Economic Outlook

2021
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permission of:

Chief Economist,
Fiscal and Economics Division,
Ministry of Finance Malaysia,
Level 9, Centre Block,
Kompleks Kementerian Kewangan,
No. 5, Persiaran Perdana,
Precint 2,
Federal Government Administrative Centre,
62592 Putrajaya.

Fax: 03-88823881
E-mail: [email protected]

The Economic Outlook is an annual publication released on the same day

as the Annual Budget.

The 2021 edition is released on 6 November 2020.

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 FOREWORD

PRIME MINISTER
MALAYSIA

“Safeguard lives and protect the livelihood of the rakyat”

The year 2020 began with nations around the world gearing up to contain the spread
of COVID-19 pandemic by undertaking various measures which include enforcing
movement restrictions and closing borders. The unprecedented situation has severely
impeded overall global economic activities with the world economy experiencing a sharp
contraction that economists believe to be worse than the Great Depression in the 1930s.
Being a highly open economy, Malaysia’s GDP has also been adversely affected.

From the onset, the Government has been resolute in its stand to safeguard lives
and protect the livelihood of the rakyat. We seek to address the pandemic through
a systematic approach that focuses on three pillars: safeguard the rakyat, support
businesses and finally, strengthen the economy. These three pillars underline all
subsequent economic stimulus packages that we have unveiled throughout the year.

Apart from implementing various stages of the Movement Control Order (MCO) since
March 2020 to curb the transmission of COVID-19, the Government has embarked on a
series of economic stimulus measures totalling RM305 billion entailing fiscal and non-
fiscal measures. In this regard, the Economic Stimulus Package Prihatin Rakyat (PRIHATIN)
totalling RM250 billion was unveiled in March 2020, followed closely by the PRIHATIN
SME+ worth RM10 billion in April. In June, we announced the Short-Term Economic
Recovery Plan (PENJANA) totalling RM35 billion and in September, we released the RM10
billion additional package, dubbed the PRIHATIN Supplementary Initiative Package (KITA
PRIHATIN).

Under the PRIHATIN package, the nation’s healthcare services were strengthened by
additional allocation for among others, medical equipment, enhancing testing capacity
and developing the MySejahtera application for contact tracing. PRIHATIN also provided
immediate financial assistance to ease the cash flow burden of the rakyat and businesses,
including employment retention support, deferment or restructuring of loan repayments
as well as provision of credit facilities. Furthermore, we implemented the PRIHATIN SME+
to ensure the survival and ease the financial burden of SMEs.

When the COVID-19 curve flattened, the subsequent strategy was to reopen the economy
by allowing the rakyat to return to work and companies to resume operations. Hence, the
PENJANA package was announced in June to support the economy to operate in a new
normal.

economic outlook 2021 iii

The Government is ever ready to step in and provide additional assistance when deemed
necessary. As such, realising that the rakyat and businesses still needed financial
assistance, we swiftly announced in September this year an additional allocation to the
existing initiatives, for example, the wage subsidy programme, the special grants to
micro-companies and also assistance to the lower and middle-income households and
individuals under the KITA PRIHATIN package.

LAKSANA, a unit under the Ministry of Finance, was established to ensure all economic
stimulus programmes are implemented promptly and can effectively reach the
targeted groups. The Unit has now evolved into a full-fledged agency in monitoring
implementation outcomes of the stimulus programmes across 53 ministries and
Government agencies nationwide.

Together, we have braved and withstood the unprecedented crisis as a nation. I would
like to express my deepest gratitude to the frontliners whose efforts have saved
countless lives and upheld Malaysia’s healthcare system as among the best in the world.
Let me also thank the rakyat for their patience and close cooperation in combating the
pandemic together. Alhamdulillah, we have achieved positive results thus far. However, we
cannot afford to be complacent because the war against COVID-19 is not over yet, until
and unless a vaccine has been found and is made available across the world.

Against the backdrop of strong economic fundamentals, a diversified economic base as

well as proactive measures which have been implemented, we are confident in mitigating
the economic impact arising from this crisis. Nevertheless, the socio-economic impact of
the pandemic is expected to run its course until next year. Hence, the 2021 Budget will
still focus on protecting lives and livelihood with additional measures to cope with the
lingering effects of the pandemic on the economy as a whole. Insya-Allah, we will register
a rebound in economic growth in 2021.

The crisis has given us the opportunity to look inwards, reassess our priorities and reset
our targets. Moving forward, we will continue to revitalise and reform our economy for
a sustainable future of shared prosperity under a new normal. It is our aspiration to
steer the economy to a higher growth trajectory that is inclusive in nature. I would like
to reiterate that this Government is committed to serving the rakyat and ensuring their
well-being as well as supporting the businesses to thrive. Insya-Allah, we will be able to
achieve this if we all work closely together.

TAN SRI HAJI MUHYIDDIN BIN HAJI MOHD YASSIN

6 November 2020

iv economic outlook 2021

 PREFACE

MINISTER OF FINANCE
MALAYSIA

COVID-19 has had a major impact on global growth, particularly due to its capacity to
disrupt and dismantle development progress that has been made across social, business
and economic fronts. For as long as a vaccine is yet to be found, the entire global
economy – Malaysia included – remains at its mercy. At the heart of this unprecedented
economic challenge is the consequential threat to lives, as well as risk of increased
poverty and long-term systemic damage to our socio-economic fabric.

It was against this backdrop that Malaysia instituted the Movement Control Order (MCO).
Although the Malaysian economy lost an estimated RM2 billion each day while the MCO
was in effect, the Government was decisive in crafting our own unique 6R Strategy,
comprising six stages of Resolve, Resilient, Restart, Recovery, Revitalise and Reform, to
help the nation cope.

Against a backdrop of many unknowns, the Government had to put together no less
than four stimulus packages in record time to protect lives, businesses and the economy.
Deciding on what would be sufficient was not easy. Our fiscal limitations needed to be
matched with our fiscal muscle. One thing was clear, though: our response had to be
fast and decisive. Hence, the RM250 billion PRIHATIN Economic Stimulus Package was
born, incorporating a RM25 billion fiscal injection.

Subsequently, three additional packages followed: PRIHATIN SME+, PENJANA and KITA
PRIHATIN in April, June and September respectively. All four packages – comprising fiscal
and non-fiscal measures – totalled RM305 billion, or 21% of our gross domestic product
(GDP). With the measures’ rollout being tracked and monitored by the Economic Stimulus
Implementation and Coordination Unit Between National Agencies (LAKSANA), many lives
were saved, livelihoods supported, and businesses remained afloat.

The MCO and its various iterations not only flattened our COVID-19 curve but also
contributed to the deep contraction in the GDP by 8.3% in the first half of 2020.
Nevertheless, month-to-month economic data clearly signals green shoots of recovery,
with a rebound in production and trade figures, a decline in unemployment and a
recovery in private consumption compared to the monthly data of the second quarter of
2020. The Government’s stimulus packages are expected to contribute over 4 percentage
points to the nation’s GDP growth.

This momentum is expected to set the foundation for the nation’s GDP to grow by up
to 7.5% in 2021. That achievement hinges heavily on the next phase in our 6R strategy
– Revitalise – represented by Budget 2021. As a strategic plan for ensuring Malaysia’s

economic outlook 2021 v

growth in the coming year, Budget 2021 seeks to balance healthcare capacity needs,
while building upon the current economic recovery momentum together and developing
better resilience for the future.

Meanwhile, it is important for us to not only adapt to this new norm, but also find
growth opportunities. COVID-19 has accelerated the adoption of digitalisation by
businesses, the education sector and society. Studies have estimated that the economic
value of digital trade-enabled benefits to the Malaysian economy, if fully leveraged, could
grow to RM222 billion by 2030 from RM31 billion in 2019. This presents a new growth
trajectory for many service-based industries and supporting sectors like E&E, e-commerce
and the gig economy. Another huge potential is in healthcare and its ancillary sectors.
Medical products, services and equipment are expected to grow in the coming years.

Budget 2021 has been crafted across four broad principles, namely, caring for the
people; steering the economy; enabling sustainable living and enhancing public service
delivery. The Government will continue with its targeted initiatives to support lives and
livelihoods while prioritising vulnerable groups.

Sustainability, as one of the key principles, will also lay the foundation for existing and
fresh policies to be mapped against the UN Sustainable Development Goals (SDGs).
Related to this, one of the sectors that is a natural fit into our sustainability aspiration
is Islamic finance, which subscribes to Value-Based Intermediation principles, similar to
Environmental, Social and Governance (ESG) principles. This could help grow the Islamic
economy, through various concepts including wakaf, and in developing communities
sustainably. On multiple other fronts, the Government also hopes to work closely with
its agencies, the private sector and civil society to catalyse a higher, more sustainable
growth trajectory from 2021 onwards.

The Government expects its fiscal deficit to reach 6% of GDP, the highest since the 2009
Global Financial Crisis, while the Federal Government's statutory debt is expected to
rise to about 57% of GDP by end-2020, due to the four necessary economic stimulus
packages. Nonetheless, the Government is committed to its fiscal responsibility agenda,
in line with the goal of reducing the fiscal deficit to under 4% of GDP over the next three
to four years.

Against the backdrop of a huge unknown that is outside our control, we have been
focusing on aspects that we can and must control. Our economic fundamentals are still
strong, our economic base sufficiently diversified, and we still have fiscal muscle. But
above all, I believe the economic rebound in 2021 and beyond depends as much on our
strategy, as it does on Malaysians’ indomitable spirit to work together and brave the
unknown as one.

Thank you to all Malaysians for your past, present and future contribution in helping the
nation face this enormous challenge. I am confident that together we can and will win
this war against COVID-19, and emerge from this episode as a stronger nation, Insya-
Allah.

SENATOR TENGKU DATO’ SRI ZAFRUL TENGKU ABDUL AZIZ

6 November 2020

vi economic outlook 2021

 T H E E CO N O M Y 2 0 2 1
in constant 2015 prices
(share to total in %)

Public
Investment1
Exports of 4.1%
Services
5.8%
Public
Consumption
8.0%
Private
Consumption
39.9%
Private
Investment1
9.7% DEMAND
RM 2,225,935
MILLION

Exports
of Goods
32.5%

Mining Construction
4.4% 2.8%

Agriculture
4.8%

Imports
of Services
7.0% Services
38.3%

S U P P LY
RM 2,225,935
Manufacturing
14.9% MILLION

Imports
1
Includes change in stocks of Goods
Source: Ministry of Finance, Malaysia 27.8%

economic outlook 2021 vii

COVID-19 Fund 38,000 17,000 -55.3
CONTENTS
FOREWARD iii

PREFACE v

ACRONYMS AND ABBREVIATIONS xvii

CHAPTER 1 ECONOMIC MANAGEMENT AND PROSPECTS

Overview 5
Outlook 6
Feature Article 1.1 – COVID-19: Impact and Policy Responses 8
Issues and Challenges 12
Feature Article 1.2 – Labour Market Mismatch 13
Information Box 1.1 – Mapping the UN Sustainable Development Goals onto 19
the National Budget

Feature Article 1.3 – Assessing Housing Affordability in Malaysia 24

Strategic Initiatives – 2021 Budget 29

Information Box 1.2 – Social Safety Net in Malaysia 30

Conclusion 33

References 34

CHAPTER 2 GLOBAL ECONOMIC OUTLOOK

Overview 41
Global Economy 42
Information Box 2.1 – Response to the COVID-19 Pandemic by Selected 44
Multilateral Development Banks

Conclusion 59
References 60

CHAPTER 3 MACROECONOMIC OUTLOOK

Overview 71

xii economic outlook 2021

 Sectoral 71
Feature Article 3.1 – Gig Economy 74
Feature Article 3.2 – Digitalisation in the Logistics Industry 79
Feature Article 3.3 – Small and Medium Enterprises: Building Resilience 83
to Weather Crises

Information Box 3.1 – The Importance of Commodity Sector to the 88

Malaysian Economy

Domestic Demand 92
Feature Article 3.4 – Shadow Economy in Malaysia 94
External Sector 97
Prices 102
Feature Article 3.5 – Dynamic Relationship Between Consumer and 104
Producer Price Indices

Labour Market 107

Conclusion 108
References 110

CHAPTER 4 MONETARY AND FINANCIAL DEVELOPMENTS

Overview 119
Monetary Development 119
Performance of Ringgit 120
Banking Sector Performance 120
Feature Article 4.1 – Digital Banks in Malaysia 123
Capital Market Performance 126
Information Box 4.1 – Key Capital Market Measures 130
Islamic Banking and Capital Market Performance 131
Conclusion 132
References 133

STATISTICAL TABLES 135

ORGANISATION OF THE MINISTRY OF FINANCE MALAYSIA 177

economic outlook 2021 xiii

FIGURES

The Economy 2021

Figure 2.1. Real GDP Growth for Global, Advanced Economies, and Emerging Market and 41
Developing Economies

Figure 2.2. Inflation Rate for Global, Advanced Economies, and Emerging Market and 42
Developing Economies

Figure 3.1. Selected Indicators for the Services Sector 73

Figure 3.2. Output of Manufacturing Sector 82

Figure 3.3. Supply Indicators of Residential Property 91

Figure 3.4. Malaysia House Price Index 91

Figure 3.5. Supply Indicators of Non-Residential Property 92

Figure 3.6. Savings-Investment Gap 94

Figure 3.7. Top 10 Trading Partners 99

Figure 3.8. International Reserves 102

Figure 3.9. CPI and PPI Trends 104

Figure 4.1. Monetary Aggregates 119

Figure 4.2. Performance of Ringgit Against Selected Currencies 120

Figure 4.3. Banking System: Impaired Loans and Net Impaired Loans Ratio 121

Figure 4.4. Malaysian Government Securities (MGS) Indicative Yields 127

Figure 4.5. Share of Foreign Holdings in Total MGS Outstanding 128

Figure 4.6. 5-Year Corporate Bond Yields 128

Figure 4.7. Performance of Bursa Malaysia 129

Figure 4.8. Performance of Selected Stock Markets 129

Figure 4.9. Global Sukuk Outstanding by Country 132

xiv economic outlook 2021

TABLES

Table 1.1. Economic Stimulus Packages 2020 6

Table 2.1. Selected Indicators for the United States 43

Table 2.2. Selected Indicators for the United Kingdom 44

Table 2.3. Selected Indicators for the Euro Area 50

Table 2.4. Selected Indicators for Germany 50

Table 2.5. Selected Indicators for France 51

Table 2.6. Selected Indicators for Japan 52

Table 2.7. Selected Indicators for Australia 53

Table 2.8. Selected Indicators for Republic of Korea 54

Table 2.9. Selected Indicators for China 54

Table 2.10. Selected Indicators for India 55

Table 2.11. Selected Indicators for ASEAN-5 56

Table 2.12. Selected Indicators for Indonesia 56

Table 2.13. Selected Indicators for Thailand 57

Table 2.14. Selected Indicators for Singapore 57

Table 2.15. Selected Indicators for Philippines 58

Table 3.1. GDP by Sector 71

Table 3.2. Services Sector Performance 72

Table 3.3. Manufacturing Production Index 83

Table 3.4. Value-added in the Agriculture Sector 87

Table 3.5. GDP by Aggregate Demand 93

Table 3.6 External Trade 98

Table 3.7. Gross Exports 98

Table 3.8. Exports of Manufactured Goods 99

Table 3.9. Gross Imports by End Use 100

Table 3.10. Current Account of the Balance of Payments 101

economic outlook 2021 xv

 Table 3.11. Consumer Price Index 103

Table 3.12. Producer Price Index 103

Table 3.13. Labour Market Indicators 107

Table 3.14. Employed Persons by Sector 108

Table 4.1. Factors Affecting M3 120

Table 4.2. Banking System: Loan Indicators 121

Table 4.3. Banking System: Loans Outstanding by Sector 122

Table 4.4. Funds Raised in the Capital Market 127

Table 4.5. New Issuance of Corporate Bonds by Sector 127

Table 4.6. Bursa Malaysia: Selected Indicators 129

Table 4.7. Islamic Banking: Key Indicators 131

xvi economic outlook 2021

 ACRONYMS AND ABBREVIATIONS

11MP Eleventh Malaysia Plan, E&E electrical & electronics

2016 – 2020
EAC Economic Action Council
12MP Twelfth Malaysia Plan,
2021 – 2025 ECB European Central Bank

4G EMDEs emerging market and

fourth-generation cellular
developing economies
network
EU European Union
5G fifth-generation cellular
network EUR euro
ADB Asian Development Bank FBM KLCI FTSE Bursa Malaysia Kuala
Lumpur Composite Index
AI artificial intelligence
FDI foreign direct investment
AIIB Asian Infrastructure
Investment Bank Fed US Federal Reserve

APIs Application Programming GDP gross domestic product

Interface
GNI gross national income
ASEAN Association of Southeast Asian
GNS gross national saving
Nations
HIS & BA Household Income and Basic
AUD Australian dollar
Amenities Survey
B40 bottom 40% of household IHLs Institutions of Higher Learning
income group
HOC Home Ownership Campaign
BNM Bank Negara Malaysia
IBRD International Bank for
BOP balance of payments Reconstruction and
Development
bps basis points
ICD Islamic Corporation for the
CDA Currency Demand Approach Development of the Private
Sector
CFTA Comprehensive Free Trade
Agreement ICIEC Islamic Corporation for the
Insurance of Investment and
CGE Computable General Export Credit
Equilibrium
ICM Islamic Capital Market
CMCO Conditional Movement Control
Order ICT information, communication
and technology
COVID-19 Coronavirus Disease 2019
ICSID International Centre for
CPI Consumer Price Index Settlement of Investment
Disputes
CPO crude palm oil
IDA International Development
CSOs civil society organisations Association

DE development expenditure IDR Indonesian rupiah

DFIs Development Financial IFC International Finance

Institutions Corporation

economic outlook 2021 xvii

acronyms and abbreviations

ILO International Labour MIGA Multilateral Investment

Organisation Guarantee Agency

IMF International Monetary Fund MIMIC Multiple Indicators Multiple

Causes
IoT Internet of Things
MOF Ministry of Finance
IPO Initial Public Offering
MRT2 Mass Rapid Transit 2
IR4.0 Industrial Revolution 4.0
MTAR Momentum Threshold
IRTI Islamic Research and Training
Autoregressive
Institute
NGOs non-governmental
IsDB Islamic Development Bank
organisations
IsDBG Islamic Development Bank
NRE Ministry of Natural Resources
Group
and Environment
ITFC International Islamic Trade
Finance Corperation O&G oil and gas

KASA Ministry of Environment and OPEC Organization of the Petroleum

Water Exporting Countries

KeTSA Ministry of Energy and Natural OPR Overnight Policy Rate

Resources
p.a. per annum
KeTTHA Ministry of Energy, Green
pb per barrel
Technology and Water

KITA PRIHATIN Supplementary PENJANA National Economic Recovery

PRIHATIN Initiative Package Plan

LAKSANA National Economic Stimulus PforR Program-for-Result

Implementation and Inter
PHP Philippine peso
Agency Coordination Unit
PLI Poverty Line Income
LDMCs least developed member
countries PPI Producer Price Index
LNG liquefied natural gas
PRGT Poverty Reduction and Growth
LPI Logistics Performance Index Trust

LRT3 Light Rail Transit 3 PRIHATIN Prihatin Rakyat Economic

Stimulus Package
M&A merger and acquisition
PRS Private Retirement Schemes
M1 money supply
R&D research and development
M40 middle 40% of household
income group RBI Reserve Bank of India

MCO Movement Control Order RCF Rapid Credit Facility

MDBs multilateral development RFI Rapid Financing Instrument

banks
RMCO Recovery Movement Control
MGII Malaysian Government Order
Investment Issues
RPGT Real Property Gains Tax
MGS Malaysian Government
Securities RTO Rent-to-Own

xviii economic outlook 2021

 acronyms and abbreviations

SDGs Sustainable Development THB Thai baht

Goals
TVECM Threshold Vector Error
SDR Special Drawing Right Correction Model

SE shadow economy UI User Interface

SGD Singapore dollar UK United Kingdom

SLL Short-term Liquidity Line UN United Nations

SME Corp. SME Corporation Malaysia US United States

Malaysia
USD US dollar
SMEs small and medium enterprises
UX User Experience
SOPs Standard Operating
Procedures WBG World Bank Group

SRR Statutory Reserve Requirement WFH work from home

SSR Self-Sufficiency Ratio WHO World Health Organization

economic outlook 2021 xix

ch ap ter 1

Economic
Management and
Prospects

05 ov e rv i e w

06 outlook
Feature Article 1.1 ­– COVID-19: Impact and Policy
Responses

12 i s sue s a nd ch a lle nge s

Feature Article 1.2 ­– Labour Market Mismatch

Information Box 1.1 ­– Mapping the UN Sustainable

Development Goals onto the National Budget

Feature Article 1.3 –­ Assessing Housing Affordability

in Malaysia

29 s tr ategic i n i t i at i v e s ­– 2021
budge t
Information Box 1.2 ­– Social Safety Net in Malaysia

33 conclus ion

34 r e fe r e nce s
CHAPTER 1 SUMMARY: ECONOMIC MANAGEMENT AND PROSPECTS

Covid-19
Malaysia:
Pandemic Economic
Restriction in the movement of
Management
people and goods as well as
provision of services & Prospects
11 March 2020

ECONOMIC ACTION COUNCIL:

Roadmap for Roadmap for

Immediate Way Forward
Action for next 12 months
Implementation of 6R Strategy Monetary &
Resolve, Resilience, Restart, Financial Developments
Recovery, Revitalise, Reform

27 March Mitigation Factors

PRIHATIN

6 April OPR
Overnight
Supportive Policy Rate
PRIHATIN SME+ Monetary
Policies SRR
Statutory Reserve
Requirement
5 June
Robust
PENJANA Banking Sector

23 September Resilient
KITA PRIHATIN Capital Market

Global
Economy Global Outlook
 Global
Impacting Impacting Challenges
Malaysian the health
businesses and livelihood Muted Global
of Malaysians Growth

Volatile Commodity
Prices

CHAIRED BY
YAB PRIME MINISTER WITH MOF AND EPU AS JOINT SECRETARIAT

Budget 2021
2020 Budget 2021 enters 5th
— R stage – Revitalise
2021
OBJECTIVE: Address the
challenges faced by Malaysia
Economic towards becoming an
Management advanced and inclusive
nation
Aggravating Factors NEW ACT: Temporary
Measures for Government
Financing (Coronavirus
Disease 2019 (COVID-19))
2020 was passed in
Pace of Global
Economic Recovery Parliament on 21
September 2020.
Escalating US-China
tensions
Measures are being
IMPLEMENTATION formulated to enhance
Weak Commodity people’s livelihood, rejuvenate
Prices
OF STIMULUS
PACKAGES UNDER the economy, ensure
THE 6R STRATEGY sustainable development and
Volatile Global Financial improve public service
Markets delivery. "Rakyat’s Prosperity,
Business Continuity and
Economic Resilience."

