality has never been better.
44. At the same time, we know that cost of living issues hit those on low incomes the hardest, and this is why we distributed RM5.36 billion in 1Malaysia People’s Aid, or BR1M, to 7.28 million households in 2016, and we introduced the minimum wage.
45. A former leader recently described BR1M as an abuse of government funds – but he should try telling that to the recipients. It is frankly cruel-hearted for anyone in the opposition to talk of taking away a programme that is designed to help ease the burden of millions.
46. Everything we have done has been for the good of the people. And that includes taking many tough but necessary decisions that were not always popular.
47. We needed to rationalise subsidies that were insufficiently targeted. They were blanket subsidies on various goods, such as petrol, which had started during a former leader’s time and had ballooned to unsustainable proportions. By 2012, for instance, fuel subsidies alone had reached RM25 billion and accounted for 13.6% of the total national Budget.
48. Many of the people who benefitted were well-off, rather than the money being spent on those who needed it most. So what we did instead is channel funds to the Bottom 40 in a targetted manner, which we believe is a more prudent and ethical way to distribute public money.
49. We needed to reduce our reliance on revenue from oil and gas, which contributed 41% of Government income in 2009. This left us exposed and overly dependent on a non-renewable resource whose long-term future is in doubt as countries and industries turn to green energy solutions.
50. We were successful in this, and oil and gas supply only 14.6% of Government revenues in 2017. This early decision was fortunate as the crash in global oil prices in 2014 showed.
51. The last time that global prices for Malaysia’s major commodity exports crashed was in 1985. Back then we were unprepared, and our economy quickly entered a deep recession.
52. This time, however, we were prepared, due to the Government’s insistence on ensuring the resilience of our economic fundamentals. Although we were still affected by the global oil price crash in 2014, unlike many similar petroleum exporting countries, Malaysia not only managed to avoid recession but our economy continued to grow.
53. One of the measures that was crucial to this was the Goods and Services Tax, or GST – the source of one of the opposition’s main attack on the government.
54. Many have falsely alleged that GST is an entirely new tax, put in place just for the purpose of bringing in more revenue for the Government. In fact, it was a replacement for the sales and service taxes, which were inefficient, complicated and not working well for either consumers or businesses.
55. If raising revenue was our only intention, it would have been easier to raise existing corporate, income and the sales and service taxes. But doing that would have been bad for local businesses, and off-putting to international investors.
56. In fact, since I became Finance Minister in 2008, we have reduced corporate taxes from 27% to 24%. Personal income tax rates have also fallen, from 28% in 2008 to 24% now for the majority of Malaysians.
57. We also raised the tax threshold so that those whose income is RM4,000 or below no longer have to pay any income tax – unlike in the past, where those who had salaries of even RM2,000 were taxed. These are all incentives for individuals and businesses to excel, as they keep a significantly higher percentage of the fruits of their labour.
58. So GST should not be considered an additional new tax but part of a comprehensive tax reform that is designed to make Malaysia more competitive, to control the black and illegal economy, to reduce tax evasion and broaden the overall tax base.
59. Since Malaysia implemented our GST in 2015, many other countries, such as India and Egypt, have followed suit, while all the Gulf Cooperation Countries – Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates – will implement their GST on January 1 next year.
60. And our economic plan has led to Malaysia’s GST rate only needing to be 6% – far lower than other countries who don’t share our strong economic fundamentals.
61. The vast majority of countries – over 160 around the world – have implemented a GST because they know they need it to make their countries stronger and more competitive. Strangely, the opposition claims not to understand this. They want to abolish it – but with no suggestion about how they would make up the RM41 billion GST raised last year.
62. I also want to be very clear that the claim that GST was necessary to pay for 1MDB is an absolute lie – as the politicians making this false claim know very well.
63. 1MDB in fact played a key role in solving the lop-sided power agreements signed by a former leader. When 1MDB entered the industry, it was the lowest bidder in all its agreements, thus saving Malaysia RM200 billion over the next 20 years. One research house’s report about the revised power agreements was simply titled “No more sweetheart deals”.
