Tag: transparency

Categories
Economics

[2990] Malaysia’s GDP advance estimates: outdated consensus, errors and institutional transparency

The Department of Statistics has been releasing GDP advance estimates publicly since the middle of last year. The next advance quarterly release is set for next week on October 21 and that will mark one year since the practice began. The actual Q3 GDP numbers themselves will only be made available publicly in mid-November.

I want to highlight that advance releases do three things in the market.

First, it messes up almost everybody’s forecast rounds and their plan for press exposure. I know more than a few economists are still gearing their forecast process around actual GDP release date instead of that of advance estimate. While this is understandable as many are waiting for various data to come out before making their final quarterly GDP forecast, this leaves consensus numbers being gathered after advance estimates are out, which in turn makes consensus outdated and less informative than it used to. After all, who would be impressed when a forecast is released after the advance estimates?

Second, maybe there is still a room to be had to keep existing forecast processes since there are errors to the advance releases. But here so far, average error has been minimal. Mean absolute error for the past three quarters were only 0.25 percentage point, although the largest error is quite big. Currently, the absolute error for individual quarter that we have are:

  • Q3 2023: 0.17 percentage point (ppt)
  • Q4 2023: 0.43 ppt
  • Q1 2024: 0.28 ppt
  • Q2 2024: 0.10 ppt

But the two points I think are minor concerns. The first is a mere inconvenience and easily rectifiable, although it necessarily leads to more work. For the second point, I have some confidence the MAE will get smaller in the future.

The third point is more important: advance releases increase transparency in data and therefore confidence in public institutions. As much as there is science behind the GDP data collection and processing, there are still subjective decisions need to be made in finalizing the numbers. These decisions however subjective are mostly innocent but it does leave space for abuse in some circumstances. Advance releases limit that room for subjectivity by anchoring the final numbers to the former numbers.

Categories
Economics

[2819] Minutes to the MPC a trade-off between transparency and frank discussion

Bank Negara Malaysia does not publish the minutes to its Monetary Policy Committee meetings, unlike the Federal Reserve in the United States. This keeps the rationale behind rate-setting decisions murky to outsiders sometimes.

A few economists in the past several years have bugged the governor on the matter. Acquaintance Jason Fong from RAM Ratings yesterday asked Zeti whether BNM would release its MPC minutes. She provided the same answer she gave last year — I think, also asked by Jason — that maybe in the future, the central bank would allow certain PhD students to go through the minutes for their thesis. The short answer is, disappointingly, no.

The demand for transparency goes by back to professional economists’ attempt at understanding various decisions taken by the MPC. Detailed minutes would reveal who thought what, and explain the MPC statements clearly. A more transparent process would ultimately helps in projecting the Overnight Policy Rate or other aspects of monetary policy.

But yesterday, I suppose since it was her last big briefing with all the economists in town, she felt a bit generous and volunteered a longer answer. It is a good response I think, highlighting the trade-off between transparency and frank discussion.

She reasoned having published minutes could keep participants from discussing various issues freely during the meeting. Some may even be encouraged to state something just to be on record without sharing what he or she really thinks. The end result could be one where not all views will be shared and not all views are actually honest, leaving the final decisions incapable of aggregating views of the committee members accurately.  Zeti said MPC decisions are currently reached through consensus, which means, I guess, no voting.

I understand her point. I would also add having secretive element into the process protects meeting participants from political backlash, much in the spirit of Chatham House Rule, where privacy is the key to robust and frank discussions.

While I do not disagree with the governor, I can think an instance where her point could be weak.

The MPC can get away with that reasoning because there is a lot of trust in the competency and the motive of the committee members. If the next governor is one who does not inspire confidence, I think the importance of transparency will outweigh the importance of having frank and robust discussions.

These days, after all, the trust deficit is not merely a mere gap anymore. It is a gaping hole.

While Zeti is respected in the industry and everywhere else, the next governor — as well as the Finance Minister (the office which effectively appoints the governor) who is also the Prime Minister of multiple conflicts of interest —presents us all with a big question mark.

Categories
Economics

[2232] Of fiscal stimulus, timeliness and transparency

Although the debate on fiscal stimulus has died down in Malaysia, I am still very much amused, if not outright dismissive, of a number of arguments made by advocates of stimulus. One argument is related to transparency: stimulus has to be transparent. Although the argument for transparency is a generic one and many have voiced it, it was reiterated by somebody well-known in Malaysia recently. I am thinking of Nazir Razak of CIMB but at 3 o’clock in the cold Sydney, I have lost all desires to look for the article.

My criticism of having a timely stimulus and transparency is summarized in one word: naive.

Fiscal stimulus has to be timely, especially when there is no automatic stabilizers with arbitrary stimulus. If it takes too long to implement, or in other words, it takes the government too long to spend the money, there is a good chance that the stimulus will be obsolete by then. By the time the money is spent, the market situation has already improved that the stimulus is not required any more.

In fact, untimely implementation might disrupt recovery through, for instance, crowding out process by the government.

Unfortunately, transparency does not run parallel with the concern of timeliness.

Why transparency is inconsistent with timeliness?

Simple.

Transparency requires processes. Reporting is paramount. In other words, bureaucracy.

Red tapes have been derided as suffocating but it does play a huge role in rule of law. It is only through bureaucracy can controls be exerted on spending. Through those controls based on known clear rules and not through arbitrary acts which are susceptible to  abuse compared to rule-based system, transparency is achievable.

That rule-based system aimed at transparency is more convoluted than the paragraphs I have just written before this one. It take time to go through the bureaucracy. Hence, the issue of timeliness.

So, how useful is a stimulus if it is untimely done?

You know my answer.

I am for transparency but I am also a realist here. I understand that if one is concerned with transparency, it is hard to support a timely stimulus.

If you want a timely stimulus, something has to give. It is a dilemma.

Before I am accused of supporting corruption, leakage or anything of such, do note that I do consider those things negatively. Remember, I am arguing against fiscal stimulus, not transparency.

I do not have that dilemma. I am typically anti-stimulus; I cut through it.

Stimulus advocates cannot accuse me of giving nontransparent practices a blind eye. For those who like to moralize about transparency however, you my dear have a moral problem.