Domestic
Economy
 chapter 1 economic management and prospects

chapter 1

Economic Management and Prospects

Overview on the rise, the new Government established

the Economic Action Council (EAC) on 11 March
2020 to formulate short- and medium-term
Recovering the economy from the COVID-19
measures to protect the people and livelihood.
pandemic has been a daunting task for all
Chaired by the Prime Minister, the EAC
nations. The pandemic not only has impacted
comprises economic ministers, high-level public
people’s health and livelihood but has also
sector officials and captains of industries, as
dampened global growth, a situation described
members.
as far more challenging than the Great
Depression of the 1930s. It has essentially
The EAC subsequently endorsed a six-stage
positioned the world into a territory that has
systematic approach – Resolve, Resilient,
never been seen before.
Restart, Recovery, Revitalise and Reform – to
address the pandemic with the priority to
The pandemic turned into a global crisis as
protect both the people and the economy. The
nations began to restrict the physical mobility
Government announced the Prihatin Rakyat
of people and movement of goods and
Economic Stimulus Package (PRIHATIN) on 27
services, which in turn impacted businesses
March 2020. The package, valued at RM250
and economies as a whole. The turn of events
billion, is aimed at protecting the people,
has muted the anticipated moderation in the
supporting businesses and strengthening the
US-China trade tension following their trade
economy. In essence, the package provided
deal in January 2020. The presumed immediate
financial assistance to the people as well as
benefits of the trade deal did not materialise
initiatives to secure jobs, boost consumer
as nations began to take drastic measures to
confidence and stimulate the economy. On
contain the COVID-19 by closing their borders.
6 April 2020, the PRIHATIN Plus package of
Closer to home, the Malaysian Government is
RM10 billion was announced to provide further
riding its own challenges, where the sudden
support to small and medium enterprises
emergence of the pandemic and its rapid
(SMEs). With the reduction in the number of
spread caught everyone off-guard.
COVID-19 cases, the Government launched
the RM35 billion National Economic Recovery
As a trading nation, the Malaysian economy
Plan (PENJANA) on 5 June 2020 to restart
faces greater challenges posed by the
the economy. Additionally, the Government
pandemic. While enduring challenges from an
announced the PRIHATIN Supplementary
already muted global economic growth amid
Initiative Package (KITA PRIHATIN) on 23
volatile commodity prices, the nation saw a
September 2020 amounting to RM10 billion
new administration taking the helm. With cases
to further ease the burden of the people and
keep businesses afloat.

economic outlook 2021 5

chapter 1 economic management and prospects

TABLE 1.1. Economic Stimulus Packages 2020

PROGRAMME RM BILLION
PRIHATIN 250.0
1 Loan Moratorium 100.0
2 Danajamin: Financing Guarantee Scheme 50.0
3 EPF: i-Lestari Scheme 40.0
4 Bantuan Prihatin Nasional 10.0
5 EPF: Employer Advisory Services 10.0
6 Wage Subsidy Programme 5.9
7 BNM: Facilitation Fund 4.0
8 Small Infrastructure Projects 2.0
9 Healthcare (COVID-19) 1.5
10 Food Security Fund 1.0
11 Micro Credit Scheme 0.5
12 Assistance for Tertiary Students 0.3
13 Other PRIHATIN Measures 5.1
14 Economic Stimulus Package 19.7
PRIHATIN Plus 10.0
15 Additional Wage Subsidy Programme
7.9
(enhancement of the existing programme)
16 Geran Khas PRIHATIN 2.1
PENJANA 35.0
17 Initiatives to Empower the People 13.2
18 Initiatives to Propel Businesses 9.7
19 Initiatives to Stimulate the Economy 6.7
20 Other PENJANA Measures 5.4
KITA PRIHATIN 10.0
21 Bantuan Prihatin Nasional 2.0 7.0
22 Wage Subsidy Programme 2.0 2.4
23 Geran Khas PRIHATIN 0.6
GRAND TOTAL 305.0

Source: Ministry of Finance, Malaysia

developing economies (EMDEs). The gross

Outlook domestic product (GDP) of the advanced
economies is projected to contract 5.8%
Global Economy in 2020, as a result of sluggish private
consumption, coupled with lacklustre global
The global economy is projected to record trade. Similarly, the GDP of the EMDEs is
a negative growth of 4.4% in 2020 due to expected to decline by 3.3% in 2020, due
wavering performance in both the advanced to a drop in both private consumption and
economies and the emerging market and investment as well as unfavourable external
demand.

6 economic outlook 2021

 chapter 1 economic management and prospects

In 2021, the global economy is projected to market. Monetary policy will continue to be
recover with a growth of 5.2%. The advanced supportive of the domestic economy. The
economies are forecast to rebound by 3.9%, banking sector will remain robust and orderly,
led by improved domestic demand and trade underpinned by ample liquidity and strong
activities. Likewise, the GDP of the EMDEs is capital buffers. Likewise, the capital market
expected to record a growth of 6%, driven by is anticipated to be resilient, driven by well-
steady domestic demand and higher exports. developed infrastructure and instruments.
Risks to global outlook include re-intensified However, the pace of global economic recovery,
US-China trade disputes, uncertainties weak commodity prices and volatile global
surrounding Brexit, continued low oil prices financial markets are among factors which
and deepening climate crisis. may hamper the performance of the domestic
financial market.
Domestic Economy
Economic Management
The Malaysian economy contracted by 8.3%
in the first half of 2020, with a decline of The immediate focus of the Government in
17.1% in the second quarter. The economy is managing the crisis is on ensuring the safety
expected to contract at a slower pace in the of the people and addressing the needs
second half of the year, aided by the speedy of households and businesses adversely
implementation of various stimulus packages affected by the COVID-19. A new Act entitled
to support the people and revitalise the Temporary Measures for Government Financing
economy. In 2020, the economy is expected to (Coronavirus Disease 2019 (COVID-19)) 2020
contract by 4.5%. The impact of the packages was passed in Parliament on 21 September
is anticipated to have spill-over effects and 2020 to finance the stimulus packages. The
provide an additional boost to the economy Act enables the Government to implement
in 2021. With the anticipated improvement the stimulus packages formulated on the six-
in global growth and international trade, the stages of R effectively. The “Resolve” stage
Malaysian economy is projected to rebound was characterised by the Government’s effort
between 6.5% and 7.5% in 2021. Growth will to contain the spread of the virus through the
continue to be supported by strong economic implementation of a full Movement Control
fundamentals and a well-diversified economy. Order (MCO). The “Resilient” stage was when
However, the favourable outlook hinges on the Government announced the PRIHATIN and
two major factors – the successful containment the PRIHATIN Plus stimulus packages. During
of the pandemic and sustained recovery in the “Restart” and “Recovery” stages when the
external demand. COVID-19 curve was flattened and the economy
was gradually opened, the Government
Monetary and Financial announced the PENJANA package. PENJANA
aimed at rejuvenating the economy based
Developments on three strategic thrusts – empowering the
people, propelling businesses and stimulating
The Overnight Policy Rate was reduced
the economy. The next two stages – “Revitalise”
successively by 125 basis points to a historic
and “Reform”, will involve the formulation
low of 1.75% during the first seven months
and implementation of measures in the 2021
of 2020. Similarly, the Statutory Reserve
Budget and the Twelfth Malaysia Plan, 2021-
Requirement was reduced by 100 basis points
2025 (12MP). In particular, the 2021 Budget
from 3.00% to 2.00% to ensure sufficient
will focus on caring for the people, enabling
liquidity to support the domestic financial
local businesses and revitalising the economy.

economic outlook 2021 7

chapter 1 economic management and prospects

feature article 1.1

COVID-19: Impact and Policy Responses

Introduction

COVID-19, the viral outbreak that was first detected at the end of 2019, coincided with a worldwide
economic slowdown amid trade tensions and commodity price volatility. As the virus spreads
around the world, it has far-reaching consequences beyond the disease and the efforts to contain
it. Various measures to contain the outbreak, such as border closures, physical distancing and
lockdowns, have led to sluggish aggregate demand and disruptions in the supply chain. The
pandemic is now expected to cause the worst global recession in history, far worse than the Great
Depression in the 1930s (International Monetary Fund, 2020). Governments worldwide responded
by expanding their monetary policy and increasing fiscal spending to prop up household incomes,
support employee retention and provide liquidity assistance for businesses.

Malaysia: Case in Point

The crisis brought on by the pandemic presents a unique challenge as policymakers have to
balance between protecting lives and livelihood in managing the pandemic. Malaysia is no
exception. During the initial stage of the outbreak, the impact was limited to the tourism-related
industries, including airlines, tour operators, recreational activities, accommodation and restaurants.
In response, the Government announced the first stimulus package of RM20 billion on 27 February
2020. The package was aimed at increasing capacity of the healthcare sector in containing the
outbreak, supporting the cash flow of affected businesses and stimulating domestic tourism
industry.

FIGURE 1.1.1. New Cases vs Recoveries

Number of cases Number of cases
1,500 10
Ge
2nd wave MCO CMCO RMCO 3rd wave

1,200 8

900 6

600 4

300 2

0 0
9-Feb
25-Jan

24-Feb

10-Mar

25-Mar

9-Apr

24-Apr

9-May

24-May

8-Jun

23-Jun

8-Jul

23-Jul

7-Aug

22-Aug

6-Sep

21-Sep

6-Oct

19-Oct

RECOVERED DEATHS (RIGHT SCALE) Note: MCO : 18 March – 3 May 2020

CONFIRMED CMCO : 4 May – 9 June 2020
RMCO : 10 June – 31 December 2020
Source: Ministry of Health, Malaysia

8 economic outlook 2021

 chapter 1 economic management and prospects

Local cases started to escalate in early March 2020 (Figure 1.1.1.), with more clusters began to
emerge during what was categorised as the second wave of transmission. Within a few weeks,
Malaysia recorded the largest cumulative number of confirmed COVID-19 transmission in Southeast
Asia, with over 2,000 active cases by the end of March. In a critical move to mitigate the outbreak
and flatten the curve as recommended by the World Health Organisation, the Government imposed
a full Movement Control Order (MCO) effectively on 18 March 2020. In addition, the Government
established a task force to manage the crisis led by the Prime Minister himself, with representation
by relevant ministries and agencies. The task force is responsible for gathering intelligence on the
development of the pandemic and coordinating efforts to contain the outbreak.

The MCO was made more lenient under the Conditional Movement Control Order (CMCO) on 4 May
2020, where most economic sectors were allowed to resume operations under certain Standard
Operating Procedures (SOPs). At this stage, all businesses, with a few exceptions, were allowed to
reopen under strict SOPs, including contact tracing, mandatory use of face masks in public and
physical distancing. Nonetheless, international and interstate travels were still restricted as the
threat of the virus persisted.

As cases began to de-escalate, the economy was reopened for people to resume their economic
activities and livelihood. The CMCO was then followed by the Recovery Movement Control Order
(RMCO) starting 10 June 2020, which is extended until 31 December 2020. The implementation of
the RMCO is based on protecting vulnerable groups, empowering the community, embracing the
new normal, resuming almost all economic sectors, continuing border control and enhancing public
health.

Malaysia received global recognition as among the more successful countries in containing the
pandemic. Nonetheless, the Government is fully aware that this containment move has to be
parallel with the reopening of the economy to prevent long-term structural damage. Therefore, the
Government applied the 6R approach, representing six stages: Resolve, Resilient, Restart, Recovery,
Revitalise and Reform (Figure 1.1.2.).

FIGURE 1.1.2. 6R Strategy for Resilient and Sustainable Growth

BUDGET
TWELFTH
MALAYSIA
PLAN
2021-2025

REFORM
REVITALISE Menyusun
Memperkasa Semula
RECOVERY
Pemulihan
RESTART

6R
RESILIENT Memulakan
Ketahanan Semula
RESOLVE
Ketegasan Strategy

Source: Ministry of Finance, Malaysia

economic outlook 2021 9

chapter 1 economic management and prospects

The Resolve strategy was implemented as early as when the MCO was first announced on
18 March 2020. The movement control and physical distancing resulted in temporary closures of
most businesses, especially the non-essential sectors, which resulted in higher unemployment.
Accordingly, the Government announced the second stimulus package on 27 March 2020. The
package, known as Prihatin Rakyat Economic Stimulus Package (PRIHATIN), totalling RM230 billion,
was aimed at softening the impact of the crisis. PRIHATIN provided cash transfers to supplement
the loss of income and wage subsidies to encourage businesses to retain employees. In addition,
the package includes an automatic moratorium on loan repayments for six months to households,
which ended in September 2020, partly to encourage private consumption. Subsequently, the
Government announced an additional RM10 billion through PRIHATIN PLUS on 6 April 2020,
particularly to help the small and medium enterprises (SMEs) remain resilient to weather the
unprecedented crisis.

As part of the fourth stage of the 6R approach (Recovery), the Government announced a short-term
economic recovery plan or Pelan Jana Semula Ekonomi Negara (PENJANA) on 5 June 2020 totalling
RM35 billion. The main objective of PENJANA was to restart the economy by incentivising people
and businesses to resume their activities, amid the new normal. It was complemented with the
implementation of the RMCO, with almost all restrictions lifted. However, businesses were required
to self-regulate, adhere to the SOPs and adjust to the new normal.

As the loan moratorium period and wage subsidy ended in September 2020, the Government
received feedback that people and businesses were still financially-stricken. Hence, an additional
stimulus package was announced on 23 September 2020 to further ease the people’s burden and
keep businesses afloat. The package, PRIHATIN Supplementary Initiative Package (KITA PRIHATIN),
amounting to RM10 billion, will benefit micro SMEs, local workers as well as B40 and M40 groups.
In addition, a targeted loan moratorium was extended to businesses and people to ease their
financial commitment.

Budget 2021 is the fifth stage of “Revitalise” in the 6R approach, aiming to revitalise post-crisis
economic growth. The Budget focuses on four areas – caring for the people, steering the economy,
sustainable living and enhancing public service delivery. The final stage of the 6R approach is
“Reform”, where medium-term strategies to reform the economy will be outlined in the Twelfth
Malaysia Plan, 2021 – 2025. These strategies will take advantage of the economic momentum in
efficiency and productivity, towards a more sustainable and higher value-added economy
(Figure 1.1.3.).

FIGURE 1.1.3. Measures under the Economic Stimulus Packages

Kerangka Inisiatif Tambahan

Pakej Rangsangan PRIHATIN PRIHATIN PKS+ PENJANA KITA PRIHATIN

Ekonomi 2020 27 March 2020 6 April 2020 5 June 2020 23 September 2020
27 February 2020 RM230 billion RM10 billion RM35 billion RM10 bilion
RM20 billion

1. Mitigating Impact of 1. Protecting Rakyat Supporting Businessess, 1. Empowering Rakyat Supporting Micro SMES,
COVID-19 2. Supporting Businesses especially SMEs 2. Propelling Businesses Local Workers and People
2. Spurring Economic 3. Strengthening Economy 3. Stimulating Economy
Growth
3. Promoting Quality Measures (among others): Measures (among others): Measures (among others): Measures (among others):
Investment • Bantuan PRIHATIN Nasional • PRIHATIN Special Grant • Wage Subsidy (extension) • PRIHATIN Special Grant
• Wage Subsidy for micro SMEs • Reskilling fund for micro SMEs (new)
Measures (among others): • Automatic six-month loan • Wage Subsidy (additional) • One-off support to • Wage Subsidy 2.0
• Support healthcare sector moratorium vulnerable groups (extension)
• Cash flow assistance for • EPF i-Lestari • Financing and liquidity • Bantuan PRIHATIN
tourism-related sector • Cash aid for government supports Nasional 2.0
servants and pensioners • E-commerce incentives
Note: There was a change of • SME soft loan funds • Tax exemption measures
Government on 23 February 2020 • Corporate loan guarantees

Source: Ministry of Finance, Malaysia

10 economic outlook 2021

 chapter 1 economic management and prospects

Economic Impact of COVID-19

Efforts by the Government to revive the economy have proven to be effective as reflected in the
improving macroeconomic indicators from the significant decline in the second quarter of 2020
(Figure 1.1.4.). The stimulus packages that consist of fiscal and non-fiscal measures totalling
RM305 billion are expected to cushion the crisis and stimulate the economy by boosting aggregate
demand and sustaining employment. Internal estimates project that the packages would add to the
gross domestic product (GDP) growth by 4.0 – 4.2 percentage points in 2020. The estimated impact
on employment is 3.5 percentage points, preventing about 560,000 workers from losing their jobs.1

FIGURE 1.1.4. Short-term Macroeconomic Indicators

% growth
15 MCO CMCO RMCO
10
5
0
-5
-10
-15
-20
-25
-30
-35
-40
Dec Jan Feb Mar Apr May Jun Jul Aug Sep
2019 2020
SALES VALUE OF WHOLESALE AND RETAIL TRADE
MALAYSIA MANUFACTURING PURCHASING MANAGERS’ INDEX (PMI)
KUALA LUMPUR COMPOSIT INDEX (KLCI)
INDUSTRIAL PRODUCTION INDEX (IPI)

Source: Department of Statistics, Malaysia, Bloomberg and IHS Markit

Conclusion

The timely response by the Government in imposing the MCO to flatten the curve, complemented
by swift stimulus packages, has cushioned the impact of the crisis. This success was also supported
by the overall strict adherence of the public to the different phases of MCO and SOPs, which was
crucial in containing the pandemic. As a result, the economy is expected to improve gradually
in the second half of the year, as reflected by various macroeconomic indicators. The stimulus
measures have paved the way for a firm economic recovery, subject to successful, continued
containment of the pandemic. Being an open economy, the speed and magnitude of Malaysia’s
full economic recovery are also dependent on the performance of its major trading partners.
Nevertheless, the crisis offers businesses the opportunity to reform strategies, expedite digital
transformation and reallocate resources to increase efficiency and productivity. Unless and until a
vaccine is found and made widely accessible, the war against COVID-19 is not over, and efforts to
curb the virus and its impact are still ongoing.

