Zeti Akhtar Aziz: Statistical science for a better tomorrow
Keynote address by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia (Bank
Negara Malaysia), at the International Statistical Institute Regional Statistics Conference
2014 "Statistical Science for a Better Tomorrow", Kuala Lumpur, 18 November 2014.
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Introduction
It gives me great pleasure to welcome you to this inaugural International Statistical Institute
Regional Statistics Conference. This conference takes place at a time of major
transformative change in our region and in the world. The contribution of statistics in this new
and rapidly changing environment has become of even greater importance. In this
increasingly complex world, the availability of high quality statistics is vital in facilitating
decision making for both the private and public sectors. The world is also seeing greater
demands for higher levels of transparency. This has become key for building trust and
confidence regardless of the line and nature of business. The statistics community has
responded to these changes. Immense progress has been achieved in developing the
methodology for generating consistent economic and financial statistical systems. In a world
that has also become more globalised, such progress has brought great benefits to
businesses and policymakers in terms of the availability, comparability, and broad
consistency of economic data across countries. For any economic and financial community,
detailed and comprehensive data are highly important to understand the implications of the
developments taking place. This has prompted greater international collaboration across the
world to contribute towards a greater understanding of the implications of this trend.
Underpinning this is also the high level of professionalism and integrity of statisticians at
national and international agencies.
It is in this recent two decades, that the global economic and financial environment has
become more interconnected, more complex and more competitive. It has resulted in greater
economic and financial integration and more intricate interconnectivities. At the same time,
the world has also become more unstable and less predictable with frequent shocks and
crises. This new and more challenging environment has significant implications for business
and for public policy. Economic agents need to have an appreciation of the multi-faceted
shifts in their environment in order to form the appropriate assessments and make informed
decisions. For policy makers, it highlights the importance of having reliable, relevant and
high-quality statistics to support and pave the way for sound policy decision making. For
statisticians, the challenge is to continuously improve the statistical science towards
facilitating the foundation to build a better future.
My remarks today will be from the perspective of a central banker. Timely and high quality
statistics is one of the important prerequisites for central banks to effectively achieve our
goals of monetary and financial stability, and of fostering the development of a sound and
progressive financial sector. Based on my experience as a central banker for more than
30 years, it requires a deep understanding of the economy and the financial system to make
the right policy decisions. Such policy formulations needs to be based on rigorous
assessments that provides the insights that will guide the decision making process. This is
aided by relevant statistics, and complemented by sound judgement.
Central banks are therefore not only major consumers of statistics, but also producers and
disseminators of monetary and financial data. More importantly, central banks, have placed
much importance on providing sufficient analysis and assessment in conjunction with the
release of statistics. This aims to provide context, avoid misinterpretation and reduce
uncertainty for the economic agents.
Key global trends shaping the universe of statistics
As the world evolves, two key trends have emerged and in turn, created new and diverse
demands, challenges, and opportunities in the field of statistics. First, the steady
liberalisation and deregulation of economies and financial markets have resulted in intricate
interlinkages within domestic financial systems and spanning across borders. While financial
markets have become more interconnected globally, capital and labour mobility across
borders have also intensified while trade and investment barriers have been dismantled. This
has resulted in closer proximity to growing markets and facilitated the creation of globalised
supply chains by corporations.
These developments have had wide ranging benefits, including better risk diversification,
improved efficiency and greater economies of scale. However, it has also increased the risks
for cross-border contagion and accelerated the transmission of external shocks. The rapid
transmission of the financial crisis in the major advanced economies in 2008 to other parts of
the world demonstrates the significance of these contagion effects.
These increasingly complex global networks have given rise to demand for new sets of data
to enhance our understanding of the interlinkages and to assess the implications. While
many global initiatives on enhancing statistics were the result of financial crises that
happened in the 1990s, we now find ourselves recognising that far more needs to be done
following the much worse and devastating global financial crisis that has resulted in
significant costs around the world. The recent crisis has tested policymakers to the limit and
has placed greater demands on the community of statisticians.
While the lack of data was not the root cause of the global financial crisis, it did reveal
serious data and information gaps in key areas that might have helped the authorities to
measure, understand and respond better to risks in the international financial system. Even
for the most advanced statistical systems, such as in the US and Europe, the crisis
highlighted "black holes" in data that now need to be addressed. Closing these information
gaps involve an important and heavy work agenda for the years to come. More efforts are
now underway to strengthen cross-country data collection and close these information gaps.
The BIS international banking statistics is for example being expanded and refined to capture
the entire balance sheet of internationally active banks on a consolidated basis, and with
greater granularity. On-going initiatives by the Financial Stability Board (FSB) and the
International Monetary Fund (IMF) to close these information gaps, particularly at the
individual bank level for systemically important global banks, are also significant steps in this
direction.
Another key global trend that has elevated statistical science to a new level is the rapid
innovation and advances in information and communication technology. It is staggering that
90 percent of the world's data was created in this recent two years alone1. With the rapid
expansion of data storage capacity2, growing global connectivity which includes almost
3 billion internet users worldwide and double-digit growth rates in the mobile broad-band
market, there is no doubt that the swift pace of technological developments has not only
facilitated the rapid collection of new statistics but also led to more effective measurement of
information.
Improvements in technology have brought tremendous benefits to most segments of society.