64. 1MDB has also funded the construction and upgrades of eight military bases which past governments were unable to do. It has also funded thousands of scholarships and Hajj trips for pilgrims.
65. Now it is true that 1MDB has had its share of problems, and we long ago revamped the management to correct the mistakes and bring it back to financial health.
66. But when the Bandar Malaysia project agreement is signed, you can expect 1MDB to make a decent profit that will more than recover its losses. And the lie that the people have had to pay for 1MDB’s decisions will be nailed once and for all, as after the rationalisation programme is completed it is very likely that 1MDB will have made a profit for the people – not to mention all the corporate social responsibility work it has done over the years.
67. Lastly, I want to address issues around our currency, the Ringgit. When the US suffered from the effects of the Great Recession in 2008-2009, they started reducing interest rates – which led to global funds moving their funds into countries such as Malaysia in search of a higher return.
68. Our Ringgit benefited from this and appreciated 30% from RM3.73 to the US dollar when I first became Prime Minister to below RM3.00 in 2011-2013. However, when the US started to recover from their recession, they started raising interest rates again.
69. This, coupled with the drastic drop in commodity prices, caused our Ringgit to weaken to its current value – which is now another topic that the opposition uses to criticise the government.
70. It is strange that the opposition is now claiming that the current weaker Ringgit is a sign that Malaysia is going bankrupt – when in GE13, the opposition also alleged that Malaysia was going bankrupt despite the Ringgit having appreciated 30% against the US dollar!
71. Pegging the Ringgit and re-imposing capital controls would have been the easiest thing for me to do. Having suffered from a lack of investment after we had imposed capital controls and pegged our Ringgit from 1998 to 2005, however, we decided not to do it again.
72. It is true that the Ringgit weakened amidst the global turmoil and uncertainties since 2014, but there have been positive aspects to that, as our exports and tourism boomed.
73. And while some have painted it as weak, our Ringgit actually performed better than the currencies of many other large commodity exporter countries. As our economy continues to perform well – as all forecasters predict it will – our Ringgit will regain its strength and an appropriate market rate.
74. You won’t hear about all this from the opposition or a former leader. A former leader who is obsessed by power and wanted to continue ruling long into his retirement, and who blamed me for his son’s loss in the race to be UMNO’s vice-president in 2013.
75. I had refused to conform to his ways as I firmly believed that Malaysia needed a new vision, away from the old ways that had led to the serious legacy problems that we had faced before and which were damaging the people’s welfare.
76. As a country, we must move on to the next phase to be a developed high-income country where the standard of living and the quality of life for Malaysians is the top priority. This is my vision for Malaysia – a cause that is much bigger than myself. Malaysia has always punched above our weight, and I believe in our tremendous potential as a country.
77. That potential has been recognised by many international institutions such as the OECD, the IMF and the World Bank. They have repeatedly praised the Government’s macroeconomic management and structural reforms, while a survey co-authored by the Wharton School at the University of Pennsylvania earlier this year declared Malaysia to be the ‘Best Country to Invest In’.
78. All the major credit ratings agencies have reaffirmed Malaysia’s status within the “A” band, and the verdict of the OECD was that: “Malaysia is one of the most successful Southeast Asian economies… thanks to sound macroeconomic fundamentals and its success in transforming its economy into a well-diversified and inclusive one.”
79. These are the results of the economic plan this Government put into place after I took office in 2009. The tough decisions we took were not always popular – but they were necessary, and they have spared Malaysia from the ravages of recession and the turbulence that has afflicted the global economy. We have acted as a responsible Government, always seeking to protect our people and look after their welfare and security.
80. In a few days, I will be presenting Budget 2018 where new initiatives and several major announcements will be revealed to benefit all Malaysians.
81. This Budget will continue to be guided by my goal to correct the problems of the past and to make Malaysia stronger, more competitive at home and abroad; to create a Malaysia that protects the vulnerable and is fair to all: a Malaysia where none of our brothers and sisters are left behind.