Note:
The third wave of COVID-19 outbreak suddenly emerged and a 14-day CMCO had to be imposed
commencing 13 October 2020 in Sabah, 14 October 2020 on three states – Selangor, Federal Territories
of Kuala Lumpur and Putrajaya and 17 October 2020 in Federal Territories Labuan, to re-flatten the
COVID-19 curve. At the time of printing, the number of positive cases has yet to peak.
1
Based on the Dynamic Computable General Equilibrium (CGE) for the Malaysian Economy (MyAGE) model, Ministry of Finance, Malaysia

economic outlook 2021 11

chapter 1 economic management and prospects

Issues and Challenges will be available and made accessible to all,

the tourism industry is facing a bleak near-
term future.
As Malaysia intensifies its efforts to unshackle
itself from the middle-income trap, it continues
to face several challenges. The most pertinent Food Insecurity
issue following the outbreak of the pandemic
is the drastic decline in economic activities, Although the Government continues to
particularly the tourism-related subsectors. focus on the development of the agriculture
The pandemic exacerbated the existing sector, food insecurity remains an issue.
structural problems, such as food insecurity, The 2019 Global Food Security Index ranks
limited employment opportunities, regional Malaysia at 28th position, which is lower
imbalances, lack of focus on sustainable compared to other nations with lesser natural
development, the rising cost of living and resources (Economist Intelligence Unit, 2019).
insufficient affordable housing. In addition, the Furthermore, the 2019 Self-Sufficiency Ratio
apparent digital gap between industries and (SSR) indicates that Malaysia has yet to be
the limitation in the logistics sector continue to self-sufficient in some of its staple foods
hamper economic progress. (Department of Statistics Malaysia, 2020). For
example, in 2019, Malaysia’s rice production
is sufficient to meet only 70% of domestic
Impact of COVID-19 on demand. Other food items with lower SSR
Tourism-related Subsectors includes sweet potato (81.7%), coconut (68.2%),
cabbage (36.2%), mango (32.1%), chilli (30.8%)
The tourism industry, with a share of 15.9% and ginger (16.2%). Factors contributing to the
of GDP, is one of the main contributors to unattractive supply of staple foods include low
the services sector in 2019. Domestic tourists wages in the agriculture sector, the prevalence
contributed RM92.6 billion while international of pests and diseases, lack of technology
tourists spent RM89.4 billion in 2019. The adoption and low interest among the younger
implementation of the MCO in Malaysia and generation in the agriculture sector.
the closure of international borders to contain
the virus outbreak have affected people’s
Limited Employment
movements and activities, particularly in
tourism-related sub-sectors. According to Opportunities
Malaysia Association of Hotels, hotel booking
cancellations from January 2020 to Youth unemployment continues to be an
20 March 2020 breached over 193,000 rooms, issue, recording double-digit rates even
which translates into RM76 million losses in during the overall full employment periods
revenue for the industry. At the same time, in the economy. The educational mismatch
the hotel occupancy rate dropped from 61.6% is also prevalent in the labour market,
in January 2020 to 25% in March 2020. With where individuals with tertiary education are
the gradual recovery of the economy, the employed in the semi-skilled and low-skilled
accommodation industry started to pick-up occupations. In 2019, a total of 26.7% of
with the occupancy reaching 42.1% from 30 graduates was underemployed mainly due to
August to 5 September 2020. In addition, the insufficient jobs in skilled occupations. Malaysia
Malaysian aviation industry is projected to lose is also heavily reliant on migrant workers,
RM13 billion in 2020 as air travel plummeted particularly low-skilled foreign workers. At the
following international travel restrictions. As it same time, while the gig economy is gaining
is still uncertain when a vaccine for COVID-19 prominence, it does not provide gig workers
with appropriate social safety coverage.

12 economic outlook 2021

 chapter 1 economic management and prospects

feature article 1.2

Labour Market Mismatch

Introduction

Education plays a significant part in building human capital. It creates a sufficient pool of
educated workforce and is an essential determinant of a high-income and advanced nation. Given
its importance, the percentage of Government expenditure on tertiary education has increased
significantly from 11.3% of total expenditure on education in 1971 to 21.3%1 in 2018 (World Bank,
2020) to support this aspiration. The Private Higher Educational Institutions Act 1996 [Act 555]
was also introduced to further complement the effort to increase access to tertiary education. This
investment has resulted in millions of knowledge workers with tertiary2 education entering the
labour market.

On the demand front, the unemployment rate is a common proxy to measure the health of the
labour market. While a low unemployment rate is an ideal situation, it can hide other aspects
such as underemployment or a mismatch. In general, underemployment3 or mismatch refers to
the underutilisation of workers’ education and skills (Figure 1.2.1.). Malaysia’s achievement in
maintaining the economy at full employment level since 1992 is commendable. However, there are
concerns on whether the investment in education has achieved the desired outcome, given the
current high incidence of underemployment or mismatch, particularly among graduates.

FIGURE 1.2.1. Types of Skill Mismatch

Skill gaps Over/Under Over/Under skilling

qualification or vertical
Workers lack the skills mismatch Workers with skills above
necessary to perform jobs or below job requirement
effectively Level of education is
higher or lower than job
requirement

Skills obsolescence Skills shortages Field of study or

horizontal mismatch
Workers lose their skills over Difficulty for employers to
time due to underutilisation recruit professionals with Workers are employed in
or when skills become the right qualifications unrelated field of study
irrelevant due to changes in and skills
workplace

Source: International Labour Organisation, 2015

Underemployment or educational mismatch remains a common long-standing structural issue in

many countries, including Malaysia. This can be seen from the occupational trend analysis, which
reveals that the share of employment with tertiary education is larger than employment in the
skilled category (Figure 1.2.2.). Over qualification mismatch in the labour market sends a signal that
returns on investment in education were not optimised as workers were not fully absorbed by the
labour market. This article provides an analysis of the current scenario of mismatches in Malaysia’s
labour market, particularly among graduates and youths, and proposes measures to reduce the
mismatches. It also suggests recommendations regarding employment prospects following the
COVID-19 pandemic that can be leveraged as an option for job seekers.

1
Excludes private expenditure in education, where the sector was liberalised in 1996.
2
According to the International Labour Organisation (ILO), tertiary educated refers to graduates with diplomas and above.
3
ILO defines time-related underemployment as a situation in which a worker is employed for less than 30 hours per week.

economic outlook 2021 13

chapter 1 economic management and prospects

FIGURE 1.2.2. Employment by Education and Skills for Selected Countries, 2018

% Employment by Educational Attainment % Employment by Skills Category

100 100
12.6 52.6 28.6 56.0 59.0 17.0 13.1 11.6 24.8 27.2 39.5 56.9 13.8 11.7

80 80

60 60

40 40

20 20

0 0
Indonesia

Japan

Malaysia

Republic of
Korea

Singapore

Thailand

Viet Nam

Indonesia

Japan

Malaysia

Republic of
Korea

Singapore

Thailand

Viet Nam
PRIMARY & BELOW LOW-SKILLED
SECONDARY SEMI-SKILLED
TERTIARY SKILLED

Note: Employment for population aged 15-64

Source: International Labour Organisation, 2018

Situational Analysis

Occupational analysis in Malaysia for the period 2010 to 2019 indicates the existence of the
continuous phenomenon of the educated workforce being employed in the lower occupational
category (Figure 1.2.3.). The scenario, which is also commonly referred to as a vertical mismatch,
reflects that graduates are accepting jobs despite being overqualified.

FIGURE 1.2.3. Employment by Education and Skills FIGURE 1.2.4. Graduate Mismatch vs
in Malaysia, 2010 – 2019 Graduate Unemployment

% %
100 8.8 11.8 14.0 61.7 72.8 70.1 30
overqualified
56.0
25
80

20
60
15 7x
40
10
4x
20 underqualified
5

0 0
2010 2015 2019 2010 2015 2019 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019
Low-and Skilled
Semi-Skilled

PRIMARY & BELOW GRADUATE MISMATCH RATE

SECONDARY GRADUATE UNEMPLOYMENT RATE
TERTIARY

Source: Department of Statistics and Ministry of Finance, Malaysia Source: Department of Statistics and Ministry of Finance, Malaysia

14 economic outlook 2021

 chapter 1 economic management and prospects

The difficulty of the workforce in finding suitable jobs that match their qualifications and skills is
due to the shortcomings in the labour market capacity. The phenomenon has been ongoing for
some time, thus contribute to rising graduate unemployment (Malaysia Employer’s Federation,
2019). While the graduate unemployment rate remained relatively stable, between 3.1% to 4.1%,
the graduate mismatch rate has more than doubled between 2001 and 2019 (Figure 1.2.4.).

The increasing rate of mismatch is a concern as more graduates are working in the semi- and
low-skilled categories. The 2019 Graduates Tracer Study by Ministry of Higher Education (MOHE)
also indicates that 30.6% of the respondents with tertiary education were underemployed. In the
incidence of horizontal mismatch, Zakariya, Z. (2014) reveals that 52% of workers were employed in
jobs that are not related to their field of study.

Reasons for Mismatch

The main contributing factor for the mismatch is due to limited jobs in the market to meet the
increasing number of labour supply, including new graduates. Today, having a university degree
does not guarantee a job. With the rising number of graduates every year, the labour market has
become very competitive, especially when there is economic uncertainty. Consequently, the job
seeker is left with no option but to accept being underemployed.

For almost a decade, there were more than three million new jobs created in the economy.
However, job creation has remained concentrated in low- and semi-skilled jobs. From the total new
jobs created during the period, only 26% were in the skilled category while the remaining 74%
were in the low- and semi-skilled categories (Figure 1.2.5.).

As at December 2019, out of 62,400 vacancies in the market, only 5% were for skilled workforce.
In contrast, from a total of 299,600 job seekers, 72% were graduates, of whom more than half
were fresh graduates with less than one-year experience (Figure 1.2.6.). The 2019 Graduates Tracer
Study highlights that 13.7% of graduates were still unemployed six months after completing their
studies. They were mainly graduates from education; arts and humanities; as well as agriculture
and veterinary.

FIGURE 1.2.5. Jobs Created by Skills FIGURE 1.2.6. Vacancies and Job Seekers, 2019
Number of
jobs creation %
10,000 Share 2019: 100
59.2%

8,000 80 6.1
72.0
6,000 60
Share 2019:
26.0%
4,000 40 21.9
Share 2019:
14.8%
2,000 20

73.8 21.2 5.0

0 0
Low-skilled Semi-skilled Skilled Low-skilled Semi-skilled Skilled

2010 OVERALL JOB SEEKERS

2019 OVERALL VACANCIES

Source: Department of Statistics and Ministry of Finance, Malaysia Source: Ministry of Finance and Ministry of Human Resources, Malaysia

economic outlook 2021 15

chapter 1 economic management and prospects

FIGURE 1.2.7. Jobs Created by Age Cohort From the perspective of new jobs created by
age cohort, only 16.6% of jobs created were for
% youths aged 15 – 24 (Figure 1.2.7.). Whereas,
100
65.6 59.8 83.4 data on job seekers showed that 78.9%4 of
80 the total active job seekers were youths. This
indicates that jobs were mostly created for the
60 adult cohort, hence the continuous double-
digit youth unemployment rate in the past two
40
40.2 decades. These scenarios also attest that there
34.4
20
were insufficient jobs created in the market
16.6 to absorb the increasing demand from job
0 seekers, especially graduates.
2010 2019 2010 - 2019

15-24 Advancement of technology is another reason

25-64 for the mismatch. According to Kaufman
Source: Department of Statistics and Ministry of Finance, Malaysia
(1974), technological progress has led to skill
obsolescence, where professionals lack up-to-
date knowledge or skills to maintain effective
performance in their jobs. While it is true that technological changes can improve or deteriorate
skills mismatch, there is significantly a greater number of ways in which such changes lead to
negative implications on employment (Allen & de Grip, 2012).

Another reason that pushes many individuals to accept mismatch and lower-quality jobs is due to
the geographical factor. Employees’ disposition to move to another job or position is very much
linked with location and commuting issues which results in work-life balance (Direnzo et al., 2015;
Lambert et al., 2005). In the case of Malaysia, Khazanah Research Institute (2018) highlights that
19% of their respondents rejected job offers due to inconvenient locations. This may be partially
contributed by the increasing cost of living in urban areas that discouraged new graduates from
accepting job offers, even with higher pay.

Impact of Mismatch

Skills mismatch can impact workers’ well-being in several ways. It has led workers to receive a
lower pay as compared to what they deserve. According to the 2019 Graduates Statistics report,
salaries obtained by graduates working in the low- and semi-skilled categories were 3.0 times and
2.3 times lower than that of graduates working in the skilled category (Figure 1.2.8.). When skilled
individuals work in a lower-skilled category, not only they are underpaid, their potential is under-
exploited, leading to lower productivity. Labour mismatch is one factor that may contribute to
cross-country differences in labour productivity.

Studies indicate that greater skills mismatch is associated with lower labour productivity through
less efficient allocation of resources. Skills mismatch is also known to be correlated with low job
satisfaction as a result of unequal wage-earning, underutilisation of skills and fear of job insecurity.
Ogbonnaya et al. (2017) reports that overqualified employees are more likely to feel they are being
tasked for more work due to their education but are given low wages. This decreases their job
satisfaction.

4
Based on December 2019 active job seekers.

16 economic outlook 2021

 chapter 1 economic management and prospects

FIGURE 1.2.8. Mean Monthly Salary for Graduates by Skills Category, 2016 – 2019

RM
7,000

5,882
6,000 5,591
5,305
5,000 4,858

2.3x 2.3x
4,000 2.3x 2.9x 3.0x
2.2x 2.7x
3.6x
3,000 2,511
2,418
2,219 2,267
1,966 1,902 1,991
2,000
1,347
1,000

0
2016 2017 2018 2019

LOW-SKILLED
SEMI-SKILLED
SKILLED

Source: Department of Statistics, Malaysia

Recommendations

If Malaysia is to harness the full potential of its human capital, the persistence of skill mismatches
in the labour market must be addressed. All stakeholders, including industries, learning institutions
and Government agencies, need to closely collaborate to tackle the issue, both from the supply
and demand-side perspectives. Labour market capacity to provide sufficient jobs is limited unless
and until the production structure of industries undergoes a rapid transformation into high-end
production as envisaged in the industrial master plans. In such a situation, self-employment can
be a viable option for job seekers. Initiatives should be focused on generating more job creators
through entrepreneurship opportunities. As entrepreneurs generally face difficulties in securing
loans, financial institutions and relevant agencies may facilitate entrepreneurs applying for soft-
loans or matching grants and other business support programmes.

The issue of job opportunities has gained more attention during the COVID-19 outbreak when
retrenchment surged during the first half of 2020 as compared to the same period last year. As
most of economic activities were not allowed during the Movement Control Order (MCO), many
workers were laid off. Nevertheless, some industries had benefitted, especially online retail and
delivery services. There was an increase in the number of marts and restaurants migrating to the
digital platforms to facilitate the people who were unable to leave their homes while adhering to
the MCO. Similarly, recruitment for food delivery workers and ride-hailing drivers also increased to
cater for the spike in demand for delivery services during the MCO period. In this case, technology
plays a vital role as the enabler to make online marketplaces accessible.

The COVID-19 pandemic has also brought changes to the employment landscape from traditional
full-time employment to short-term and more flexible employment. Gig works have become
predominantly important to the economy, and gig workers are likely to have better income
prospects. A survey on the ride-hailing workers also reported that 54% of respondents indicated
that gig jobs is their primary source of income (The Centre, 2019). The result has shown that online
platform should be strengthened to facilitate these gig workers and online entrepreneurs.

economic outlook 2021 17

chapter 1 economic management and prospects

Nevertheless, there is a strong ground for having a more comprehensive social safety net in place,
especially given the growing number of gig workers. Unlike paid employees, many of the self-
employed, including gig workers, are lacking access to social security protection, such as insurance
benefits and pensions, and are not covered by labour legislation. There is also the potential for a
transition from standard employment to business-digitalisation related activities, implying that the
vulnerable workers should be provided with sufficient and structured safety net. As an immediate
strategy, all self-employed, including gig workers, should make a mandatory contribution to social
security protection under the Self-Employment Social Security Act 2017 [Act 789]. This will entitle
them to receive assistance, especially during unprecedented economic downturns.

From the labour supply perspective, education and training institutions need to have more and
closer collaboration with industries to determine the type of skills that suits companies requirement
in the future. In-house assessment by individual employers is required to develop the retraining
and upskilling programmes needed by their employees to minimise the mismatch. This will lead to
better wages for the employees, and indirectly, can eventually address both the mismatch and low-
wage issues.

Conclusion

Over the years, underemployment or mismatch continues to be persistent in the Malaysian labour
market despite strategies to balance between labour supply and demand. The lack of job creation,
particularly for skilled occupations, seems to be the main contributing factor to the phenomenon.
A prolonged mismatch indicates that the potential of the educated workforce has not been fully
optimised for economic growth, thus limiting the nation’s economic potential. Self-employment
or gig job opportunities should be promoted as the career of choice for job seekers, given the
growing importance of the gig economy. Thus, structured and comprehensive regulations and
social safety net need to be in place to safeguard the workers’ well-being, especially during
economic downturns.

respectively. In comparison, states such as

Regional Imbalances Sabah and Kelantan recorded significantly
higher poverty rates of 19.5% and 12.4%,
As Malaysia progresses towards a high-income
respectively. This illustrates a pronounced
and developed nation, the problem of regional
disparity in economic development among
development imbalance persists. According to
states in Malaysia.
the Department of Statistics Malaysia (2020),
Malaysia’s average GDP per capita in 2019 was
RM46,450. While the more developed states Lack of Alignment between
continue to record above-average per capita Environmental Sustainability
income, the income gap among states remains.
For instance, Sabah’s income per capita was and Sustainable
45.5% below the national average, and that of Development
Kedah and Kelantan was at 51.8% and 69.2%,
respectively. Efforts to ensure environmental sustainability
need to be aligned with the sustainable
It is also reported that in 2019, Wilayah development agenda. Unsustainable
Persekutuan Kuala Lumpur and Wilayah consumption and production practices as
Persekutuan Putrajaya recorded the lowest well as lack of shared responsibility among
poverty rates of 0.2% and 0.4% of households, stakeholders, continue to impact the well-

18 economic outlook 2021

 chapter 1 economic management and prospects

being of the rakyat. For example, water At the international level, Malaysia has adopted
disruptions in the Klang Valley as a result the 2030 Sustainable Development Agenda,
of river pollutions in Selangor had not only which outlines 17 Sustainable Development
social but also economic impact, affecting Goals (SDGs). Malaysia needs to establish a
both the households and businesses alike. The comprehensive mechanism to measure and
implementation of the MCO to contain the monitor the development and progress of the
COVID-19 pandemic has indirectly contributed SDGs to ensure it covers the overall financing
to better air and water quality. Nevertheless, dimension in attaining SDGs. For example,
this situation is likely to be temporary as development allocation is mainly categorised
it will continue to be business as usual according to ministries and agencies and are
when economic activities recover. However, more focused on projects and programmes.
this situation can still be maintained if all As such, there is a need to realign budget
parties were to realise and take responsibility allocations to the SDGs to ensure the
for ensuring environmental sustainability achievement of national indicators, targets and
accompanied by comprehensive enforcement goals.
action.

information box 1.1

Mapping the UN Sustainable Development Goals onto the National Budget

Introduction

All member states of the United Nations (UN) adopted the UN 2030 Agenda for Sustainable
Development (2030 Agenda) in 2015, and the 17 Sustainable Development Goals (SDGs) are to be
achieved by the year 2030. The SDGs, among others, aim to end all forms of poverty, fight against
inequalities, create peace, tackle urgent environmental issues and ensure that no one is left
behind. The success of the global initiative requires concerted efforts by member states to ensure
that related plans, programmes and projects at national levels are geared towards achieving these
goals within the stipulated timeline.

Sustainable and inclusive development has always been the mainstay of Malaysia’s development
since the 1970s. Economic growth has always been emphasised by the Government. At the same
time, various initiatives have been implemented to eradicate poverty, improve the well-being of
the people, provide universal access to education and health and protect the environment. The
Eleventh Malaysia Plan, 2016 – 2020 (11MP), continued to pursue sustainable development based
on three main goals, namely achieving a high-income economy, promoting inclusivity and ensuring
sustainability. In line with the 2030 Agenda, all the SDGs were subsequently incorporated into all
initiatives under the 11MP to ensure alignment between national objectives and SDGs as well as for
sufficient resource allocation and proper monitoring. As the implementation of various programmes
and projects will be supported by the annual allocation, this article highlights the efforts taken by
Malaysia towards mapping the SDGs in the annual budget (Figure 1.1.1.).

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chapter 1 economic management and prospects

FIGURE 1.1.1. Sustainable Development Goals

NO POVERTY ZERO HUNGER GOOD HEALTH QUALITY GENDER CLEAN WATER

AND WELL-BEING EDUCATION EQUALITY AND SANITATION

1 2 3 4 5 6
AFFORDABLE AND DECENT WORK INDUSTRY, INNOVATION REDUCED SUSTAINABLE CITIES RESPONSIBLE
CLEAN ENERGY AND ECONOMIC AND INFRASTRUCTURE INEQUALITIES AND COMMUNITIES CONSUMPTION
GROWTH AND PRODUCTION

7 8 9 1O 11 12
CLIMATE LIFE BELOW LIFE ON LAND PEACE, JUSTICE PARTNERSHIPS
ACTION WATER AND STRONG FOR THE GOALS
INSTITUTIONS

13 14 15 16 17
Source: United Nations, 2015

National Budgetary Process

The 2015 UN Addis Ababa Action Agenda (Action Agenda) provides a global framework for
financing sustainable development, which supports the implementation of the 2030 Agenda,
including the SDGs. The Action Agenda aligns all domestic and international resource flows, policies
and international agreements with economic, social and environmental priorities. The specific
action areas of the Action Agenda are:

• Domestic public resources;

• Domestic and international private business and finance;
• International development cooperation;
• International trade as an engine for development;
• Debt and debt sustainability;
• Addressing systemic issues; and
• Science, technology, innovation and capacity building.

