Someone asked me about the difference between government fiscal management and economic growth. The question was: why previous government have bad fiscal management but a relatively high economic growth?
Thread on Economic 101
Thread on Economic 101
Footnote: fiscal management means how government manage its revenue and its expenditure to work on a yearly basis. Whereas economic growth is where we usually look at Gross Domestic Product (GDP) growth rate.
FYI, our economic growth is relatively high compare to our neighbouring countries. In 2017, We grew at 5.9% whereas singapore grew at 3.6%, thailand grew at 3.9%, and indonesia grew at 5.1%.
GDP growth rate is one of indicators to know if your economy is doing good or not. For example, if you are having fever, using thermometer is one of the measurements to measure your fever. But thermometer is not the only way to know if you are sick right? Same goes to GDP growth.
GDP growth is just one of the signal to know if our economy is doing well or not. Hence, based on the numbers given by Department of Statistics Malaysia, our economy doing relatively well compare to others. However, what is the connection with government fiscal management?
Government fiscal management is a part of economic growth. meaning, even if someone screws the government finance, a country can still achieve growth through higher consumption, investment, and/or net export.
Theoretically, economic growth in Malaysia is calculated by adding 4 components in the economy: Consumption + Investment + Government spending + net export. government fiscal management falls under government spending. Whenever the gov spend, it will help to grow the economy
Hence, it is possible for a country to achieve growth statistically without good government fiscal management.
Some might ask "if means the more government spend, the higher the economic growth? So if they boros until hutang keliling pinggang also good for country la?"
Well the answer is depends. That is why I mentioned early that GDP growth is just ONE of the indicators
Well the answer is depends. That is why I mentioned early that GDP growth is just ONE of the indicators
GDP growth is not and should not be the sole measurement to know if our economy is doing well or not. We Should look at other indicators such as inflation rate, youth unemployment rate, government debts, and many more
In term of economic growth, we can fairly say that there is not much string to pull to push growth higher than 6% for now, other than strengthening our rule of law and regain international confidence to promote the domestic economy and remain growth at 4%-6%.
If Pakatan government manages to strip the noise of 1MDB AND has a solid structural solution to prevent from the next 1MDB to emerge, foreign investor confidence will become higher and thus be pulling more direct investment in the long run.
That is why for an economy to flourish, it is not just about numbers and statistics. Strengthening our rule of law is and will strengthening our economy in the long run.
