Economic analysis
Malaysia

Malaysia

Population 32.6 million
GDP per capita 11,193 US$
A4
Country risk assessment
A3
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Synthesis

major macro economic indicators

  2018 2019 2020 (e) 2021 (f)
GDP growth (%) 4.8 4.3 -5.6 4.5
Inflation (yearly average, %) 1.0 0.7 -1.2 2.7
Budget balance (% GDP) -3.3 -3.5 -6.2 -6.4
Current account balance (% GDP) 2.2 3.4 4.4 4.2
Public debt (% GDP)* 55.5 57.2 67.5 66.0  

(e): Estimate (f): Forecast *Excluding 1MDB and state-owned enterprises

STRENGTHS

  • Diversified exports
  • Major world source for electronics and computer parts.
  • High R&D
  • Investment supported by the expansion of the local financial market and access to FDIs
  • Exchange rate flexibility
  • High per capita income
  • Travel hub

WEAKNESSES

  • Budget income highly dependent on performances in oil and gas
  • Low fiscal revenues, lack of transparency in budget spending
  • Very high private debt levels (80% of GDP)
  • Public revenue are decreasing (15.2% of GDP)
  • Erosion of price competitiveness due to increasing labour costs
  • Rising political polarisation
  • Persistent regional disparities
  • Ethnic and religious disputes

RISK ASSESSMENT

A fragile recovery

Growth is set to recover in 2021, though the pace of recovery is not as strong as expected at the start of the year due to virus resurgences led by the Delta variant and the re-imposition of movement control order (MCO) from June. We revised our 2021 GDP growth rate forecast downwards because of strong downside risks to the economy amid ongoing mobility restrictions. Sustained progress and effectiveness of the national vaccination programme will be a key factor for economic reopening and a driver of confidence. The country continues to battle the current wave of infections, with daily caseloads hitting around 18,000 in mid-September. However, an active vaccination campaign - with over half of the population partially vaccinated and more than 55.8% fully vaccinated in September - could entail further easing of mobility restrictions in the coming months. This should allow a recovery of private consumption for the rest of 2021 and into 2022, supported by four new fiscal stimulus plans announced so far this year (15.9% of GDP), which aim to support households, businesses and strengthen the Malaysian medical system. That said, the uncertain trajectory of the COVID-19 pandemic and weak economic recovery, so far, have been unfavourable to job creation, with the unemployment rate still well above the pre-pandemic level at 4.8% in June. This could weigh moderately on household consumption amid dim labour market prospects. The recovery of the economy is driven in particular by the increase in exports (70% of GDP in H121), linked to the rise in global demand. Robust export growth, particularly in rubber gloves, and electrical and electronic equipment, should boost investment from exporting companies. Public investment is anticipated to rebound this year, as some infrastructure projects are carried over to the 2021 budget. MYR 15 billion will be allocated for projects such as Pan-Borneo Highway, Gemas-JB railway project and the first phase of Klang Valley Double Track project (KVDT 2). The recovery of domestic demand and higher commodity prices should lift inflation, helped also by low base effects. 

 

Fiscal deficit and current account surplus will remain high

The Parliament approved a USD 78.8 billion budget (22% of GDP) for 2021 in order to revive the economy, with an increase in welfare spending and cash handouts, which should support the recovery in consumption. In addition, four new stimulus packages, valued at MYR 225 billion have been announced so far this year, while more financial aid might be necessary. The fiscal deficit is expected to remain above the 6% target as the economy continues to require financial support to offset the costs of economic disruption due to virus containment measures. The expected revenue will meet challenges, as the economic recovery is slower than expected. A prolonged imposition of a national lockdown or re-tightening could also threaten revenues. That said, higher oil prices should benefit and support revenue collection as petroleum-related receipts remains a major contributor to the federal government’s revenue (15-20%). Public debt, for which the ceiling was increased to 60% of GDP, remains high in 2021 but sustainable, as most of it is held by residents in local currency.