With the SDGs fully aligned to the initiatives and targets of the 11MP, development expenditure
(DE) has been allocated to support both national objectives and the SDGs. However, for the
annual budget allocation, a mechanism has yet to be established to monitor the progress of the
allocations to support the SDGs comprehensively and more frequently. The 2021 Budget will be the
base to align its annual budget to the SDGs, beginning with the DE’s allocation.

At the Federal level, the yearly budget is determined through several processes involving
engagement with ministries and central agencies such as the Economic Planning Unit. These
include dissemination of guidelines in preparing the estimated budget for the following year to
all ministries and agencies, receipt of proposals from all ministries and agencies by the Ministry
of Finance, followed by budget screening by respective budget review officers. The next process
involves approval by the Cabinet before presentation and debate in Parliament. After the budget is
approved by Parliament and consented by Seri Paduka Baginda Yang di-Pertuan Agong, the General
Warrant is issued. This allows expenditures in the budget to be spent on various programmes and
projects.

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 chapter 1 economic management and prospects

Mapping the SDGs onto the Programmes and Projects in the Annual Budget

There are many ways in which countries adopt the SDGs into their national budgeting process.
According to Hege & Brimont (2018), there are four approaches to achieve this: improving the
budget proposal narrative; mapping and tracking the budgetary contribution to the SDGs; using
SDGs as a management tool for negotiations; and improving budget performance evaluation. This
article focuses on mapping Malaysia’s annual budget through the lens of the SDGs as an initial
effort to improve its alignment to the SDG financing for development framework.

At this juncture, the ex post mapping exercise is focused on the actual spending on all development
projects for two ministries, the Ministry of Energy and Natural Resources (KeTSA) and the Ministry
of Environment and Water (KASA) for budget year 20191 in comparison with that for the Ministry
of Energy, Green Technology and Water (KeTTHA) and the Ministry of Natural Resources and
Environment (NRE) for budget year 20152. In terms of methodology, each project was first assigned
to the respective SDGs. For example, the project of upgrading of the Congok Dam in Mersing in
2019 was aimed at resolving water woes in the area. Therefore, its DE was classified as supporting
SDG6, which is to attain Clean Water and Sanitation. However, the main challenge arises if a project
could support the attainment of more than one SDG. For example, the project of management
and conservation of forest reserve can contribute towards attaining two SDGs, namely SDG13 on
Climate Action and SDG15 on Life on Land.

There were 361 projects worth RM3.2 billion in 2019 under the responsibility of the two ministries,
compared with 272 projects worth RM2.9 billion in 2015. As the two ministries are mainly
responsible for the sustainability, the DE of the ministries would naturally support the SDGs directly
related to sustainable energy, utilities, environment and natural resources. So, it is not surprising
that almost 90% of their DE supported SDGs 6, 7, 11 and 13 for both years. However, expenditure
on four SDGs which were directly under the purview of the ministries was relatively lower
compared to the SDGs of 6, 7, 11 and 13. The another four SDGs are Responsible Consumption and
Production (SDG12), Life Below Water (SDG14), Life on Land (SDG15) and Partnerships for the Goals
(SDG17). It is interesting to note that DE allocation for the two ministries was provided, albeit in
smaller magnitudes, to other SDGs not directly related to sustainability. This proves that the SDGs
are very much inter-related with each other and should not be treated in a silo. Therefore, there
is still room for improvement in mapping SDGs covering all ministries and the private sector (Table
1.1.1. and Figure 1.1.2.).

1
Year 2019 was chosen to reflect the most recent actual year of expenditure.
2
Year 2015 was chosen as the base reference year when 2030 Agenda was first signed by all countries. The portfolios for KeTTHA and NRE were
reassigned to KASA and KeTSA, respectively.

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chapter 1 economic management and prospects

TABLE 1.1.2. Development Expenditure for KeTTHA and NRE in 2015, and for KASA and KeTSA in 2019 by SDG

2015 2019
SUSTAINABLE DEVELOPMENT GOAL
% %
RM MILLION RM MILLION
TOTAL TOTAL
Goal 1 No Poverty 0.00 0.00 0.00 0.00
Goal 2 Zero Hunger 0.00 0.00 0.00 0.00
Goal 3 Good Health and Well-Being 2.03 0.10 0.03 0.00

Goal 4 Quality Education 0.25 0.00 2.86 0.10

Goal 5 Gender Equality 0.00 0.00 0.00 0.00

Goal 6 Clean Water and Sanitation 1,303.45 44.20 1,608.68 50.70
Goal 7 Affordable and Clean Energy 132.20 4.50 411.16 13.00
Goal 8 Decent Work and Economic Growth 0.38 0.00 2.30 0.10
Goal 9 Industry, Innovation and Infrastructure 51.86 1.80 39.89 1.30
Goal 10 Reduced Inequalities 0.00 0.00 0.00 0.00
Goal 11 Sustainable Cities and Communities 697.32 23.70 385.50 12.20
Goal 12 Responsible Consumption and Production 29.04 1.00 117.42 3.70
Goal 13 Climate Action 496.55 16.90 441.45 13.90
Goal 14 Life Below Water 35.08 1.20 7.12 0.20
Goal 15 Life on Land 52.20 1.80 87.75 2.80
Goal 16 Peace, Justice and Strong Institutions 12.65 0.40 31.32 1.00
Goal 17 Partnerships for the Goals 133.09 4.50 35.66 1.10
Total 2,946.08 100.00 3,171.13 100.00
Note: 1 DE for projects contributing to more than one SDG is divided equally ex post with the number of respective SDGs
2 Total may not add up due to rounding
Source: Ministry of Finance, Malaysia

FIGURE 1.1.2. Development Expenditure for KeTTHA and NRE in 2015 and for KASA and KeTSA in 2019 by SDG

2015 2019

10.7% 10.2%

13.9%
16.9%

RM2.9 billion 44.2% RM3.2 billion 50.7%

12.2%

23.7%
13.0%
4.5%

GOAL 6 GOAL 13 GOAL 6 GOAL 13

GOAL 7 OTHERS GOAL 7 OTHERS
GOAL 11 GOAL 11

Source: Ministry of Finance, Malaysia

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 chapter 1 economic management and prospects

Moving Forward

The ex post mapping of DE to the respective SDGs in the annual budget of the two ministries is
just a beginning. The next step is to replicate the same exercise across all ministries, where the
final aim is to identify gaps in the implementation of the SDGs. This can then be a useful guide
to fill the gap from various sources of financing. The methodology of ascertaining ex post which
programme or project supports which SDG needs to be further refined. In addition, the mapping
of the DE to various SDGs needs to be further improved by central agencies and ministries,
especially in cases where programmes and projects support more than one SDG. For effective
monitoring, the respective public project monitoring systems will have to be enhanced to allow
ex ante SDG tagging codes on all programmes and projects. Thus, at the start of the budgeting
process, each programme and project proposal will have its own SDG tag which allows subsequent
ex post classification easier. In addition, efforts to increase awareness of SDG-aligned budgeting
process and enhance capacity building among public servants to embed SDGs in their budget
considerations will be necessary.

Conclusion

As Malaysia has taken on board the main elements of the sustainability and inclusivity in its
development strategies since the 1970s, embedding the SDGs in its development planning process
was an easier task. However, continuous efforts need to be undertaken including establishing
a comprehensive financing framework that encompasses various forms of financing and meet
the needs of stakeholders to ensure fair and equitable resources are allocated, overlaps are
minimised, and gaps are addressed towards the attainment of the SDGs. While Malaysia’s five-year
development plans have now been fully aligned to the SDGs, efforts are underway to ensure its
annual budget will also be so. In addition, there is clearly room for other stakeholders, especially
the private sector and non-governmental organisations to be contributors to SDG-related initiatives.
Efforts are also in place to establish appropriate mechanisms to enable more of such financing.

in household indebtedness and unaffordable

Rising Cost of Living
housing are among the key factors affecting
the cost of living. Furthermore, the mean
Achieving a developed, high-income, and an
income of the top 20% (T20) and the bottom
inclusive nation must be accompanied with
40% (B40) of households widened from
higher purchasing power. Unfortunately, the
RM8,679 in 2009 to RM15,354 in 2019. This
rising cost of living remains a critical concern
signifies the widening of the income gap
among the rakyat, particularly the low-income
between the two groups.
group. From 2016 to 2019, the Consumer
Price Index rose by 1.8% while the median
household income increased by 3.9%. The Insufficient Affordable
World Bank (2019) reports that although the Housing
median income continued to outpace inflation,
the income growth for low-income Malaysians By any standards, home ownership in Malaysia
slowed between 2014 and 2016. The report can be considered high at 76.9% of households
also highlights the disparity in purchasing in 2019. Nevertheless, affordable housing
power of households in different parts of remains a concern despite various affordable
the country. Poor financial planning, growth housing programmes being implemented,

economic outlook 2021 23

chapter 1 economic management and prospects

complemented by the provision of financing unaffordable, mainly due to house prices rising
facilities for affordable housing as well as faster than income growth. The median house
rental and rent-to-own housing programmes. price from 2012 to 2014 rose at a compound
Khazanah Research Institute (2019) reported annual growth rate of 23.5%, while the median
that the median multiple1 affordability for household income expanded significantly
Malaysia increased from 4.1 to 5.0 from slower at 11.7% (Khazanah Research Institute,
2002 to 2016. According to the World Bank 2019). Since 2014, house prices have
(2019), the median multiple of more than moderated following the measures undertaken
3.0 is considered unaffordable. This indicates by the Government. However, houses remain
that house prices in Malaysia are generally unaffordable for the majority of the rakyat.

feature article 1.3

Assessing Housing Affordability in Malaysia

Introduction

Home ownership continues to be a concern for most of the rakyat, particularly those in the B40
and lower M40 households. The Government has undertaken various efforts to ensure greater
home ownership for the rakyat, particularly the lower-income group through various affordable
housing programmes. Affordable housing can be defined as the provision of adequate homes
that meets the needs of the people in terms of quality and location as well as reasonably priced,
whereby house buyers will still have discretionary income to purchase other basic necessities (UN-
Habitat, 2011). This article analyses housing affordability in Malaysia based on the 2019 Household
Income and Basic Amenities Survey (HIS & BA).

Home Ownership and Trends of Household Income and House Prices in Malaysia

Based on the HIS & BA report, home ownership has marginally improved between 2016 and 2019.
In 2019, 76.9% of households owned their homes compared to 76.3% in 2016. At this rate, home
ownership in Malaysia can be considered as high by any standards, especially when Malaysia does
not have a universal home ownership policy (Figure 1.3.1.). In this regard, Malaysia compares well
with other advanced countries such as Canada at 66.3%, US (65.3%), UK (65.2%) and South Korea
(56.8%).

Nevertheless, there is some disparity in home ownership among states in Malaysia. States with
high ownership of above 84% include Terengganu, Sarawak, Kelantan, Kedah and Perlis. However,
home ownership was lower than 76% in Labuan, Kuala Lumpur, Selangor, Sabah and Pahang.

1
Median multiple, also known as house-price-to-income ratio, is the ratio of the median house price by the median annual gross household income.

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 chapter 1 economic management and prospects

FIGURE 1.3.1. Home Ownership in Malaysia by States, 2019

State
Putrajaya 15.1
Labuan 60.3
Kuala Lumpur 63.3
Sarawak 85.6
Sabah 75.9
Terengganu 86.5
Selangor 69.7
Perlis 84.3
Perak 81.8
P. Pinang 78.9
Pahang 75.9
N. Sembilan 78.9
Melaka 83.5
Kelantan 84.7
Kedah 84.5
Johor 77.5
Malaysia 76.9

0 20 40 60 80 100
% household
Note: Putrajaya has a low home ownership rate as the majority of houses are quarters for civil servants
Source: Department of Statistics, Malaysia

Regarding the trend of house prices and household incomes, it is evident that prices of houses
rose slower at 3.4% on average than that of household incomes at 5.2% during the period of
2001 – 2009 (Figure 1.3.2.). However, house prices rose in double digits by 11.8% compared to
household income at 9.9% during the period of 2011 – 2013. The drastic increase during the period
has generally rendered many types of houses unaffordable to many segments of the people.
To address the drastic increase in house prices, the Government instituted several measures to
manage both the demand and supply of houses. Subsequently, the impact of these measures can
be seen from the slower rise in house prices at 6% for the period of 2014 – 2019, slightly lower
than the rate of increase in household income at 6.3% on average.

FIGURE 1.3.2. The Trend of House Prices and Household Income, 2000 – 2019
% growth
16

14

12

10

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

HOUSE PRICE INDEX

HOUSEHOLD INCOME

Source: Department of Statistics and National Property Information Centre, Valuation and Property Service Department, Malaysia

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chapter 1 economic management and prospects

Measurement of Affordability

In assessing home affordability, policy makers and researchers have relied on short-term measures
such as the median1 multiple ratio which compares house prices with current incomes. This
article applies a similar model. Based on the definition by the World Bank, a home is considered
affordable if the median multiple score is 3.0 or less (Table 1.3.1.). It is considered moderately
unaffordable for scores of between 3.1 and 4.0, seriously unaffordable (4.1 to 5.0) and severely
unaffordable (5.1 and above).

table 1.3.1. Housing Affordability Median Multiple Score

score2 description

3.0 or less Affordable

3.1 – 4.0 Moderately unaffordable

4.1 – 5.0 Seriously unaffordable

5.1 and above Severely unaffordable

Source: Global Platform for Sustainable Cities (2019), World Bank

Home affordability has generally improved in Malaysia in the last few years. The overall median
house price had fallen by 1% annually on average from RM298,000 in 2016 to RM289,646 in 2019
(Table 1.3.2.). During the same period, the annual median household income had risen by 4%
annually from RM62,736 in 2016 to RM70,476 in 2019. Thus, the median multiple score dropped to
4.1 in 2019 compared to 4.8 in 2016. Although it has gradually decreased, the 2019 ratio implies
that homes remained seriously unaffordable in general. Nevertheless, the median multiple score
may differ across income groups, types of property and states.

Home Affordability by States

It is interesting to note that home affordability has generally improved even at the state level
between 2016 and 2019. In 2016, homes in five states (Putrajaya, Sabah, Kelantan, Pulau Pinang
and Pahang) were considered severely unaffordable. By 2019, homes in only two states (Sabah
and Sarawak) remained so. Likewise, in 2016 homes in nine states were considered seriously
unaffordable, but by 2019 homes in only four states were in the same category. Houses in eight
states were considered moderately unaffordable in 2019 compared to just two states in 2016.
While there were no states categorised as affordable based on the median multiple scores in 2016,
houses in two states (Melaka and Putrajaya) were considered affordable in 2019.

A further analysis was conducted on the affordability of homes for the B40 group to own three
types of residential houses, namely low-cost flats3, low-cost houses and flats4 across states. The
same analysis was conducted on the affordability of the M40 group to own flats, condominiums or
apartments and terrace houses. The selection of states for the analysis is based on the following
criteria: the highest median house price (Kuala Lumpur), the highest median multiple score (Sabah)
and the most populous state (Selangor).

1
The median statistic is preferred over the mean as household incomes and house prices variables are typically skewed to the right (positive
skewness) such that their mean are typically above their median, thus not representing the population.
2
Median multiple score = Median price of houses / Median annual household incomes
3
Refers to an affordable housing unit that is self-contained but is part of a larger building with larger units and is low-priced.
4
Refers to an affordable housing unit that is self-contained but is part of a larger building with larger units and is priced lower than condominiums
or apartments.

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 chapter 1 economic management and prospects

table 1.3.2. Housing Median Multiple Score by States, 2016 and 2019

median house price median income1 median multiple

score level of affordability
state
2019
2016 2019 2016 2019 2016 2019

Malaysia 298,000 289,646 62,736 70,476 4.8 4.1 Seriously unaffordable

Johor 330,000 350,000 67,818 77,124 4.9 4.5 Seriously unaffordable

Kedah 196,000 199,100 45,726 51,900 4.3 3.8 Moderately unaffordable

Kelantan 199,900 210,000 36,944 42,756 5.4 4.9 Seriously unaffordable

Melaka 205,000 200,000 67,061 72,648 3.1 2.8 Affordable

Negeri Sembilan 270,000 206,750 54,950 60,060 4.9 3.4 Moderately unaffordable

Pahang 239,000 218,000 47,752 53,280 5.0 4.1 Seriously unaffordable

Pulau Pinang 350,000 285,000 64,909 74,028 5.4 3.8 Moderately unaffordable

Perak 218,800 216,600 48,072 51,276 4.6 4.2 Seriously unaffordable

Perlis 227,000 220,000 50,444 55,128 4.5 4.0 Moderately unaffordable

Selangor 405,000 380,000 86,695 98,520 4.7 3.9 Moderately unaffordable

Terengganu 278,000 255,000 56,330 66,540 4.9 3.8 Moderately unaffordable

Sabah 278,000 300,000 49,325 50,820 5.6 5.9 Severely unaffordable

Sarawak 230,000 313,000 49,960 54,528 4.6 5.7 Severely unaffordable

Kuala Lumpur 520,000 480,000 108,874 126,588 4.8 3.8 Moderately unaffordable

Labuan 240,000 320,000 71,138 80,712 3.4 4.0 Moderately unaffordable

Putrajaya 738,650 260,000 99,300 119,796 7.4 2.2 Affordable

Note: 1 Annual median household income is calculated based on monthly median household income multiplied by 12 months based on data from
the Department of Statistics Malaysia, 2019
Source: Ministry of Finance, Malaysia (estimate)

FIGURE 1.3.3. Median Multiple Scores for B40 by Types of Houses in the Selected States, 2015 – 2019
Kuala Lumpur Sabah Selangor
14 14 14
12 12 12
10 10 10
8 8 8
6 6 6
4 4 4
2 2 2
0 0 0
2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019

FLATS FLATS FLATS

LOW-COST HOUSES LOW-COST HOUSES LOW-COST HOUSES
LOW-COST FLATS LOW-COST FLATS LOW-COST FLATS
THRESHOLD OF AFFORDABILITY THRESHOLD OF AFFORDABILITY THRESHOLD OF AFFORDABILITY

Source: Ministry of Finance, Malaysia (estimate)

economic outlook 2021 27

chapter 1 economic management and prospects

Based on the analysis, it was observed that during the period of 2015 – 2019, the B40 group in
Kuala Lumpur has been facing severe unaffordability issue for all three types of housing properties
(Figure 1.3.3.). In fact, the median multiple scores for all types of properties remained high above
5.0 throughout the period. Similarly, in Sabah, the B40 group faced similar affordability issue with
owning the same types of properties over the same period. However, the severity of unaffordability
in Sabah was not as severe as in Kuala Lumpur. Selangor has resolved the issue of unaffordability
for the B40 group with low-cost flats since 2016. Nevertheless, the B40 group would find it
challenging to upgrade to the other types of housing properties in the state.

FIGURE 1.3.4. Median Multiple Score for M40 by Types of Houses in the Selected States, 2015 – 2019

Kuala Lumpur Sabah Selangor

14 14 14
12 12 12
10 10 10
8 8 8
6 6 6
4 4 4
2 2 2
0 0 0
2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019

TERRACE HOUSES TERRACE HOUSES TERRACE HOUSES

CONDOMINIUM / APARTMENT CONDOMINIUM / APARTMENT CONDOMINIUM / APARTMENT
FLATS FLATS FLATS
THRESHOLD OF AFFORDABILITY THRESHOLD OF AFFORDABILITY THRESHOLD OF AFFORDABILITY

Source: Ministry of Finance, Malaysia (estimate)

The issue of housing unaffordability remained severe among the M40 in the three states during the
period of 2015 – 2019 (Figure 1.3.4.). In Kuala Lumpur, the M40 could only afford flats. However,
they were not qualified to do so under the public low-cost housing programmes. Even worse, the
other two types of properties were beyond their affordability as the median multiple scores for
condominiums or apartments and terrace houses were 8.0 and above. The situation in both Sabah
and Selangor was similar to Kuala Lumpur. However, the severity of the unaffordability was not as
extreme as that in the nation’s capital. The M40 in both states could only afford low-cost flats but
still could not upgrade to the other two types of properties.

Based on this evidence, it is observed that some states are facing greater challenges in
housing the rakyat. The Government remains committed to addressing home accessibility and
affordability issues. Through collaboration with the private sector since 2000, various public
housing programmes were implemented to meet the needs of the different segments of the
society, particularly the M40 and B40 groups. Among the programmes include 1Malaysia Housing
Programme (PR1MA), 1Malaysia Civil Servants Housing Programme (PPAM), MyFirst Home Scheme
and MyHome Scheme.