Amid the wider availability of information on financial planning products, households now
have the potential to make better savings and investment choices. For businesses, the
improved availability of timely and granular information has been a crucial enabling element
for companies to anticipate new trends, gauge market viability and customise products and
services to changes in market conditions.
Innovations in Statistical Science have enhanced social welfare and policy formulation
From the central bank's perspective, it is clear that advancements in the statistical field have
spurred an even more rigorous and scientific approach to surveillance and policy formulation.
Given that policymakers are often faced with wide-ranging, difficult and significant trade-offs,
sound statistical analysis has a fundamental role in managing both short- and long-term
policy challenges. In the current environment, forward-looking macroeconomic and financial
surveillance is more important than ever to detect potential risks early, so that pre-emptive
policy action can be taken. Of importance, is the need to be aware of rapidly changing
information sets amid increasing financial innovation and greater global interlinkages.
Policymakers have therefore developed tool kits that have not only taken into consideration
baseline forecasts, but crucially, on other plausible scenarios. In this aspect, larger and more
diverse data sets that are complemented by more sophisticated analytical tools have allowed
policymakers to improve the effectiveness of macroeconomic management. Through more
rigorous scenario analysis exercises, authorities are better able to identify challenges, and
form a more complete view of future conditions. This is well exemplified by the recent
emphasis on the need for regular stress testing to understand the effects of shocks on the
solvency of individual banks, the stability of the entire financial system, the broader economy
and, more importantly, the feedback effects. The roles of granular statistics and sound stress
testing methodologies have become vital.
While the recent global financial crisis has necessitated a substantial policy focus to address
short-term challenges, policymakers also need to keep sight of the economy's long-term
vision. Continuous structural reforms are needed to strengthen fundamentals and improve
economic resilience. This involves measures to remove structural bottlenecks, improve
productivity and promote innovation and enhance competitiveness. Formulating such
structural policies to improve growth prospects hinges on rigorous empirical research in
these areas. For Malaysia, the economy is currently undergoing a transition towards
becoming a higher value added economy. This has involved setting clear, time-bound and
measurable targets, to allow for the policy approach to be focused. This has depended
heavily on the availability of good data and statistics that capture developments across all
sectors. It also enables us for the monitoring of the progress and the effectiveness of the
policies. It is also now widely recognised that economic growth can only be sustainable if it is
inclusive. Growth will only slow as income disparities widen. It is also recognised that
financial inclusion is an important contributor towards achieving such a more inclusive
economic development. Bank Negara Malaysia has therefore over the decades implemented
initiatives to extend and improve the access of quality financial services to all segments of
society.
Advances in data collection and computation methodologies has been a crucial enabling
factor in the progress made on financial inclusion not just in Malaysia, but also in many other
countries. Unconventional information is now often used to assess a person's credit
worthiness when there is insufficient traditional information to build a credit score. This can
range from electronic records of past utilities bill payments and even reputations on social
media3. This has led to vast improvements in access to credit for the previously excluded
segment of population. Meanwhile, the compilation and analyses of detailed data on the
financially underserved is a significant area that underpins international cooperative efforts to
advance the global financial inclusion agenda. The Alliance for Financial Inclusion (AFI)
comprising of more than 90 member countries established the need for measurable national
goals based on a set of quantifiable and time bound common indicators among its
membership. These results serve as an objective basis for the AFI members to share
experiences on the effectiveness of their policies.
Statistical enhancements for a better tomorrow
Great strides in the field of statistics have resulted in significant economic benefits. However,
as the world further transforms, new challenges emerge and much more needs to be done
going forward. The increase in availability of data and information is not without risks. While
the wealth of new data has indeed made markets more efficient and has supported better
decision making by the private and public sectors, it has also brought about new risks of
fraud, theft and invasion of privacy. Therefore, existing confidentiality policies, regulation and
data governance need to be reviewed and updated to account for these new risks, so that
innovative activities can thrive without threats to individual safety and interests.
Additionally, in managing the increase in global interconnectedness, greater international
collaboration and coordination in the field of statistics is needed to enhance cross-country
data coverage, promote greater standardisation of data and, more importantly, to create a
shared understanding of cross-border risks and transmission of shocks. The dynamic nature
of the global economy and financial system implies that the relevant set of data needed is a
constantly moving target. Therefore, continuous and concerted efforts by both the users and
compilers of statistics to close data and information gaps are indeed crucial.
Finally is the need for the continued emphasis on capacity building of human capital. From
researchers and academicians, to statistical compilers and policymakers, there is an urgent
need to ensure that further enhancements in the field of statistical science continue to
advance. Policymakers and statisticians today need to be at the forefront of the advances in
statistics to identify new linkages and risks in order to calibrate effective policy responses. In
a similar vein, economic and market participants must invest in the statistical systems and
expertise required to generate the wealth of information inherent in their operations to allow
for greater appreciation and understanding of their implications on the overall financial
system and economy.
Conclusion
As we move forward, the changing contours of the global landscape will increase sharply the
demand for higher quality and more comprehensive statistics from both the private and
public sectors. This also needs to be accompanied by sound analysis in order to draw the
implications. From the compilers of statistics, to the developers of statistical applications and
the users of statistics, there will be many challenges, but also immense opportunities ahead.
On this note, I wish you a productive and successful conference. By sharing your ideas,
knowledge and insights in statistics, we will together contribute to drive the statistical science
for a better future.