 

The current account surplus narrowed in H121 as a widening services trade deficit is increasingly offsetting the gains in the goods trade surplus. The solid goods balance surplus is driven by a better performance in exports, especially of electronic products (30% of exports), commodities (iron block, palm oil, etc.), and fuel. Thus, exports of primary goods are likely to continue being supported by relatively high commodity prices. External debt (72.1% of GDP in Q2 2021) is high but manageable, since one-third is denominated in local currency and around 60% has medium to long-term maturity. The bulk of external debt is by companies (both private and public) and banks. International reserves, fed by the current account surplus and foreign investment, remain adequate and cover 8 months of imports.

 

A political crisis that marks the middle of the year

On 20 August 2021, 10 days after the resignation of the eighth Prime Minister of Malaysia, Muhyiddin Yassin, and his cabinet, Ismail Sabri Yaakob, a veteran politician from the country’s longest-ruling party United Malays National Organisation (UMNO), was named Prime Minister. This party ruled Malaysia for six decades before losing elections in 2018 following the multibillion-dollar corruption scandal involving state fund 1MDB.
Since his appointment as Prime Minister in February 2020, without elections, Muhyiddin Yassin’s legitimacy had been continuously challenged. The opposition, represented by the Keadilan Rakyat Party (PKR), never managed to organise a no-confidence vote, as parliamentary life was frozen by a series of lockdowns and a state of emergency voted last January. However, the government's premature withdrawal of emergency ordinances in late July, without the royal approval, provoked widespread criticism: from the King and the Prime Minister's former allies, to the public. This contributed to small-scale public demonstrations to protest against the poor management of the pandemic and the unemployment of young graduates. The day after the announcement of the end of the state of emergency, Muhyiddin ordered the police to prevent Malaysian lawmakers from entering parliament. He finally resigned after losing support of a parliamentary majority.

Thus, while awaiting new elections (which have been postponed due to the health situation), the King hopes that the appointment of Ismail Sabri Yaakob as the new Prime Minister will ease the country's political turmoil, restore the economy and defend the welfare of the people.

 

Last updated: September 2021

Payment

Bank transfers, cash, and cheques are all popular means of payment in Malaysia. The well-developed banking network allows for online payments. Letters of Credit are also commonly used. As of 2017, the Central Bank requires that 75% of payments in foreign currencies are converted into the Malaysian ringgit (MYR) automatically upon receipt. Payments for transactions within Malaysia are required to be made in ringgit.

Debt collection

Amicable phase

It is common for disputes and or debt to be settled amiably after negotiations. If there is no response from the buyer, a site visit and online searches are conducted to ascertain the operating status and legal status of the buyer. If the buyer continues to ignore and or neglect to settle the matter amicably, the supplier may begin legal proceedings to recover payments for goods sold and delivered. However, due diligence should be done to ensure that the buyer has sufficient assets to satisfy the debt before proceedings are initiated.

 

Legal Proceedings

The Malaysian legal system is based upon the English common law system. The hierarchy of courts in Malaysia starts with the Magistrates’ Court at the first level, followed by the Sessions Court, High Court, Court of Appeal and the Federal Court of Malaysia. The High Court, Court of Appeal and the Federal Court are superior courts, while the Magistrates’ Court and the Sessions Courts are subordinate courts. There are also various other courts outside of this hierarchy, e.g. Employment Admiralty, Shariah or Muslim matters.

Claims in Magistrates’ court are limited up to MYR 100,000, whilst a Sessions Court may hear any civil matters where the amount in dispute does not exceed MYR 1,000,000. Where the amount claimed does not exceed MYR 5,000, a claim should be filed with the small claims division of the Magistrates’ Court. However, legal representation is not permitted. The High Court has the jurisdiction to try all civil matters and monetary claims exceeding MYR 1 million.

An unpaid debt normally has a six-year statute of limitation period. The creditor commences a writ action and serves the writ on the debtor within six months from the issue of the writ. When defendants are served with a writ, they have 14 days after service of the writ (or 21 days if the writ was served outside Malaysia) to file a Memorandum of Appearance with the court to indicate their intention to appear in court and defend the suit.

Before a writ can be issued, it must be endorsed with a statement of claim or, with a general endorsement consisting of a concise statement of the nature of the claim made and the requisite relief or remedy. When the writ only has a general endorsement, the statement of claim must be served before the expiration of 14 days after the defendant enters an appearance.