Conclusion

The provision of affordable housing to the rakyat is vital to ensure their well-being. The
Government has provided various programmes aimed at assisting the low and lower-middle income
groups in owning affordable houses. However, as the issue continues to persist, especially among
the middle- and lower-income groups across the states, more effective and efficient delivery of
these programmes is imperative. Thus, alternative models of social housing programmes should
be considered, taking into account new ownership models and innovative ways of financing and
pricing mechanisms.

28 economic outlook 2021

 chapter 1 economic management and prospects

Lack of Digital Adoption Strategic Initiatives –

The World Bank (2018) reports that although
2021 Budget
62% of businesses in Malaysia were connected
Given the issues and challenges, the 2021
to the internet and 46% subscribed to fixed
Budget strives to strike a balance between
broadband, only 18% have a web presence
addressing the immediate needs of the
for e-commerce. This indicates that the
people and businesses, laying the foundation
potential of the digital economy has yet to
for a sustainable recovery and meeting the
be fully leveraged. The adoption of digital
long-term aspiration of the nation. As 2021
technology in businesses is dominated by large
is the first year of the 12MP, the strategic
companies, particularly in the manufacturing
measures in the 2021 Budget will support
sector. This also signifies a significant digital
the overarching aim of the Plan. The Budget
gap between large companies and SMEs
emphasises four broad areas - caring for
and between the manufacturing and other
the people, steering the economy, ensuring
sectors. According to SME Corporation Malaysia
sustainable living and enhancing public service
(2018) and Bank Negara Malaysia (2019), the
delivery.
lack of know-how and funding are the key
challenges to greater digitalisation of SMEs.
Other factors contributing to the gap include Caring for the People
the slow adoption rate and low coverage of
fixed broadband services as well as limitation With the impact of the pandemic lingering in
in financial and human capital (Bank Negara 2021, the well-being of the people remains
Malaysia, 2019). the priority of the Government. In the 2021
Budget, efforts will be streamlined towards
Limitation in the Logistics addressing employment issues, enhancing
social safety net and strengthening human
Sector capital. Measures will also be formulated to
facilitate the upward mobility of the people.
The logistics industry, which includes The Government will continue to engage
transportation and storage, accounted for various stakeholders, including the private
3.8% of GDP in 2019 and is a crucial enabler sector and civil society as development
for economic development. According to partners in nation-building.
the Logistics Performance Index (LPI), in
2016, Malaysia was ranked at 32nd position In the effort to achieve upward mobility,
out of 160 countries and dropped to 41st in the focus will be on enhancing reskilling
2018 (World Bank, 2018). Malaysia scored and upskilling programmes. These include,
lower in all critical dimensions of the LPI, among others, providing coordinated training
namely customs, infrastructure, international programmes and improving existing courses
shipments, logistics quality and competence, to meet the demand of industries and prepare
tracking and tracing, and timeliness. As the for challenges of the Industrial Revolution
industry is highly integrated across various 4.0 (IR4.0). In addition, the education
sectors, poor logistics services hinder system will be enhanced to facilitate online
trade efficiency and thus, impact economic learning. School curriculums will also place
development. greater emphasis on living skills such as
entrepreneurship and social skills.

economic outlook 2021 29

chapter 1 economic management and prospects

information box 1.2

Social Safety Net in Malaysia

Introduction

Social safety net is described as non-contributory transfers targeted in some ways to the poor and
vulnerable to address chronic poverty and inequality, help the poor invest in developing human capital, and
protect the poor and vulnerable from individual and systemic shocks, including during economic reforms
(IEG – World Bank, 2011). In the context of Malaysia, it is a collection of programmes designed to protect the
livelihood and well-being of the poor and vulnerable. It entails programmes such as welfare assistance, cost
of living assistance, unemployment benefits, workers’ compensation, subsidised healthcare and education
as well as low-cost housing. Based on Paitoonpong et al. (2008), the safety net analogy is drawn from high-
wire walkers who are protected by a safety net if they fall. The net prevents any walker who falls, whether
unexpectedly or otherwise, from hitting the floor and incurring injuries.

Based on the 2019 Household Income and Basic Amenities Survey, 5.6% of Malaysian households are
considered poor at Poverty Line Income (PLI) monthly threshold of RM2,208 (Department of Statistics of
Malaysia, 2020). However, unlike many other countries, the PLI in Malaysia measures the minimum income
required to maintain a certain quality of life taking into consideration the optimum healthy food intake
requirements and access to basic necessities for non-food items. The social safety net in Malaysia may not
be as cohesive as that of advanced countries. However, Malaysians are provided with various social support
programmes such as cash transfers, subsidised healthcare, education, transport and housing. This article
focuses on the social safety net in Malaysia and makes recommendations for improvement.

Social Safety Net Programmes

In 2019, the Government spent a total of RM26.6 billion1 (Figure 1.2.1.) or 1.8% of gross domestic product
(GDP) for various social safety net programmes. The largest portion amounting to RM14 billion (52.6% of the
total assistance) was allocated to minimise the impact of the rising cost of living and improve the welfare of
the rakyat, particularly the poor and vulnerable. These include subsidies for cooking oil; liquefied petroleum
gas (LPG), diesel and petrol; electricity; and flour. Other assistances include the Cost of Living Aid (BSH) as
well as allowances and cash transfers to the people with disabilities, aged, and the poor as well as children
without guardians and Orang Asli groups. These assistances are necessary as the rising cost of living
continues to be a main concern for most of the rakyat, particularly the poor and vulnerable.

As education is an essential enabler for social mobility and human capital development, the second-largest
amount, RM6.7 billion (25.3%), was allocated for this sector. This includes programmes on food, textbooks
and other assistance for school and pre-school children as well as matriculation and higher education
students. Other assistances include various scholarships and loans for school and university students.

Agriculture is a priority sector, not only due to its linkages to the rest of the economy but also a
disproportionate share of B40 households are in this sector. Hence, this sector is a significant beneficiary
of assistances amounting to approximately RM1.9 billion (7.2%). Farmers and fishermen are among the
beneficiaries through various programmes including paddy price and fertiliser subsidies, paddy production
incentives, monsoon season assistances and oil palm re-planting as well as the implementation of Malaysian
Sustainable Palm Oil (MSPO) certification. In addition, fishermen receive fish catch incentives.

1
Including assistances provided under development expenditure as well as supplies and services for social safety net programmes.

30 economic outlook 2021

 chapter 1 economic management and prospects

Assistances were also provided to transportation, health and security sectors amounting to RM1.6 billion
(6.0%) to ensure access to quality and affordable services. These include toll compensation as well as
subsidies in the transportation sector for RapidKL’s unlimited-ride monthly pass, Keretapi Tanah Melayu
Berhad's uneconomic train subsidy and rural air services in Sabah and Sarawak. Subsidies to the health
sector cover Skim Peduli Kesihatan for the B40 group (PeKa B40) and medical treatment for retirees. Other
assistances amounting to RM2.4 billion (9.0%) include interest rate subsidies to help reduce the costs of
borrowing for students at institutions of higher learning as well as assistance for community and religious
affairs.
Additional Social Safety Net Programmes during
FIGURE 1.2.1. Percentage of Federal Government COVID-19 Pandemic
Expenditure on Social Safety Net by Categories of
Assistance in 2019
The nation was severely impacted as a result
9% of the COVID-19 pandemic and the subsequent
6% implementation of the Movement Control
7% Order (MCO). Businesses were badly hit while
RM26.6 unemployment rose. As more people became
billion 53%
vulnerable, the Government had to cast a more
25%
comprehensive safety net to support them. Hence,
the Government announced several economic
stimulus packages to protect lives and livelihoods.
COST OF LIVING TRANSPORTATION,HEALTH &
EDUCATION SECURITY
AGRICULTURE OTHERS Under the Prihatin Rakyat Economic Stimulus
Package (PRIHATIN) and the PRIHATIN PLUS
Source: Ministry of Finance, Malaysia announced in March and April 2020, various
one-off assistances were provided to households
to ease their financial burden. This includes cash transfers, benefitting around 5 million households. Cash
transfers were also provided to single individuals aged 21 and above with monthly income of not more than
RM4,000. In addition, a one-off cash aid of RM200 per person was provided to students at institutions of
higher learning with an estimated cost of RM270 million and RM500 per person to 120,000 full-time e-hailing
drivers with an allocation of RM60 million.

Under the same package, a wage subsidy programme was also implemented to encourage the retention of
workers earning less than RM4,000 and employers experiencing more than 50% decrease in their income
since 1 January 2020. These subsidies enable employers to be flexible in retaining the workers during the
movement control period. The programme involved an allocation amounting to RM13.8 billion, benefitting
approximately 4.8 million workers. This has contributed to the moderation of the unemployment rate to
4.7% in August 2020 as compared to 5.3% in May 2020.

With the resumption of economic activities, the Government announced the Pelan Jana Semula Ekonomi
Negara (PENJANA) in June 2020 to accelerate economic recovery. As a result of the MCO, people’s movements
were restricted, spurring the demand for on-line transactions. Hence, many individuals and households
engaged in the gig economy, including deliveries, e-hailing and remote or mobile businesses. The stimulus
package, among others, provides additional social protection and training for gig workers. A total of
30,000 gig workers are expected to benefit from the programme, involving an allocation of RM75 million.
Furthermore, a total of RM200 million was allocated to ease the burden of working parents during the
Conditional Movement Control Order (CMCO) through subsidised child care expenses.

economic outlook 2021 31

chapter 1 economic management and prospects

The Government also announced the PRIHATIN Supplementary Initiative Package (KITA PRIHATIN) package
in September 2020 amounting to RM10 billion. A total of RM7 billion was allocated for Bantuan Prihatin
Nasional 2.0, and another RM3 billion for Wage Subsidy Programme 2.0 and Geran Khas PRIHATIN.
This package aims at providing continued support for the people, ensuring employment and assisting
businesses, particularly the SMEs, in enduring the challenges faced as a result of the pandemic.

Strengthening and Sustaining Livelihood of the People

Based on an improved methodology, the PLI has been increased from RM980 in 2016 to RM2,208 in 2019
(Department of Statistics of Malaysia, 2020). Under the new PLI, the number of households categorised as
poor increased to 405,441 households compared with 24,700 households in 2016 which was based on the
PLI 2005 methodology. As more households are considered poor, greater financial resources are required
to provide the necessary support. As the existing assistance mechanism involves various ministries and
agencies, there is a need to establish an integrated database for effective distribution of assistances.

The integrated database will be used for the identification and registration of beneficiaries, effective
disbursement and monitoring of programmes and prevent duplication of assistances and exclusion of
eligible recipients. Furthermore, the reactivation of the Malaysia Social Protection Council (MySPC) chaired
by the Prime Minister will review existing social protection policies and programmes. This would further
enhance the social safety net in Malaysia and provide an exit mechanism to reduce over-dependence on
Government assistance except for welfare cases.

Conclusion

The Government provides various assistance to the rakyat, particularly to the poor and vulnerable but
assistance cuts across many ministries and agencies. Thus, an effective and efficient integrated delivery
system is needed. The private sector, non-governmental organisations and other stakeholders have an
important role in complementing the Government in ensuring that no one is left behind in the national
development agenda.

The Government will continue to focus on enhancing the usage of technology and
addressing the needs of the vulnerable digitalisation across public and private sectors
group, particularly the B40. In this respect, as well as ensuring a stable labour market.
the Malaysia Social Protection Council was Various initiatives will be formulated to provide
reactivated to coordinate and integrate all a more conducive environment for businesses
and FDI to thrive.
social welfare programmes. Thus, the overall
mechanism in delivering assistances to target
The 2021 Budget will also introduce measures
groups will be improved.
to increase productivity by enhancing the
adoption of technology across the board,
Steering the Economy including individuals, SMEs and corporates.
Efforts will focus on the development of
As Malaysia recovers from the impact of resilient SMEs. As the backbone of the
the COVID-19, the economy must return economy, the challenges faced by SMEs during
to a more sustainable growth path. The the COVID-19 pandemic signifies the need
focus will be on increasing foreign direct for adoption and adaptation of new business
investment (FDI), enhancing productivity and approaches. The Government will continue to
re-instilling consumer confidence. As such, provide the necessary support for SMEs to
the Government will prioritise essential areas, prosper in the new environment, including the
such as improving the ease of doing business, potential for going global.

32 economic outlook 2021

 chapter 1 economic management and prospects

Ensuring Sustainable Living The 2021 Budget will focus on enhancing

the existing delivery mechanisms in ensuring
all assistances and incentives benefit the
As part of the efforts to improve sustainable
target groups. In this respect, the National
living, the Government will continue to protect
Economic Stimulus Implementation and Inter
the environment and manage biodiversity
Agency Coordination Unit (LAKSANA) has been
more sustainably. A closer collaboration with
established to monitor the implementation of
the respective non-governmental organisations
measures announced in the various economic
(NGOs) and civil society organisations
stimulus packages. LAKSANA also partners
(CSOs) will be forged and enhanced towards
with other stakeholders to further improve
ensuring a more comprehensive and holistic
the effectiveness of the programmes. Moving
management of the environment and natural
forward, the Government will review existing
resources. In the 2021 Budget, the Government
enterprise architecture across all Government
will encourage behavioural shift among
agencies to sync with the IR4.0. The
the rakyat and businesses towards better
Government will also collaborate with NGOs
management of environment and biodiversity.
and CSOs as development partners in various
In addressing the needs for achieving the
areas, including forestry, biodiversity, poverty
SDGs, programmes and initiatives will be
and other social issues.
in line with the 12MP, particularly in terms
of allocation for sustainable development.
Beginning in 2021, the Government will focus
on mapping the financing needs in achieving Conclusion
the SDGs.
On the back of the COVID-19 pandemic, the
Enhancing Public Service Malaysian economy contracted by 8.3% in the
first half of 2020. The economy is projected
Delivery to improve in the second half and, thus,
record an overall smaller contraction of 4.5%.
The role of the public service is crucial in In 2021, the economy is projected to expand
ensuring the development of the nation. between 6.5% and 7.5% in tandem with the
Hence, the quality of services will determine anticipated improvement in global trade,
whether the goals and outcomes of all plans consumer sentiments and business confidence.
and programmes formulated are achieved The 2021 Budget will implement measures to
accordingly. As part of the efforts to enhance enhance the well-being of the people, steer
public service delivery, the Government aims to the economy towards a sustainable growth
be more outcome-driven and implementation- path, enable sustainable living and improve
focused as well as support the people and public service delivery. As targeted in the 12MP
businesses in a more targeted manner. and the 2030 Shared Prosperity Vision, the
Budget will lay the foundation for the country
to progress towards a developed and inclusive
nation.

economic outlook 2021 33

chapter 1 economic management and prospects

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36 economic outlook 2021

ch ap ter 2

Global
Economic
Outlook

41 ov e rv i e w

42 globa l econom y
Information Box 2 .1 - Response to the
COV ID -19 Pandemic by S elec ted Multilateral
Development B ank s

59 conclus ion

60 r e fe r e nce s
 CHAPTER 2 SUMMARY: GLOBAL ECONOMIC OUTLOOK

GL OB AL E CON OMI C O U T L O O K

2020
DISMAL GROWTH The Impact of
COVID-19 Pandemic
Restricted movement

Forced lockdowns

-4.4% Business closures

Negative
Global Growth
Anticipated
in 2020

ADVANCED
ECONOMIES
EMDES Decelerated activities

-5.8% -3.3%
Economic disruptions

FDI declines 40% in 2020

Unfavourable performance in
advanced economies and EMDEs
due to fall in domestic demand, World trade plummets
particularly private consumption
and investment, coupled with
10.4% in 2020
dismal trade growth
Debt crisis
China to cushion decline in EMDEs
 2021
PROMISING GLOBAL
PROSPECTS
GLOBAL
GROWTH ADVANCED EMDEs

5.2%
ECONOMIES

3.9% 6%

Global
Economy
to Rebound
in 2021
ADVANCED
GLOBAL ECONOMIES EMDES

I N FLATI ON
3.4% 1.6% 4.7%

8 .3 %
2021
WORLD
-10.4% TRADE
2020
Silver Lining
Ef f ec tiv e T o d ec l i n e f u r t h e r i n 20 21 a s
i m plem entatio n o f r e st r i c t i v e i n v est m en t p o l i c y
FDI
f i s c al and m o netar y m ea su r es a f f e c t c r o ss- b o r d e r
m e a sur es M & A a c t i v i t i es

C O VID- 19 v ac c ine
d i s cov er y and
co n tainm ent of
p and em ic
Ri s k s t o g l o b a l e c o n o m y p e r si st s:

O p p o r tunities to US - Chi na t rad e t e nsi o ns L o w o i l p ri c e s

i n s titute r efo r m s
t o w ar d s Unce rt ai nt i es surro und i ng Cl i m at e cri s i s
acc eler ating Bre x i t
d i g italisation and I ncre ase i n go ve r n m e n t
p ur suing G e o p o l i t i cal t e nsi o ns d eb t s
s ustainab le g r o wth
 chapter 2 global economic outlook

chapter 2

Global Economic Outlook

Overview In 2020, the gross domestic product (GDP) in

the advanced economies is expected to decline
by 5.8% (2019: 1.7%), while the GDP in the
A rebound after dismal growth
EMDEs is anticipated to contract by 3.3%
(2019: 3.7%). This is mainly due to a fall
The global economy is projected to contract
in domestic demand, particularly private
by 4.4% in 2020 (2019: 2.8%). This anticipated
consumption and investment, coupled with
negative growth is due to unfavourable
dismal trade growth. The decline in the growth
performance in both the advanced economies
of the EMDEs is expected to be cushioned
and the emerging market and developing
by favourable growth in China. Among
economies (EMDEs), mainly resulting from the
the advanced economies, the euro area is
adverse impact of the COVID-19 pandemic. On
anticipated to register the sharpest downturn
the contrary, robust growth in the advanced
in comparison with the previous year.
economies and the EMDEs is expected to
spearhead global growth by 5.2% in 2021.
In 2021, the advanced economies is forecast
to rebound by 3.9%, spurred by improved
FIGURE 2.1. Real GDP Growth for Global, Advanced domestic demand and increased trade
Economies, and Emerging Market and activities. Growth in the US is expected
Developing Economies, 2019 – 2021 to improve by 3.1%, backed by a recovery
(% change)
in private consumption and favourable
investment. The GDP in the euro area is
% Real GDP Growth
anticipated to turn around by 5.2% in 2021,
8
supported by improved domestic demand
6.0
6 5.2
following accommodative fiscal and monetary
3.9
policies. The economy of the UK is envisaged
4 3.7
2.8 to record a stellar growth of 5.9%, driven by
2
1.7 a recovery in the services sector. The GDP of
Japan is projected to pick up by 2.3%, boosted
0 by an increase in private consumption and a
recovery in exports.
-2

-4 3.3 The GDP of the EMDEs in 2021 is expected

4.4 to bounce back by 6%, buoyed by solid
-6 5.8 domestic demand and higher exports. China is
envisaged to lead the recovery in the region,
-8
2019 20201 20212 with a sturdy growth of 8.2%. Likewise, the
economy of India is projected to rebound
GLOBAL by 8.8% on the back of strong consumer
ADVANCED ECONOMIES demand. The GDP of ASEAN-51 is anticipated
EMERGING MARKET AND DEVELOPING ECONOMIES
to turn around by 6.2%, on account of robust
domestic consumption, higher investment and
1

2
Estimate a favourable trade environment.
Forecast
Source: International Monetary Fund, World Economic Outlook
(October 2020)

1
ASEAN-5 comprises Indonesia, Malaysia, the Philippines, Thailand and Viet Nam.

economic outlook 2021 41

chapter 2 global economic outlook

World trade is set to plummet by 10.4% in and approval of new investments. In 2021,
2020 (2019: 1%), owing to subdued demand the FDI is projected to further decline by 5%
for goods and services, compounded by the to 10%, as new restrictive investment policy
COVID-19 pandemic. Lacklustre demand for measures affect cross-border merger and
goods is expected, despite rising needs for acquisition (M&A) activities.
medical equipment and supplies, amid volatile
commodity markets as well as escalating Global inflation is expected to be mild at
trade and trade-related tensions, particularly 3.2% in 2020 (2019: 3.5%). Inflation is on a
between the US and China. The demand for downward trend in advanced economies at
services is also anticipated to fall, with cross- 0.8% (2019: 1.4%), while inflation in the EMDEs
border tourism activities adversely affected. is anticipated to remain at 5% (2019: 5.1%),
Nevertheless, global trade is projected to turn resulting from low oil prices. In 2021, global
around by 8.3% in 2021 as economic activities inflation is expected to slightly increase to
gain momentum. 3.4%. Inflation in the advanced economies is
anticipated to increase to 1.6%. In comparison,
Global foreign direct investment (FDI) is inflation in the EMDEs is forecast to be at
expected to decline up to 40% in 2020 4.7%.
(2019: 13%), dragging the FDI below USD1
trillion for the first time since 2005. This drop Risks to the global outlook are mainly due
is due to heightened uncertainties concerning to the impact and severity of the COVID-19
the pandemic, which may continue to slow crisis, compounded by the uncertainty in
down the implementation of existing projects discovering a vaccine. A protracted economic
slowdown may result in a vicious cycle, where
FIGURE 2.2. Inflation Rate for Global, Advanced financial distress may expose borrowers to
Economies, and Emerging Market and vulnerabilities. Subsequently, this will drag
Developing Economies, 2019 – 2021
economies into debt crises and decelerate
(% change)
activities even more. In addition, cross-border
spillovers from weaker external demand
% Inflation Rate
could further magnify the impact of country-
6
or region-specific shocks on global growth.
5.1 5.0
Strained relationships among the coalition
5 of oil producers of the Organization of the
4.7
Petroleum Exporting Countries Plus (OPEC+)2
4 and widespread social unrest may pose
3.5
3.2
3.4 additional headwinds to the global economy.
3 Furthermore, uncertainties surrounding the
Brexit outcomes, rising government debts and
2 unemployment, as well as climate crisis, are
1.6 among the major factors that could impede
1.4
future growth.
1 0.8

0
2019 20201 20212
Global Economy
GLOBAL Navigating unprecedented challenges
ADVANCED ECONOMIES
EMERGING MARKET AND DEVELOPING ECONOMIES The US’ economy contracted by 4.4% in the
first half of 2020, resulting from a decline in
1
Estimate consumer spending, as the economy struggled
2
Forecast with the COVID-19 pandemic. Personal
Source: International Monetary Fund, World Economic Outlook
(October 2020)

2
OPEC+ comprises 13 members of OPEC, namely Algeria, Angola, the Republic of the Congo, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Saudi
Arabia, United Arab Emirates and Venezuela as well as 10 of the world’s major non-OPEC oil-exporting nations, namely Azerbaijan, Bahrain, Brunei Darussalam,
Kazakhstan, Malaysia, Mexico, Oman, Russia, South Sudan and Sudan.

