Even Greece is a high-income nation

IN the research on high-income economies as defined by the World Bank, a startling fact came out. Among the countries that fall into this bracket is Greece, the country that could trigger the next global financial crisis if it defaults on its debts.

Greece has been a thorn in Europe’s economic recovery for the past six years. It has seen three changes in governments and the population seeing their lives being conditioned to living in austerity because the country is struggling to meet its debt obligations to international lenders.

The pensioners in Greece have seen their pension payments bring reduced by more than half over the last six years to the extent that many are moving away from big cities to contend with a lower cost of living.

The government 10-year debt paper has a yield 10.94%, indicating how risky it is to investors. In contrast, the yields of countries such as Germany, which is Europe’s economic power house, carries a yields of 0.6%.

So it’s no small wonder that many cannot relate when Prime Minister Datuk Seri Najib Tun Razak proclaimed that Malaysia was on track to becoming a high-income nation when delivering his 11th Malaysia Plan speech in parliament.

The year 2020 is just five years away when the target is Malaysia’s gross national income (GNI) per capita to hit US$15,690 (RM54,100). In the process, the average monthly household income is to rise from RM6,141 in 2014 to RM10,540.

According to World Bank standards, a high income nation is when GNI per capita – which is the total income earned per year divided by the population – hits US$12,746.

Greece is among the countries with a GNI per capita of more than US$12,746, according to World Bank statistics.

The average Malaysian is probably unfazed with the number so far.

Apart from numbers, there were just too many distractions on the Thursday morning when Najib presented the 11th Malaysia Plan.

For a large section of the local audience, a video clip of Deputy Prime Minister Tan Sri Muhyiddin Yassin taking yet another swipe at 1Malaysia Development Bhd (1MDB) during a function organised by Umno was the talking point. Not the 11th Malaysia Plan.

A colleague noted that the most read stories on Star Online, which is a credible gauge of readers’ interest, was about the Muhyiddin video.

The attention of the more sophisticated investors were trained at the stock market in Hong Kong where the talk of the town was on the collapse in the share price of Hanergy Thin Film Power Group Ltd (HTFP), wiping out US$19bil in its market capitalisation in just 24 minutes.

The speed of HTFP collapse once again brings to forth the question of governance and quality of earnings of China companies who are listed outside that country. Similar sentiments bog down companies from China who are listed on Bursa Malaysia.

They don’t command lofty valuations although the balance sheet looks healthy. The China companies tend to sit on cash but dividend payouts are hardly stimulating to investors looking for some returns on yields.

Numbers don’t lie. But they also don’t tell the whole story.

While the 11th Malaysia Plan has set some lofty targets to make Malaysia among the high-income nations in the world, there is also the grim truth that some segments of the population would be earning less than the average income per household of RM10,540 per month.

According to the study, the bottom 40% average monthly household income, which is RM2,537 now, is expected to move up to RM6,141. Can that be achieved? Nobody can really tell for sure because the 11th Malaysia Plan is just a plan.

Apart from income, there were a slew of measures being planned to put Malaysia on the road towards achieving the Vision 2020 objective. It ranges from education to improving labour productivity and increasing the share of compensation of employees in the gross domestic product (GDP) of the country. In this respect, a higher share of compensation from the GDP indicates wealthier workers.

For the first time ever, the Government has also set objectives for the Malaysian Wellbeing Index (MWI), an indicator of improvement in the well-being of the general population.

But being a high-income nation is more than just numbers and policies.

The normal people on the street cannot relate to numbers easily.

But what they can relate to are issues such as governance of the public sector, accountability in handling public funds, quality of education, opportunities for the working population and many other aspects of improving the quality of life.

For instance, the next generation of working class must not only know but truly believe that there are opportunities if they remain in Malaysia instead of seeking a job abroad.

They must be convinced that they would be treated fairly and the Government would account for every dollar that they pay in taxes. They must be convinced that there would be no wastage and leakage of public funds.

A look at the list of nations that have achieved high-income nation reveal some interesting names. It includes the likes of Brunei, Cayman Islands, Saudi Arabia, Puerto Rico, among others. They join established nations such as the United States, United Kingdom, Australia, New Zealand, Norway, Finland and Germany.

On the other hand, among the countries classified as lower-middle-income economies are India and Indonesia – two countries where the GNI per capita is between US$1,046 and US$4,125.

These are countries that fall behind Greece and Malaysia in terms of ranking in the World Bank list of high-income nations.

But both India and Indonesia are the most exciting prospects for flow of funds into emerging markets. Fund managers love to put their money in these countries – partly a reflection of the confidence they have in those countries. It is also to benefit from the rising middle-class affluence.

Although the heads of both India and Indonesia are under scrutiny for slowing down in their efforts to reform the country’s policies, nevertheless the countries continue to be a favourite among funds.

Being a high-income nation is just one of the many facets to a developed nation. It must be accompanied with a high level of governance, responsible public policies and great accountability in handling public funds. We should take heed of the lessons of Greece.