When the defendant has entered appearance, he is required to file and serve his defence on the plaintiff 14 days after the time limit for entering an appearance, or after service of the statement of claim, whichever is later. A defendant may make a counterclaim in the same action brought by the plaintiff. A plaintiff must serve on the defendant his reply and defence to a counterclaim, if any, within 14 days after the defence (and counterclaim) has been served on him.

Proceedings may be resolved and/or otherwise summarily terminated and/or determined and/or disposed of at an early stage before the trial of the action.

 

Fast-track proceedings

Failure to enter an appearance may result in a plaintiff proceeding to enter a judgment-in-default against a defendant. Ordinarily, when a defendant has filed an appearance and also a statement of defence subsequent to other procedures of filing of documents in support, the matter would be set for trial. If the defendant has entered an appearance and filed a defence, but it is clear that the defendant has no real defence to the claim, the plaintiff may apply to court for summary judgment against the defendant. To avoid summary judgment being entered, the defendant has to show that the dispute concerns a triable issue or that there is some other reason for trial. 

Enforcement of a court decision

Writ of Seizure and Sale (WSS)

A WSS may be enforced against both movable and immovable property as well as against securities. When the property to be seized consists of immovable property or any registered interest, the seizure shall be made by an order prohibiting the judgment debtor from transferring, charging or leasing the property.

 

Garnishee Proceedings

A Judgment Creditor may garnish monies a Judgment Debtor is supposed to receive from a third party. If the garnishee does not attend court, then the order is made absolute. If the garnishee does attend, the court can either decide the matter summarily or fix the matter for trial.

 

Judgment Debtor Summons

The objective of this summons is to give the judgment debtor an opportunity to pay the judgment debt in instalments to commensurate his means. Debtors themselves can apply for such a procedure. Alternatively, under Order 14 the defendant can admit the plaintiff’s claim and propose to pay by instalments, which the court can subsequently order if the plaintiff accepts the proposal.

 

Bankruptcy Proceedings

If the total judgment of debt exceeds MYR 30,000, bankruptcy proceedings can be triggered if the judgment debtor has not complied with the judgment or order made against him. Once a debtor has been adjudged bankrupt, other creditors are also entitled to file the Proof of Debt form and Proxy in order to be entitled to share in any distribution from the estate of the bankrupt. The distribution of the estate is according to the priority of the creditors’ claim.

 

Foreign Judgements

Any decision rendered by a foreign country must be recognized as a domestic judgment in order to become enforceable through an exequatur procedure. Malaysia has reciprocal Recognition and Enforcement Agreements with some countries, including Hong Kong, India, and New Zealand. 

Insolvency proceedings

There are several insolvency and restructuring procedures available. Under the Companies Act, the available insolvency proceedings include:

  • compulsory and voluntary winding-up of companies;
  • appointment of receivers and managers;
  • restructuring mechanisms.

In a compulsory winding-up, the court can wind up a company on a number of grounds under the Companies Act. The most common of these is the company’s inability to pay its debts. The creditor initiates this process by filing a winding-up petition with the court. If an order is made, the court will appoint a liquidator to oversee the liquidation process.

Court-appointed receivers will either manage the company’s operations as normal, or take custody and possession of the assets of the company. Alternatively, receivers appointed by debenture holders based on the terms of the debenture agreement (privately-appointed receivers), may take possession of the company’s assets subject to the floating charge that has since crystallized in the debenture.

Restructuring mechanisms include:

  • scheme of arrangement: a company can enter into a scheme of arrangement with the approval of 75% of the creditors in value and a simple majority. After creditors approve the scheme, the court must sanction it before it can be implemented. Debtors can apply for an order restraining all proceedings against it while it develops its scheme;
  • special administration: it involves the appointment of a special administrator. The appointment must serve the public interest;
  • conservatorship: the Malaysia Deposit Insurance Corporation takes control of a non-viable financial institution or acquires and takes control of non-performing loans that are outstanding between the financial institution, borrowers and security providers.
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