42 economic outlook 2021

 chapter 2 global economic outlook

consumption expenditure, which contributes TABLE 2.1. Selected Indicators for the United
67.1% to total GDP, plummeted by 5%, States, 2019 – 2021
particularly in the health care as well as food
services and accommodation sectors. Private INDICATOR 2019 20201 20212
investment fell by 10.6% following a sharp Real GDP (% p.a.) 2.2 -4.3 3.1
decline in transportation equipment as well as
a decrease in mining structures, resulting from Inflation (% p.a.) 1.8 1.5 2.8
subdued oil and gas production activities. Current Account of BOP -2.2 -2.1 -2.1
(% of GDP)
In the same period, the US recorded a trade Unemployment Rate (%) 3.7 8.9 7.3
deficit of 7.5%, amounting to USD50.7 billion,
as exports declined following subdued 1
Estimate
demand, particularly in petroleum products 2
Forecast
Source: International Monetary Fund, World Economic Outlook
and fuel oil. Likewise, imports decreased, (October 2020)

as a result of sluggish demand, particularly

in automotive vehicles and machinery. The In 2021, the US’ growth is projected to
unemployment rate jumped to 8.4%, owing rebound by 3.1%, driven by domestic demand,
to heavy job losses in the leisure and particularly private consumption, which is
hospitality sector. Inflation moderated to anticipated to surge by 2.8%. Investment is
1.2% following lower oil prices, despite high expected to bounce back by 2.8%, underpinned
food costs. by higher private fixed investment. Both
exports and imports are forecast to rebound
Overall, in 2020, the US’ GDP is expected to significantly, on the back of a favourable global
contract by 4.3% (2019: 2.2%), as a result of trade environment. The unemployment rate is
weakened private consumption and external expected to improve to 7.3%, while inflation is
demand. Private consumption is anticipated to anticipated to rise to 2.8%.
shrink by 4.9% (2019: 2.4%) due to the phasing
out of earlier Government stimulus packages Risks to the US include a prolonged COVID-19
as well as a significant rise in household pandemic as the intensity and duration of
savings. Similarly, the federal balance is the outbreak would further disrupt domestic
expected to worsen, largely due to spending demand and the global value chain. These
for the stimulus packages, coupled with the deteriorating economic fundamentals
presidential election in November. Exports are may result in financial distress, leading to
anticipated to dip, amid the ongoing trade refinancing difficulties for both corporates
tensions, exacerbated by the pandemic. and households. In addition, continued low
oil prices would lead to subdued investment
As of August 2020, four stimulus packages, spending in non-residential structures.
amounting to USD2.3 trillion, have been Consequently, firms, particularly in the energy
announced. These include cash payments sector, may face higher costs with an increased
and expanded unemployment benefits to number of bankruptcies. On the trade front,
households, support to the health care system broader protectionist measures, including
and assistance to severely distressed sectors. export controls, may affect business confidence
The unemployment rate is expected to spike and hamper growth.
to 8.9% (2019: 3.7%), with the leisure and
hospitality sector being the most affected. The GDP for the UK contracted by 11.8% in
Inflation is expected to moderate to 1.5% the first half of 2020, the largest recession
(2019: 1.8%) following lower oil prices. In on record, resulting from a drastic decline in
March 2020, the US Federal Reserve (Fed) the services sector. The services sector, which
lowered its funds rate target range to contributes approximately 80% to total GDP,
between 0.00% and 0.25%. The Fed indicated plunged by 11.3%, primarily due to a decline
to maintain the rates at this level until the of 48.3% in the accommodation and food
economy has stabilised. services subsector. In addition, the distribution,

economic outlook 2021 43

chapter 2 global economic outlook

hotels and restaurants subsector declined Inflation is anticipated to moderate to 0.8%

by 20.9%. Likewise, the production and (2019: 1.8%), mainly due to lower oil and
construction sectors contracted by 11.5% and service prices.
21.1%, respectively, following strict lockdowns
beginning at the end of March 2020. The
unemployment rate remained at 4% following TABLE 2.2. Selected Indicators for the United
the Government’s furlough scheme, which Kingdom, 2019 – 2021
allows workers affected by the pandemic to be
absent temporarily from work. Inflation was INDICATOR 2019 20201 20212
registered at 1.7%, owing to low oil prices. Real GDP (% p.a.) 1.5 -9.8 5.9

The economy is projected to decline by 9.8% Inflation (% p.a.) 1.8 0.8 1.2
in 2020 (2019: 1.5%), as the services sector Current Account of BOP -4.0 -2.0 -3.8
continues to contract following prolonged (% of GDP)
lockdowns imposed by the Government. Unemployment Rate (%) 3.8 5.4 7.4
Several schemes have been announced to
stimulate demand in sectors affected by 1
Estimate
the pandemic, particularly in hospitality and 2
Forecast
Source: International Monetary Fund, World Economic Outlook
tourism. The UK announced various stimulus (October 2020)
and relief packages since March 2020, including
the Coronavirus Job Retention Scheme,
which helped pay the wages of people in In 2021, the UK’s economic growth is forecast
9.6 million jobs. In addition, the Eat Out to bounce back by 5.9%, largely contributed
to Help Out Scheme boosted hospitality- by a recovery in the services sector. The
related activities. As of September 2020, the resumption of retail- and hospitality-related
Bank of England maintained the policy rate activities is likely to support the recovery,
at 0.10%, after reducing the rate twice in boosted by stimulus measures aimed at
March by a total of 65 basis points to bolster consumers. The conclusion of the negotiation
the economy. The unemployment rate is of the Comprehensive Free Trade Agreement
projected to register 5.4% (2019: 3.8%) as the (CFTA) between the UK and the EU and a
Government’s furlough scheme is expected smooth post-Brexit transition are expected to
to be discontinued by the end of the year. support growth. The unemployment rate is

information box 2.1

Response to the COVID-19 Pandemic by Selected Multilateral

Development Banks

Introduction

The COVID-19 outbreak began at end-2019 and was declared as a pandemic in March 2020 by the
World Health Organization. The pandemic has affected people worldwide, and to date, has resulted
in over 1.1 million fatalities out of 40.7 million confirmed cases (World Health Organization, 2020).
The rising trend of positive cases, coupled with the uncertainty surrounding the discovery of a
vaccine, signal that a protracted pandemic may be probable. In containing the spread of this virus,
governments have imposed lockdowns, enforced business closures, limited international travels and
restricted individuals from their usual physical and social activities. These containment measures
have resulted in severe economic disruptions. Amid an already softening world economic growth
and volatile commodity prices, the added economic impact of the pandemic is expected to lead
to the worst global economic crisis ever recorded in recent times. To mitigate the socioeconomic
impact of the pandemic and the containment measures, governments have implemented stimulus
measures to protect lives and livelihoods as well as support businesses to remain afloat. These
stimulus measures include additional health expenditure as well as assistance in the form of cash
transfers, loan moratoriums, credit guarantees and tax incentives.

44 economic outlook 2021

 chapter 2 global economic outlook

However, the limited fiscal space of many governments may not be able to sustain the provision
of the relief and recovery assistance for long due to the existing economic conditions amid the
pandemic. The adverse impact of COVID-19 on economies is evidenced in shrinking tax revenues,
decreased gross domestic product (GDP) growth, volatile private capital flows, declining exports
and falling remittances. Middle- and low-income countries that are constrained by limited financial
resources and weak health systems are particularly vulnerable and slow to recover. Projections
by the International Monetary Fund (IMF) for 2020 reflects that as GDP contracts and public
expenditures expand, the share of gross public debt will generally rise to a record high. This is
especially so for the middle-income countries whose debt is projected to rise to 62.2% of GDP
(2019: 52.6%) with an expected fiscal deficit of 10.7% of GDP (2019: 4.9%). Likewise, the share of
gross public debt in low-income countries is expected to increase to 48.8% of GDP (2019: 43.3%),
with their fiscal deficit increasing to 6.2% of GDP (2019: 4%).

The Role of Multilateral Development Banks during the COVID-19 Crisis

Against this backdrop of uncertainty and vulnerability of the current economic situation,
multilateral development banks (MDBs) can play a critical role in the overall global economic
recovery. MDBs are generally recognised as international financial institutions that have been
commissioned by countries to promote inclusive and sustainable economic development. There
are more than 20 MDBs worldwide with various roles and functions. The unique structure of
MDBs allows them to tackle challenges that cross national borders, including global pandemics,
which demand cross-border solutions (Maasdorp, 2020). Malaysia is a member of five of these
institutions, namely the World Bank Group (WBG), the IMF, the Asian Development Bank (ADB), the
Islamic Development Bank (IsDB) and the Asian Infrastructure Investment Bank (AIIB).

The challenge to manage the impact of the COVID-19 pandemic has triggered an increasing
need of many developing countries in seeking financial support from the MDBs. This has led to
the MDBs expediting the disbursement of loans and expanding concessional financial assistance
through existing resources. The additional obligation is imposed on their existing roles in
supporting the reconstruction and development of member countries as well as mobilising
resources for infrastructure and sustainable development.

COVID-19-Related Assistances by MDBs

The COVID-19 response initiatives by the MDBs include expanding the allocation of existing
assistance, extending assistance to wider recipients and expediting the process of disbursement.
The forms of assistance provided by the five MDBs, of which Malaysia is a member of, are listed in
Table 2.1.1.

table 2.1.1. COVID-19-Related Assistances Provided by Selected MDBs

mdbs
programme/initiative
wbg imf adb isdb aiib

Financial Support Programme √ √ √ √ √

Debt Relief Programme √ √

Trade Finance √ √

Guarantees √ √

Technical Assistance/Policy Advice √ √ √ √ √

Other Initiatives √ √

Total Assistance (USD billion) 160.0 100.0 20.0 2.3 10.0

Sources: World Bank Group (2020), International Monetary Fund (2020), Asian Development Bank (2020), Islamic Development Bank (2020) and Asian
Infrastructure Investment Bank (2020)

economic outlook 2021 45

chapter 2 global economic outlook

(i) Financial Support Programmes

The MDBs provide financial support to fund infrastructure and development projects in
member countries. The MDBs also allocate special funding, in the form of loans and grants,
to help member countries mitigate the impact of health-related crises, especially pandemics,
on the economy. Loans are provided on a market or concessional basis, while grants are
only provided for limited purposes, based on specific terms and conditions. Details of these
programmes are listed in Table 2.1.2.

table 2.1.2. COVID-19-Related Financial Support Programmes

mdb programme/initiative description amount/source

WBG1 COVID-19 Initial Financing to strengthen health systems and disease IBRD and IDA:
Response Package surveillance. USD6 billion

Fast Track COVID-19 Investment Project Financing is prepared on a fast-track IBRD:

Facility basis comprising up to 40% of retroactive financing for USD2.7 billion
physical or social infrastructure to reduce poverty and
ensure sustainable development. IDA:
USD1.3 billion

Program-for-Result PforR can be restructured for prompt response with funds Financing from
(PforR) disbursed directly for the delivery of defined results in the IDA
health sector.

Contingent Emergency Contingent windows to escalate the emergency Financing from the
Response Component response for provision of additional financing to existing IBRD, IDA or trust
investment projects after a crisis has or is about to occur. funds

Catastrophe Deferred Contingent financing line providing immediate liquidity to Financing from
Drawdown Option address shocks following a natural disaster and/or health- IDA
related event.

Real Sector Crisis Support existing clients in the infrastructure, IFC:

Response Facility manufacturing, agriculture and services industries USD2 billion
vulnerable to the pandemic by offering loans to
companies and investing in equity.

Working Capital Funding to emerging market banks to extend credit in IFC:

Solutions Programme helping businesses shore up working capital as well as USD2 billion
the pool of funds that firms use to pay their bills and
employees’ salaries.

Global Trade Liquidity Shoring up local banks through funding and risk-sharing IFC:
Programme and Critical support to continue financing companies in emerging USD2 billion
Commodities Finance markets.
Programme

IMF Rapid Financing Increase access limits of the emergency financial facilities The amount for
Instrument (RFI) of RFI and RCF (rapid, low-access and one-off) without both RFI and RCF
the need to have a full-fledged programme in place. RFI is close to SDR20
Rapid Credit Facility is available to all Fund members, while RCF is available billion
(RCF) to Poverty Reduction and Growth Trust-eligible (PRGT)
members only.

Short-term Liquidity Enhance liquidity through SLL for member countries —

Line (SLL) with strong policies and fundamentals in need of short-
term moderate balance of payment support to further
strengthen global financial safety.

Augmented Lending Augment existing lending programmes to accommodate —

Programme urgent new needs arising from the COVID-19 crisis.

1
The World Bank Group (WBG) consists of five unique agencies – the International Bank for Reconstruction and Development (IBRD), the International
Development Association (IDA), the International Finance Corporation (IFC), the Multilateral Investment Guarantee Agency (MIGA) and the International Centre for
Settlement of Investment Disputes (ICSID).
continued

46 economic outlook 2021

 chapter 2 global economic outlook

table 2.1.2. COVID-19-Related Financial Support Programmes

mdb programme/initiative description amount/source

ADB COVID-19 Response Address the social and economic consequences of Sovereign:
Options the pandemic through sovereign and non-sovereign USD18.2 billion
operations.
Non-Sovereign:
USD1.8 billion

IsDB2 Strategic Preparedness Reallocation of existing funds under IsDB in supporting USD2.3 billion
and Response member countries’ efforts to prevent, contain, mitigate
Programme for the and recover from the impact of the COVID-19 pandemic.
COVID-19 Pandemic

AIIB COVID-19 Crisis Recovery Financing for both public and private sector entities in USD10 billion
Facility member countries to alleviate and mitigate economic,
financial and public health pressures arising from adverse
impacts of the COVID-19 pandemic.

Special Fund Window Interest rate buy-down on sovereign-backed financing for USD10 million per
lower-income members. country

Sources: World Bank Group (2020), International Monetary Fund (2020), Asian Development Bank (2020), Islamic Development Bank (2020) and Asian
Infrastructure Investment Bank (2020)

(ii) Debt Relief Programmes

Debt relief programmes provided by the MDBs include debt restructuring and debt service
suspension. During this challenging period, these programmes are particularly helpful for the
poor and vulnerable countries to manage their debt burden and sustain their economies with
adequate resources at the same time. Details of programmes are listed in Table 2.1.3.

table 2.1.3. COVID-19-Related Debt Relief Programmes

mdb programme/initiative description amount/source

WBG Debt Service Suspension Available to IDA-eligible countries and the United Approximately
Initiative Nations' (UN) least developed countries. USD5 billion
disbursed as of mid-
September 2020

IMF Catastrophe Containment Provides grants for the PRGT-eligible member countries SDR700 million
and Relief Trust to cover IMF debt service. This helps countries channel
their financial resources towards vital emergency
medical and relief efforts during most catastrophic of
natural disasters and public health disasters.

Sources: World Bank Group (2020) and International Monetary Fund (2020)

(iii) Trade Finance

Trade finance provides credit as well as payment guarantees and insurance to businesses.
This facility allows businesses to manage fluctuating exchange rates and mitigate other risks.
Assistance from the MDBs for companies involved in cross-border transactions is critical,
particularly those in low-income countries, especially during crisis periods. Details of this
facility are listed in Table 2.1.4.

2
The Islamic Development Bank Group (IsDBG) consists of the Islamic Development Bank (IsDB), the Islamic Research and Training Institute (IRTI), the Islamic
Corporation for the Insurance of Investment and Export Credit (ICIEC), the Islamic Corporation for the Development of the Private Sector (ICD) and the
International Islamic Trade Finance Corporation (ITFC).

economic outlook 2021 47

chapter 2 global economic outlook

table 2.1.4. COVID-19-Related Trade Finance Facilities

mdb programme/initiative description amount/source

WBG Global Trade Finance Cover payment risks of financial institutions by providing IFC:
Programme additional allocation for trade financing to companies USD2 billion
that import and export goods, particularly the small and
medium enterprises (SMEs) involved in global supply
chains during the pandemic.

IsDB Strategic Preparedness Trade finance to support least developed member ITFC:
and Response countries (LDMCs) and severely affected non-LDMCs to USD300 million
Programme purchase emergency COVID-19 preparedness-related
medical equipment and supplies.

Sources: World Bank Group (2020) and Islamic Development Bank (2020)

(iv) Guarantees

Guarantees by the MDBs are made available to eligible member countries to back financial
obligations such as loans and bonds issuance in both domestic and international markets.
These guarantees address both political and credit risks. Details of this assistance are listed in
Table 2.1.5.

table 2.1.5. COVID-19-Related Guarantees

mdb programme/initiative description amount/source

WBG MIGA Fast-Track Facility Issuance of guarantees through streamlined and MIGA:
expedited procedures through credit enhancement, de- USD6.5 billion
risking solutions and supporting trade finance.

IsDB Strategic Preparedness Provision of credit and political risk insurance to sustain ICIEC:
and Response Programme imports of strategic commodities, protect investment USD150 million
and minimise volatility in mitigating negative health and for insurance
socioeconomic impact. coverage

Sources: World Bank Group (2020) and Islamic Development Bank (2020)

(v) Technical Assistance and Policy Advice

Technical assistance and policy advice are made available to all member countries through
capacity building and training as well as consultation and research. These assistances are
focused on fulfilling developing countries’ needs to improve and implement policies as well
as strengthen institutions to support further development and growth. In the wake of the
COVID-19 pandemic, the MDBs offer policy analyses and recommendations to governments,
on request, in formulating measures to mitigate and recover from the impact of the crisis.
The MDBs also provide a platform for the sharing of good practices among member countries
in addressing the effects of the crisis on respective economies.

(vi) Other Initiatives

The MDBs also assist member countries in procuring medical equipment and supplies in light
of the COVID-19 pandemic. Through this assistance, member countries are able to acquire the
equipment and supplies at the earliest possible time and at economical prices. The WBG and
ADB facilitate their member countries through a streamlined and fast-track procedure as well
as help create a sizeable order volume to support countries’ procurement in these items.

48 economic outlook 2021

 chapter 2 global economic outlook

In the period between April and September 2020, the five MDBs have cumulatively approved
almost USD132.6 billion in the form of loans, guarantees and grants for debt relief. Approximately
138 countries have received these assistances to implement measures in containing the outbreak,
resume development projects and enable local banks to continue supporting businesses. To date,
most recipients are the middle- and low-income member countries (Center for Strategic and
International Studies, 2020).

The MDBs recognise the continued need for assistance by member countries, especially during this
challenging period. Presently, their focus is to build the countries’ resilience once the pandemic
subsides. The MDBs remain committed to easing the burden of member countries in their
endeavour towards sustainable and inclusive growth.

Malaysia fully recognises the importance of the MDBs in providing support to vulnerable countries,
particularly during this challenging time and supporting member countries’ journeys towards
sustainable growth. Thus, Malaysia remains supportive of the efforts by the MDBs in aiding
countries in need through its existing contributions to the MDBs. The country will continue
to benefit from the continuous engagement with the MDBs to formulate policy measures in
responding to the COVID-19 crisis.

