RECENTLY, it was announced that the median salary in the country has increased by 6.6%, from RM4,585 in 2014 to RM5,228 in 2016.

Like those previous announcements of 5.7% GDP growth in the first half of this year and the achievement of being 23rd in World Economic Forum’s competitive rank, the median salary increase is not indicative of our economic wellbeing.

They are nothing more than mere cosmetics and propaganda by the BN government to feed Malaysians with the illusion that all is well.

When we read these reports alongside others such as rising inflation rate and depreciation of our currency, we will get a more accurate picture of our economic situation.

The impact of RM’s devaluation

Devaluation of our money and inflation are not abstract figures, irrelevant to economic wellbeing. They tell us how small the value of our money has become.

The following illustration shall make the point.

The exchange rate in January 2014 was US$1 to RM3.34. You just got married and earned the median salary of RM4,585, equivalent to US$1,373 back then.

If the monthly expenses for a family to raise one child was US$600, you could afford to have two children. So you and your spouse planned for two children.

By December 2016, the second child arrived. Your median salary increased by 6.6%, earning RM5,228. However, with the exchange rate at RM4.48 per US$1, your pay was valued only at US$1,167.

Assuming there was no inflation, the expenses for raising one child remained the same at US$600. Nonetheless, you could not afford to have two children in 2016, even with the 6.6% median salary increase!

If we include inflation into the picture (3.15%, 2.1%, 2.09%, and 4.1% respectively in 2014, 2015, 2016, and first half of 2017), our money’s value becomes even lesser.

Many Malaysians are caught in this situation. The increase in median salary does not mean Malaysians are getting wealthier.

When we take into consideration the devaluation of our currency and inflation, we see that the increment is not high enough to cushion the impact of RM’s depreciation.

Moreover, the impact is extensive. Not only has our hard-earned income become lesser in value, our savings, investment, insurance, and Employees Provident Fund (EPF) are all affected.

The total accumulated contributions in the EPF in 2014 was RM598 billion. With exchange rate of RM3.34 per US$1, that was equivalent to US$179 billion.

By the end of 2016, the EPF had RM704 billion, which was an increase of RM106 billion from 2014. However, with the exchange rate of RM4.48 per US$1 last year, that amount was valued only at US$157 billion.

Our EPF, although rose by RM102 billion, lost monetary value of US$22 billion in two years!

As prices do not decrease alongside the value of RM, things become more expensive. Our salary, savings, and EPF, even with increment and dividend return, simply could not catch up with the rising cost of living due to devaluation.

Everyone’s wealth, since the last general election, has been significantly reduced, merely through devaluation of our currency!

The federal government has been very quiet about this. They only announced about the median salary increment, the recorded 5.7% GDP growth, and the 23rd competitive rank, as if these are trophies of their competency in managing our country and economy.

The 5.7% GDP growth, in particular, gives the false impression that the economy is progressing.

Unsustainable growth

How did our GDP grow when Malaysians in general are getting poorer?

Malaysia’s economy is sustained mostly by consumption, at 66% of the GDP. Private consumption alone was 53.2% last year. Consumption alone grew by 6.9% in the first half of this year, compared to 5.7% in 2016.

If RM did not depreciate so drastically, and there was steady increase in our income, then this consumption growth is healthy for the economy.

Yet, as shown above, the devaluation of RM has brought down the value of our income, savings and EPF. Our disposable income and purchasing power have reduced. Families that used to be able to raise two children two years ago are now struggling.

If we cannot afford to spend as we used to, how then did our consumption still grew in the first six months in this year? The answer is: debt and loan.

Many Malaysians who could not afford to spend like they did in the past continued to do so by taking on debt and loans. There are six item comparisons between the first half of 2016 and of 2017 that support this point.

First, the total spending via credit card increased by RM1.6 billion. More spending was done through debt.

Second, late payment of outstanding credit card bills (more than three months but less than six months) has increased by RM124.59 million. More people were delaying their card payment, a sign that people struggled to repay card debt.

Third, the total loans disbursed by banks to all sectors increased by RM23.7 billion. The economy was stimulated through large amount of borrowed money.

Fourth, the total loans disbursed by banks for households or domestic consumption alone rose by RM4.8 billion. More loans are taken up by families.

Fifth, the amount of loans that cannot be repaid in full or in part has increased by RM9.2 billion, from RM141.7 billion to RM151 billion. A sign that more people across all sectors struggled to service their loans.

Sixth, the amount of household loans that cannot be repaid in full or in part has risen by RM3.1 billion, from RM52.8 billion to RM56 billion. More families struggled to repay their loans.

These six indicators show that a large part of the GDP growth was not driven by existing means but by borrowed money.

In other words, the 5.7% increase in GDP, given the drastic depreciation of the ringgit, is not a sign that the economy is progressing. Instead, it is the result of Malaysians spending beyond our means through debt and loans.

A debt-driven GDP growth is unsustainable. It is a bubble waiting to burst, similar to the 2008 subprime crisis when large number of people purchased property that they could not afford.

The American GDP growth in the three years prior was 6.52%, 5.12%, and 4.4%. Then came 2008 and the country found itself in the worst financial meltdown since the 1929 Great Depression.

It is unlikely, with the implemented measures by Bank Negara, that Malaysia will face such economic shock. Nonetheless, moderating credit can only do so much. Without stable currency, our economy will die a slow death.

Saying that the median salary increase, GDP growth, and competitive rank are indicative of our economy’s wellbeing is fooling Malaysians into believing that our financial standing is still rosy when the monetary value of our income, savings, and the EPF have dropped significantly. – October 11, 2017.

* Joshua Woo Sze Zeng is a councillor with the Seberang Prai Municipal Council (MPSP).

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.