Conclusion

The COVID-19 pandemic has brought about global challenges that have never been experienced
before. Governments have had to carry out unprecedented measures in addressing the impacts
of the pandemic on their economies. Notwithstanding the various measures undertaken by
governments, much remains uncertain regarding a full economic recovery in the near term. The
MDBs play an important role in partnering with governments towards achieving a rapid recovery
and return to a more resilient and sustainable growth trajectory.

forecast to worsen to 7.4%, while inflation is many countries to protect jobs. Inflation was
projected to rise to 1.2%. Risks to the UK’s GDP lower at 0.7%, owing to significantly low oil
forecast include the dual-threat of prolonged prices, despite higher food prices.
COVID-19 infections and Brexit uncertainties.
The slow progress of Brexit negotiations will Growth in the euro area is projected to
affect the execution of the CFTA, which is shrink by 8.3% in 2020 (2019: 1.3%), mainly
scheduled to enter into force at the beginning dragged by weak household consumption and
business investment. Household consumption
of 2021.
is expected to remain sluggish, primarily
due to elevated precautionary savings amid
The GDP growth in the euro area contracted
uncertainties concerning job and income
by 9% in the first half of 2020 as domestic
prospects. Investment is expected to slump
demand was severely affected by the COVID-19
as companies, particularly those with larger
pandemic. Household consumption plummeted
debt burdens, are anticipated to suspend their
by 9.8% due to lower spending following investment plans. The European Commission
temporary closures of shops, restaurants and has announced a package of safety nets
other services-providing businesses, as most amounting to EUR540 billion, which includes
European governments imposed lockdowns providing support for euro area countries
within the period of March until June 2020. in health-related spending. In addition, the
Similarly, business investment plunged by package allows the European Investment Bank
9.6%, resulting from factory shutdowns, to finance companies, especially the small
which affected production. The labour market and medium enterprises (SMEs) as well as
remained stable, with the unemployment for EU member countries to protect jobs and
rate at 7.5%, largely supported by the incomes. The unemployment rate is expected
implementation of short-term work schemes in to be higher at 8.9% (2019: 7.6%) following the

economic outlook 2021 49

chapter 2 global economic outlook

gradual phasing out of the furlough scheme. consumption plummeted by 7.3%, mainly
Inflation is anticipated to be subdued at 0.4% due to lower spending on services following
(2019: 1.2%), reflecting continued low oil lockdown measures from 23 March to
prices. 10 May 2020. Private investment slumped
by 4.3%, as a result of a disruption in the
TABLE 2.3. Selected Indicators for the Euro Area, supply chains and weak global demand,
2019 – 2021 particularly in the automotive subsector as
major car manufacturers temporarily shut
INDICATOR 2019 20201 20212
down operations. Likewise, exports plunged
by 13.4%, largely due to reduced demand
Real GDP (% p.a.) 1.3 -8.3 5.2 for motor vehicles as well as machinery and
Inflation (% p.a.) 1.2 0.4 0.9 equipment. The unemployment rate was
recorded at 4%, while inflation eased to 1.2%,
Current Account of BOP 2.7 1.9 2.4 owing to low oil prices.
(% of GDP)

Unemployment Rate (%) 7.6 8.9 9.1 Growth in Germany is anticipated to contract
by 6% in 2020 (2019: 0.6%), weighed down
1
Estimate by sluggish domestic demand, despite the
Forecast
announcement of fiscal stimulus packages
2

Source: International Monetary Fund, World Economic Outlook

(October 2020) amounting to EUR130 billion. Household
consumption is expected to remain weak
Growth in 2021 for the euro area is forecast following increasing precautionary savings.
to rebound by 5.2%, mainly supported by Private investment is expected to plummet,
favourable domestic demand. The long-term largely due to a slowdown in manufacturing
EU budget plan, totalling EUR1,824.3 billion, activities, amid unfavourable external demand.
is expected to support public investment However, various Government measures,
from 2021 until 2027, with a focus on green including emergency loans, credit guarantees
and digital transformations. The plan also and tax breaks are expected to cushion
includes a EUR750 billion recovery package excessive cutbacks on business investment.
to tackle socioeconomic consequences of Exports are expected to dampen following
the pandemic. The European Central Bank sluggish demand from major trading partners,
(ECB) has expanded the asset purchase particularly the US, France and the UK. The
programme by EUR1,350 billion through the labour market is projected to remain stable,
Pandemic Emergency Purchase Programme. with the unemployment rate at 4.3%
This programme is set to continue until at (2019: 3.1%), as Kurzarbeit, Germany’s short-
least June 2021 to lower borrowing costs and time work programme, is instrumental in
increase lending. The unemployment rate is containing further job losses. Inflation is
anticipated to worsen to 9.1%, while inflation forecast to ease further to 0.5% (2019: 1.3%),
is forecast to rise to 0.9%. owing to falling oil prices.

Growth in the euro area is exposed to several TABLE 2.4. Selected Indicators for Germany,
risks. The high cost of fiscal policy measures 2019 – 2021
may lead to a spike in government debts and
subsequently, increase the risk of sovereign
INDICATOR 2019 20201 20212
debt crises in the medium term. On the
external front, a disorderly Brexit continues Real GDP (% p.a.) 0.6 -6.0 4.2
to be a major cause of uncertainty in the
Inflation (% p.a.) 1.3 0.5 1.1
region, as the UK and the EU are scheduled to
conclude the CFTA before the transition period Current Account of BOP 7.1 5.8 6.8
ends in December 2020. (% of GDP)

Unemployment Rate (%) 3.1 4.3 4.2

The GDP for Germany contracted by 6.6%
in the first half of 2020 as the decline in 1
Estimate
household consumption, private investment Forecast
2

Source: International Monetary Fund, World Economic Outlook

and exports affected growth. Household (October 2020)

50 economic outlook 2021

 chapter 2 global economic outlook

In 2021, growth in Germany is envisaged slightly to 8% as the Government widened the

to expand by 4.2%, primarily supported by coverage of the short-term activity scheme to
a recovery in domestic demand. Household include the self-employed and small business
consumption is expected to rebound, owners. Inflation eased to 0.9%, with lower oil
attributed to higher disposable income, with prices.
increased income tax allowance and reduced
social security contribution levels. Private Overall, the GDP of France is forecast to
investment is anticipated to turn around, shrink by 9.8% in 2020 (2019: 1.5%), mainly
driven by investment in machinery and dragged by household consumption and
equipment following improved confidence, private investment. Household consumption
amid recovering global demand. Likewise, is expected to plunge, as a result of lower
public investment is expected to increase, income levels following a reduction in working
with a comprehensive EUR50 billion package hours, coupled with increasing precautionary
focusing on public transport, electric mobility, savings. Private investment is projected to
green technology, digital infrastructure, remain sluggish due to decreased profit
education as well as research and development margins, as businesses are expected to operate
(R&D). The unemployment rate is anticipated to below full capacity, amid the pandemic. The
slightly improve at 4.2%, backed by favourable labour market outlook remains stable, with
outcomes of the Kurzarbeit, which is scheduled the unemployment rate at 8.9% (2019: 8.5%).
to end in December 2021. Inflation is forecast Inflation is forecast to be lower at 0.5%
to be higher at 1.1%. (2019: 1.3%), owing to falling oil prices.

Risks to the economy include labour market TABLE 2.5. Selected Indicators for France,
disruptions, stemming from the acceleration 2019 – 2021
of the automation technologies’ development
and implementation, due to the COVID-19
INDICATOR 2019 20201 20212
pandemic. Additionally, unfavourable
demographic trends, amid a declining Real GDP (% p.a.) 1.5 -9.8 6.0
working population, will increasingly constrain Inflation (% p.a.) 1.3 0.5 0.6
productivity and potential economic growth.
Current Account of BOP -0.7 -1.9 -1.8
On the external front, prolonged supply chain
(% of GDP)
disruptions and challenges among main
trading partners in curtailing the pandemic Unemployment Rate (%) 8.5 8.9 10.2
may weigh on growth prospects of the export-
Estimate
oriented economy. Additional risks include
1

2
Forecast
possible retaliation from the country’s largest Source: International Monetary Fund, World Economic Outlook
(October 2020)
trading partner, which will depend on the
Government’s decision related to partnership
in the country’s 5G network infrastructure For 2021, growth in France is projected to
development. Subsequently, this may also expand by 6%, mainly supported by a recovery
adversely affect trade, particularly auto exports. in domestic demand. Household consumption
is expected to turn around, backed by higher
The economy of France contracted by spending as consumer confidence is restored.
12.3% in the first six months of 2020 due Likewise, private investment is anticipated to
to weak domestic demand. Household rebound, spurred by the Government’s support
consumption plummeted by 10.4%, with a in the form of state-guaranteed loans and
significant reduction in spending on energy, tax breaks. Public investment is expected to
engineered goods as well as transportation, rise, in line with the EUR100 billion recovery
accommodation and food services. Private plan to support green and digital transitions
investment slumped by 13.9%, with the as well as improve the competitiveness of
suspension of building constructions following French companies. In addition, the recovery
lockdown measures from March until May plan also aims to strengthen the resilience
2020. The unemployment rate improved of strategic sectors, particularly aeronautics,

economic outlook 2021 51

chapter 2 global economic outlook

automobile, construction and tourism. support of the same amount was earlier
However, France is anticipated to register a rolled out in April. The Government plans
double-digit unemployment rate at 10.2% as to announce additional economic stimulus
the Government is expected to progressively measures in early 2021 to boost the economy.
reduce coverage of the short-term activity The unemployment rate is anticipated to be
scheme. Inflation is expected to be at 0.6%. at 3.3% (2019: 2.4%). Meanwhile, deflation is
projected to register 0.1% (2019: 0.5%) due to
Risks to the economy include widening fiscal a drop in oil prices.
deficit, with a reduction in tax revenues and
higher social transfer expenditure following a TABLE 2.6. Selected Indicators for Japan,
sizeable drop in economic activities, amid the 2019 – 2021
COVID-19 pandemic. The general escape clause
in the EU fiscal rules allows more fiscal space INDICATOR 2019 20201 20212
for the Government to address the impact of
Real GDP (% p.a.) 0.7 -5.3 2.3
the pandemic. The activation of this clause
will lead to a sharp expansion in the country’s Inflation (% p.a.) 0.5 -0.1 0.3
fiscal deficit. In addition, possible new tariffs
Current Account of BOP 3.6 2.9 3.2
imposed by the US on a broader range of (% of GDP)
imported items from France, amid re-escalating
Unemployment Rate (%) 2.4 3.3 2.8
trade tensions over the digital services tax
levied by France and aerospace subsidies, 1
Estimate
could adversely affect business investment 2
Forecast
Source: International Monetary Fund, World Economic Outlook
plans and undermine exports. (October 2020)

Japan’s economy contracted by 5.9% in the The GDP is forecast to turn around by
first half of 2020, mainly due to a decline in 2.3% in 2021, supported by a rebound in
private consumption and exports, which were private consumption, private investment and
severely affected by the pandemic. Private exports. Private consumption is expected
consumption decreased significantly by 10.9%, to be buoyed by the Tokyo Olympic Games,
as a result of services-related businesses scheduled in the summer of the year. Private
closure and the implementation of voluntary investment is expected to increase due to
emergency measures. Likewise, exports shrunk higher usage of automation and digitisation,
by 23.3%, owing to low shipments of transport which will enable companies to lower costs
equipment and machinery, amid deteriorating and boost productivity. This is in line with
global demand. The unemployment rate the Government’s plans to automate 27%
slightly rose to 2.7%, while inflation was lower of existing work tasks by 2030 to address
at 0.1%. a shrinking workforce due to the ageing
population. The unemployment rate is
Growth in Japan is forecast to decline by 5.3% projected to be lower at 2.8%, while inflation
in 2020 (2019: 0.7%), mainly due to worsening is expected to remain at 0.3%.
private consumption and exports. Private
consumption, which deteriorated in the first Risks to the economy include continued
few months of the year, is expected to rise recession brought about by the pandemic,
gradually with the reopening of businesses in escalating trade tensions and an unfavourable
late May. Exports are anticipated to remain fiscal outlook due to the high level of
sluggish due to the ongoing trade tensions government debts. Risks also stem from
with the Republic of Korea and the US, and macro-financial vulnerabilities and limited
uncertainty in the outlook of global demand. monetary policy space, which make the
In May 2020, the Government announced country more vulnerable to shocks. The ageing
a second stimulus package amounting to population may slow down growth and remains
USD1.1 trillion to provide relief to people and one of the major challenges for the economy.
businesses affected by the pandemic. Fiscal

52 economic outlook 2021

 chapter 2 global economic outlook

The GDP of Australia fell by 2.4% in the first rate twice in March, by a total of 50 basis
half of 2020, mainly due to weak private points, from 0.75% to 0.25% to support the
consumption and exports. Private consumption economy.
plunged by 6.5%, as a result of a large decline
in household expenditure, particularly in Australia’s economy is forecast to turn around
transport services, recreation as well as hotels, by 3% in 2021, attributed to robust domestic
cafes and restaurants. Exports plummeted by demand and a recovery in exports. Private
6.3%, largely due to significantly lower demand consumption is expected to gain momentum,
for metal ores and minerals, particularly from with a growth of 5.7%, backed by improved
China and Japan. The unemployment rate consumer confidence, amid the recovery in
was registered at 5.9% following job losses in employment prospects. Public investment is
the accommodation and food services, retail forecast at 3.3%, with higher spending on
trade industries as well as arts and recreation transport infrastructure, health care and other
services. Inflation was recorded at 1%, with essential services. Exports are projected to pick
lower oil prices. up by 5.1% due to rising demand for liquefied
natural gas (LNG). The unemployment rate is
Overall, Australia’s GDP growth is expected anticipated to register 7.7%, while inflation
to contract by 4.2% in 2020 (2019: 1.8%) as is expected to record 1.3%. Risks to the
private consumption and exports declined. economy include a resurgence of the COVID-19
Private consumption is anticipated to shrink pandemic, re-intensification of trade tensions
following massive job losses and lower income and a cold war over technology with China as
levels, coupled with higher savings. Exports well as volatile commodity prices.
are forecast to fall by 5.4% (2019: 3.1%) due to
sluggish demand from China, amid heightening The Republic of Korea’s economy contracted
trade tensions between the two nations. Public by 1.5% during the first six months of 2020,
consumption is projected to increase by 5.4% mainly due to weak private consumption
(2019: 5.3%) following the announcement of and a plunge in exports, particularly in
four stimulus packages amounting to AUD17.6 the second quarter. Private consumption
billion. These include tax-free cash payments decreased by 4.5%, mainly in services-related
and wage subsidies to support households activities, owing to a reduction of income
and small- and medium-sized businesses. The and self-isolation measures encouraged by
unemployment rate is forecast to register 6.9% the Government. Exports dropped by 8%,
(2019: 5.2%) due to job losses in industries particularly in automotive products and
affected by movement restrictions, particularly semiconductors, as a result of slower demand
in accommodation and food services. Inflation from advanced economies and the temporary
is anticipated to record 0.7% (2019: 1.6%). The shutdown of factories. Public consumption,
Reserve Bank of Australia reduced its policy which expanded by 6.4%, has helped
the economy from shrinking further. The
unemployment rate was registered at 4.3%,
TABLE 2.7. Selected Indicators for Australia, while inflation remained at 0.6%.
2019 – 2021
In response to the pandemic crisis, the
INDICATOR 2019 20201 20212 Government rolled out three stimulus packages
Real GDP (% p.a.) 1.8 -4.2 3.0 amounting to USD222 billion, which focused
on urgent relief measures, particularly for
Inflation (% p.a.) 1.6 0.7 1.3 the vulnerable sectors, SMEs and the self-
Current Account of BOP 0.6 1.8 -0.1 employed. Additionally, a five-year New Deal
(% of GDP) programme, with a total of USD133 billion, was
Unemployment Rate (%) 5.2 6.9 7.7 announced in June 2020. The programme aims
to create 1.9 million new jobs in the digital and
1
Estimate green sectors as well as spur the economy,
Forecast
to cushion the impact of the crisis. Hence,
2

Source: International Monetary Fund, World Economic Outlook

(October 2020) the GDP in 2020 is expected to only contract

economic outlook 2021 53

chapter 2 global economic outlook

by 1.9% (2019: 2%), owing to sluggish private was recorded at 3.8%. Meanwhile, inflation
consumption and exports. Private consumption registered 3.9%, with higher prices of food,
is forecast to remain weak at 3.2% (2019: 1.9%), tobacco and liquor.
as a result of a decline in household incomes
and low consumer confidence. Exports are The economy is expected to expand by 1.9%
projected to fall by 5.1% (2019: 1.5%), with in 2020 (2019: 6.1%) as economic activities
slow demand from major trading partners. The recover in the second half of the year. Private
unemployment rate is forecast to increase to consumption is projected to increase by
4.1% (2019: 3.8%), while inflation is projected 0.8% (2019: 7.4%), especially in non-essential
to register 0.5% (2019: 0.4%). items following the distribution of vouchers
and coupons for in-store purchases. Private
TABLE 2.8. Selected Indicators for the Republic of investment is projected to improve by 1.7%
Korea, 2019 – 2021 (2019: 4.4%), with an expected increase in
infrastructure and manufacturing activities
INDICATOR 2019 20201 20212
as well as real estate development. The
Government announced the New Infrastructure
Real GDP (% p.a.) 2.0 -1.9 2.9 plan for 2020 until 2025 to accelerate
Inflation (% p.a.) 0.4 0.5 0.9 infrastructure development. The plan comprises
seven focus areas, including 5G networks,
Current Account of BOP 3.6 3.3 3.4
artificial intelligence and intercity high-speed
(% of GDP)
rail. A fiscal stimulus package totalling USD500
Unemployment Rate (%) 3.8 4.1 4.1 billion was introduced in May 2020 to counter
the adverse effects of the pandemic. Measures
1
Estimate
2
Forecast
in the package include tax cuts, lower interest
Source: International Monetary Fund, World Economic Outlook rates, reduced utility prices and employment
(October 2020)
support. The unemployment rate is expected
to record 3.8% (2019: 3.6%), while inflation is
The economy of Korea is forecast to anticipated to remain at 2.9% (2019: 2.9%).
rebound by 2.9% in 2021, driven by private
consumption and exports. Private consumption TABLE 2.9. Selected Indicators for China,
and exports are expected to turn around 2019 – 2021
as the impact of the pandemic outbreak
eases. The unemployment rate is projected INDICATOR 2019 20201 20212
to remain unchanged at 4.1%, while inflation
Real GDP (% p.a.) 6.1 1.9 8.2
is anticipated to record 0.9%. Risks to the
economy include a prolonged spread of the Inflation (% p.a.) 2.9 2.9 2.7
pandemic, deepening of the US-China trade
Current Account of BOP 1.0 1.3 0.7
dispute, trade tension with Japan and a delay (% of GDP)
in the recovery of the semiconductor industry.
Unemployment Rate (%) 3.6 3.8 3.6

China’s economy fell by 1.6% in the first 1

Estimate
half of 2020 due to a drop in both private 2
Forecast
Source: International Monetary Fund, World Economic Outlook
consumption and investment as well as (October 2020)
unfavourable external demand. Private
consumption plunged by 11.4% as the In 2021, the growth in China is forecast to lead
lockdown, which was announced on the eve the recovery in the EMDEs, with a rapid growth
of Chinese New Year, weakened consumer of 8.2%, supported by strong domestic demand
confidence. Similarly, private investment and favourable exports. The Government is
declined by 7.3%, particularly in infrastructure expected to unveil a five-year plan in the first
and manufacturing activities following the quarter of 2021, which will, among others, set
closure of factories. Exports fell by 3% due the economic direction for 2021 until 2025. The
to slower demand, mainly in mechanical and unemployment rate is projected to moderate
electronic products. The unemployment rate to 3.6%, while inflation is expected to be lower

54 economic outlook 2021

 chapter 2 global economic outlook

at 2.7%. Risks to the economy emanate from TABLE 2.10. Selected Indicators for India,
rising asset price inflation, continued supply 2019 – 2021
chain disruptions, broad global recession and
heightening trade tensions with the US. A INDICATOR 2019 20201 20212
resurgence of the COVID-19 pandemic and
Real GDP (% p.a.) 4.2 -10.3 8.8
emergence of new epidemics may also pose
risks to the economy. Inflation (% p.a.) 4.8 4.9 3.7

Current Account of BOP -0.9 0.3 -0.9

During the first half of 2020, India’s GDP (% of GDP)
plummeted by 10.1% due to a decline in
Unemployment Rate (%) – – –
the services and manufacturing sectors. The
services sector recorded a drop of 8.5% due 1
Estimate
to a sharp contraction in the trade, hotels, 2
Forecast
Source: International Monetary Fund, World Economic Outlook
transport, communication and broadcasting- (October 2020)
related services subsector. Likewise, the
manufacturing sector plunged significantly by
19.8%, largely attributed to a reduction in the The GDP of India in 2021 is projected to
production of motor vehicles, trailers and rebound by 8.8%, largely supported by a
semi-trailers. Inflation, as indicated by the recovery in the services and manufacturing
wholesale price index, recorded a deflation sectors, coupled with resilient growth in the
of 0.1% due to a fall in the prices of crude agriculture sector. The anticipated growth in
petroleum, petrol and high speed diesel. the agriculture sector is a result of higher
Rabi and Kharif crops output as well as the
India’s GDP is projected to plunge by 10.3% likelihood of a normal monsoon season.
in 2020 (2019: 4.2%) due to contractions in Inflation is expected to record 3.7%, still within
the services, manufacturing and construction the target range of the RBI. Growth in India
sectors. The services sector is expected to is exposed to several risks. A serious local
slip due to a decline in travel-, tourism- and transmission of COVID-19 to the rural areas,
hospitality-related activities. Similarly, the continuing financial and corporate distress,
manufacturing sector is anticipated to shrink, particularly in the non-banking financial
owing to less production of passenger vehicles. sector as well as a prolonged global economic
The construction sector is expected to contract, downturn may hamper growth.
as a result of declining new residential building
projects and the impact of the liquidity crunch The GDP of the ASEAN-5 economies recorded
on construction developers. On 12 May a weak growth in the first half of 2020, mainly
2020, the Government announced a relief due to sluggish private consumption and
package of around 10% of GDP, amounting exports, as these economies grappled with the
to INR20 trillion, which included key direct COVID-19 pandemic. The ASEAN-5 is anticipated
spending measures such as cash transfers to contract by 3.4% in 2020 (2019: 4.9%) due to
to households. Additionally, the Government a plunge in private consumption. The decline
announced a stimulus package on 12 October is mainly due to a fall in household incomes
2020 amounting to INR730 billion. The package and an increase in precautionary savings.
included partial advance payments of federal Trade is expected to remain unfavourable due
government employees’ wages and further
to disruptions in the supply chains among
capital spending on infrastructure projects.
key trading partners, particularly the US and
The Reserve Bank of India (RBI) reduced its
euro area. For 2021, the ASEAN-5 economies
key policy repo rate twice in March and May
are expected to expand significantly by 6.2%,
2020, by a total of 115 basis points, to 4.00%.
driven by domestic demand and exports.
This action by the RBI is to revive growth
These economies may continue to encounter
and mitigate the impact of the COVID-19
numerous challenges, including prolonged
pandemic, while ensuring inflation remains
disruptions in highly integrated regional supply
within the target range of 2% to 6%. Inflation
is estimated at 4.9% (2019: 4.8%), achieving the chains, sluggish commodity prices and financial
target range. market volatility.

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chapter 2 global economic outlook

TABLE 2.11. Selected Indicators for ASEAN-5, TABLE 2.12. Selected Indicators for Indonesia,
2019 – 2021 2019 – 2021

INDICATOR 2019 20201 20212 INDICATOR 2019 20201 20212

Real GDP (% p.a.) 4.9 -3.4 6.2 Real GDP (% p.a.) 5.0 -1.5 6.1

Inflation (% p.a.) 2.1 1.5 2.3 Inflation (% p.a.) 2.8 2.1 1.6

Current Account of BOP 1.1 0.8 0.1 Current Account of BOP -2.7 -1.3 -2.4
(% of GDP) (% of GDP)

Unemployment Rate (%) – – – Unemployment Rate (%) 5.3 8.0 6.8

1
Estimate 1
Estimate
2
Forecast 2
Forecast
Source: International Monetary Fund, World Economic Outlook Source: International Monetary Fund, World Economic Outlook
(October 2020) (October 2020)

Indonesia’s GDP deteriorated by 1.2% in the Indonesia’s GDP is expected to grow at

first half of 2020 due to a drop in private a fast pace of 6.1% in 2021, led by both
consumption, private investment and exports. private consumption and investment as well
Private consumption fell by 1.3%, owing to as external demand. The increase in private
reduced spending on restaurant and hotel consumption is expected to be supported by
as well as transportation services, along with higher purchases of durable goods as well
a rise in precautionary savings. Similarly, as rising confidence in income prospects and
private investment dropped by 3.5% due to job security. Likewise, private investment
a contraction of investment in capital goods, is expected to improve, particularly in the
machinery and equipment as well as vehicles. information and communication sector
Meanwhile, exports plunged further by 5.7% following the completion of the Palapa Ring
due to lower demand, particularly for oil and Project, which aims to provide 4G internet
gas, manufactured goods and mining products. access nationwide. Exports are anticipated
Inflation was recorded at 2.6%. to be higher, supported by robust demand
for gold, metal ore as well as iron and steel.
Overall, the economy is projected to The unemployment rate is forecast at 6.8%,
contract by 1.5% in 2020 (2019: 5%), mainly while inflation is expected to record 1.6%.
due to weak domestic demand. Private Risks for Indonesia include subdued trade and
consumption is projected to decline, as a investment activity following ongoing trade
result of a substantial decrease in spending on tensions between the US and China as well as
restaurant and hotel as well as transportation a prolonged depreciation of the rupiah.
services. Likewise, private investment is
anticipated to fall due to supply and labour The economy of Thailand plunged by 7.1%
disruptions following the implementation in the first half of 2020 due to a decline
of lockdown measures, which has caused in private consumption, private investment
major infrastructure projects to be delayed. and exports. Private consumption slipped by
Public expenditure is expected to increase, 2%, owing to lower spending on alcoholic
resulting from the stimulus measures totalling beverages and transportation. Private
IDR695.2 trillion, to boost economic growth investment dropped by 7.3% following a
and strengthen the health care system. Bank decline of investment in machinery and
Indonesia lowered its key policy rate by equipment as well as construction. Similarly,
25 basis points, each in March, May, June and exports worsened by 17.8%, mainly due to
July 2020 to 4.00% to support the economy. lower demand for vehicles and disruptions
The unemployment rate is anticipated to rise in the production of agricultural goods,
to 8% (2019: 5.3%), partly due to job losses particularly rice. The unemployment rate rose
resulting from the closure of restaurants and to 2% following job losses in the tourism and
hotels, while inflation is forecast to record agriculture industries. Deflation was recorded
2.1% (2019: 2.8%). at 1.9% as oil prices were low.

56 economic outlook 2021

 chapter 2 global economic outlook

The Government announced four stimulus anticipated to record 1.8%. Risks to the
packages from March until September, economy include weak investor confidence
amounting to approximately THB2.1 trillion or due to uncertainties in the domestic political
14.5% of the GDP, to mitigate the economic atmosphere, further disruptions in the supply
impact of the pandemic. The Bank of Thailand chains as well as subdued tourism activities.
also reduced the policy rate four times,
amounting to 75 basis points, to 0.50% to The economy of Singapore plummeted by 6.7%
sustain the economy. The GDP growth in 2020 in the first half of 2020 due to a decrease in
is anticipated to contract by 7.1% (2019: 2.4%), the services producing industries. The services
as a result of sluggish private consumption producing industries contracted by 7.9%,
and exports. Private consumption is particularly in the wholesale and retail trade,
expected to be subdued, mainly due to lower business services as well as accommodation
spending in the tourism-related industry and food services sectors, as a result of
and transportation. Exports are anticipated weaker global demand and disruptions in
to plunge, resulting from lower demand, supply chains due to the pandemic. The
particularly in automotive and tourism services. unemployment rate was marginally higher at
The unemployment rate is expected to remain 2.5%, mainly due to layoffs in the tourism-
at 1% (2019: 1%), while deflation is estimated related services sectors. Deflation was recorded
to record 0.4% (2019: 0.7%). at 0.2%, owing to lower housing and utility
prices as well as transport costs.
TABLE 2.13. Selected Indicators for Thailand,
2019 – 2021 The Government announced four stimulus
packages from February until May 2020,
INDICATOR 2019 20201 20212 namely the Unity Budget, Resilience Budget,
Solidarity Budget and Fortitude Budget, with
Real GDP (% p.a.) 2.4 -7.1 4.0
a total of approximately SGD100 billion. In
Inflation (% p.a.) 0.7 -0.4 1.8 August 2020, the Government announced an
Current Account of BOP 7.1 4.2 4.6 additional allocation of SGD8 billion. These
(% of GDP) budgetary measures are expected to cushion
the fall in employment and economic output
Unemployment Rate (%) 1.0 1.0 1.0
as well as to support economic, social and
1
Estimate public health management. The economy
2
Forecast is projected to contract by 6% in 2020
Source: International Monetary Fund, World Economic Outlook
(October 2020) (2019: 0.7%), with a decline in the wholesale
and retail trade, business services as well as
The GDP of Thailand is projected to rebound transport and storage services subsectors.
by 4% in 2021, largely supported by robust
domestic demand and a recovery in exports. TABLE 2.14. Selected Indicators for Singapore,
Private consumption is expected to pick 2019 – 2021
up, contributed by higher online spending,
particularly on electronics and media as well INDICATOR 2019 20201 20212
as digital products. Private investment is
Real GDP (% p.a.) 0.7 -6.0 5.0
forecast to expand as tax incentives offered by
the Government are projected to encourage Inflation (% p.a.) 0.6 -0.4 0.3
companies to invest in automation in projects, Current Account of BOP 17.0 15.0 14.5
particularly for medical equipment and food (% of GDP)
security. Similarly, exports are envisaged to
Unemployment Rate (%) 2.3 3.0 2.6
improve, with higher demand for manufactured
goods, primarily electronics, vehicles and 1
Estimate
machinery. The unemployment rate is expected 2
Forecast
Source: International Monetary Fund, World Economic Outlook
to remain steady at 1%, while inflation is (October 2020)

economic outlook 2021 57

chapter 2 global economic outlook

Likewise, sectors that are reliant on tourism In 2020, the economy is expected to decline
and foreign workers are anticipated to shrink by 8.3% (2019: 6%), weighed down by a drop
due to the lingering pandemic situation. The in household consumption and exports.
expected recovery in the manufacturing and Household consumption is projected to weaken
financial services subsectors, in the second half following lower spending, particularly on
of 2020, is projected to support the economy restaurants and hotels as well as transport
from a further decline. The unemployment rate categories, amid uncertainties over job
is forecast at 3% (2019: 2.3%), while deflation prospects. Public spending is expected to
is expected to register 0.4% (2019: 0.6%) due
accelerate as the Government announced
to declining oil prices.
programmes, amounting to approximately
PHP1.7 trillion, to stimulate the economy.
The GDP is projected to rebound by 5% in 2021,
Exports are anticipated to be sluggish due
spearheaded by the services producing industries
to lower demand for electronic products,
and manufacturing subsector. The services
particularly semiconductors and electronics.
producing industries are expected to gradually
The unemployment rate is forecast to rise to
recover, driven by the finance and insurance
10.4% (2019: 5.1%) following job losses in the
services subsector. Similarly, the manufacturing
services sector, particularly in wholesale and
subsector is expected to expand, supported
retail trade as well as repair of motor vehicles
by higher production of pharmaceutical and
and motorcycles services. Inflation is expected
biological products. The unemployment rate is
to moderate to 2.4% (2019: 2.5%) due to lower
forecast at 2.6%, while inflation is anticipated
oil prices.
to record 0.3%. Risks to the economy include
uncertainties over the pandemic, which may
continue to drag several outward-oriented TABLE 2.15. Selected Indicators for the
sectors, particularly manufacturing and wholesale Philippines, 2019 – 2021
trade. Likewise, domestically-oriented sectors,
namely construction and real estate, may be INDICATOR 2019 20201 20212
severely affected by a further downturn in the Real GDP (% p.a.) 6.0 -8.3 7.4
domestic economy.
Inflation (% p.a.) 2.5 2.4 3.0

The economy of the Philippines contracted Current Account of BOP -0.1 1.6 -1.5
(% of GDP)
by 9% in the first half of 2020 due to weak
household consumption, private investment Unemployment Rate (%) 5.1 10.4 7.4
and exports. Household consumption
1
Estimate
contracted by 7.8% due to reduced spending 2
Forecast
on expenditure items services, particularly Source: International Monetary Fund, World Economic Outlook
(October 2020)
restaurants and hotels as well as transport.
Private investment shrank by 22.3%, resulting
from lower investment in durable equipment In 2021, growth in the Philippines is
and construction. Exports plunged by 17.6% expected to rebound by 7.4%, spurred by
due to sluggish demand for electronic domestic demand. Household consumption is
products, manufactured goods as well as forecast to recover, backed by an increase in
machinery and transport equipment. Bangko remittance inflows and improved consumer
Sentral ng Pilipinas cut its policy rate four confidence. Public spending is anticipated to
times, from 4.00% to 2.25%, between March increase following the proposed 2021 Budget,
and June 2020. The unemployment rate amounting to PHP4.5 trillion, to stimulate
increased significantly to 11.5% due to drastic growth and create jobs. This is coupled with
job losses in services-related sectors following annual spending of PHP1 trillion for its Build,
business closures and layoffs. Inflation eased Build, Build programme. The unemployment
to 2.5%, owing to a fall in oil prices. rate is projected to moderate to 7.4%, while

58 economic outlook 2021

 chapter 2 global economic outlook

inflation is anticipated to be higher at 3%. and widespread geopolitical tensions.

Risks to the economy include a widening Continued low oil prices and deepening climate
fiscal deficit. A slower-than-expected global crisis may also derail the recovery. In addition,
recovery following a prolonged pandemic may limited fiscal space and a further spike in
also weigh on trade and investment as well as government debts may also impede growth.
The global economy, however, is envisaged to
foreign remittances.
remain on a positive growth trajectory, with
the implementation of fiscal and monetary

Conclusion measures to boost consumer and investor

confidence. The successful development of
an effective and accessible COVID-19 vaccine,
Promising global prospects amid uncertainties
coupled with the containment of the spread of
the pandemic in the near term, may further
The global economy is forecast to record a
stimulate global growth. While the pandemic
solid rebound in 2021. The turnaround is
poses multifaceted challenges to countries,
expected to be buoyed by robust domestic
especially in amplifying existing socioeconomic
demand and exports in the advanced
gaps, the COVID-19 pandemic also presents
economies and the EMDEs. However, risks
opportunities for economies to institute
to the global economy persist. Growth may
reforms, towards accelerating digitalisation and
be hampered by the re-intensification of
pursuing sustainable growth.
trade tensions between the US and China,
uncertainties surrounding the Brexit outcomes

economic outlook 2021 59

chapter 2 global economic outlook

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economic outlook 2021 65

ch ap ter 3

Macroeconomic
Outlook

71 ov e rv i e w

71 s ec tor a l
Feature Article 3.1 – Gig Economy
Feature Article 3.2 – Digitalisation in the Logistics
Industry
Feature Article 3.3 – Small and Medium Enterprises:
Building Resilience to Weather Crises
Information Box 3.1 – The Importance of Commodity
Sector to the Malaysian Economy

92 dome s t ic de m a nd
Feature Article 3.4 – Shadow Economy in Malaysia

97 e x te r n a l s ec tor

102 pr ice s
Feature Article 3.5 – Dynamic Relationship between
Consumer and Producer Price Indices

107 l a bour m a r k e t

108 conclus ion

110 r e fe r e nce s
 CHAPTER 3 SUMMARY: MACROECONOMIC OUTLOOK

MALAYSIA’S
ECONOMIC OUTLOOK

Economy is
Expected to
Contract
-4.5% 2019: 4.3%

GDP AT CONSTANT 2015 PRICES GDP AT CURRENT PRICE

RM1,357.7 BILLION RM1,439.4 BILLION

GROSS NATIONAL INCOME CURRENT ACCOUNT BALANCE OF BOP

AT CURRENT PRICE
RM48.5
RM1,415.7
BILLION
BILLION (3.4% OF GNI)

CONSUMER PRICE INDEX UNEMPLOYMENT RATE

-1.0% 4.2%

Supply (% p.a.) Demand (% p.a.)

SERVICES -3.7% PRIVATE

CONSUMPTION
-0.7%
2019: 6.1% 2019: 7.6%

MANUFACTURING -3.0% GROSS FIXED

CAPITAL -11.1%
3.8% FORMATION -2.1%

CONSTRUCTION -18.7% PUBLIC

CONSUMPTION
1.6%
0.1% 2.0%

MINING -7.8% EXPORTS -13.4%

-2.0% -1.3%

AGRICULTURE -1.2% IMPORTS -11.9%

2.0% -2.5%
 MALAYSIA’S
ECONOMIC OUTLOOK

Economy is
Expected to
Rebound
6.5%–7.5% 2020:-4.5%

GDP AT CONSTANT 2015 PRICES GDP AT CURRENT PRICE

RM1,450.8 BILLION RM1,568.1 BILLION

GROSS NATIONAL INCOME CURRENT ACCOUNT BALANCE OF BOP

RM20.3
AT CURRENT PRICE

RM1,526.5 BILLION (1.3% OF GNI)

BILLION

CONSUMER PRICE INDEX UNEMPLOYMENT RATE

2.5% 3.5%

Supply (% p.a.) Demand (% p.a.)

SERVICES 7.0% PRIVATE

CONSUMPTION
7.1%
2020: -3.7% 2020: -0.7%

MANUFACTURING 7.0% GROSS FIXED

CAPITAL 9.5%
-3.0% FORMATION -11.1%

CONSTRUCTION 13.9% PUBLIC

CONSUMPTION
2.0%
-18.7% 1.6%

MINING 4.1% EXPORTS 8.7%

-7.8% -13.4%

AGRICULTURE 4.7% IMPORTS 9.2%

-1.2% -11.9%
chapter 3 macroeconomic outlook

70 economic outlook 2021

 chapter 3 macroeconomic outlook

chapter 3

Macroeconomic Outlook

Overview Sectoral
Gradual economic recovery in the second half of Services Sector
2020 before normalising in 2021
New norms accelerate the growth of the digital
The Malaysian economy experienced the economy
full impact of the COVID-19 pandemic in
the second quarter of 2020, with the real The services sector contracted by 6.7% in the
gross domestic product (GDP) contracting by first half of 2020 largely due to worldwide
17.1%. The contraction was mainly attributed travel bans, domestic movement restrictions
and quarantines, which severely affected
to the imposition of the Movement Control
the tourism-related subsectors and airlines.
Order (MCO) to contain the outbreak. Though
Among the subsectors that have been severely
affecting all sectors in the economy, the move affected include wholesale and retail trade,
was necessary to flatten the COVID-19 curve food & beverages and accommodation,
and save lives. Hence, the Government has transportation and storage as well as real
announced several stimulus packages totalling estate and business services. Nevertheless,
RM305 billion to support both households and the information and communication subsector
businesses. Reinforced by the reopening of expanded as online transactions increased
the economy in phases, growth is expected to significantly during the MCO. The services
improve gradually during the second half of sector is expected to record a smaller decline
the year, cushioning the significant contraction of 1% in the second half of the year, reflecting
the gradual resumption of economic activities.
in the first half. Thus, Malaysia’s GDP is
Overall, the sector is projected to contract by
expected to contract by 4.5% in 2020, before
3.7% in 2020 before rebounding by 7% in 2021.
rebounding between 6.5% – 7.5% in 2021. With the normalisation of economic activities
With the bold and swift measures undertaken, in 2021, all subsectors are projected to record
Malaysia has been recognised as one of the positive growth.
most successful countries in managing the
socio-economic impact of the pandemic. TABLE 3.1. GDP by Sector,
2019 – 2021
Although domestic demand is expected to (at constant 2015 prices)
remain soft throughout 2020, there are signs
of recovery in the second half of the year, SHARE CHANGE
particularly in private consumption. On the (%) (%)
external front, the collapse in global demand 20201 2019 20201 20212
and world trade led to a decline in exports Services 58.1 6.1 -3.7 7.0
during the year. However, current account Manufacturing 22.6 3.8 -3.0 7.0
of the balance of payments is expected to
Agriculture 7.4 2.0 -1.2 4.7
remain in surplus. On the supply side, all
sectors are expected to contract, affected by Mining 6.9 -2.0 -7.8 4.1
the unprecedented crisis. Nevertheless, the Construction 4.0 0.1 -18.7 13.9
pace of improvement gathered momentum in
GDP 100.0 4.3 -4.5 6.5 – 7.5
the third quarter, especially in the services and
manufacturing sectors, with the resumption of 1
Estimate
economic activities. 2
Forecast
Note: Total may not add up due to rounding and exclusion of import
duties component
Source: Department of Statistics and Ministry of Finance, Malaysia

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chapter 3 macroeconomic outlook

The wholesale and retail trade subsector TABLE 3.2. Services Sector Performance,
contracted by 10.8% in the first half of 2020 2019 – 2021
due to disruptions in the global and domestic (at constant 2015 prices)
supply chains. The subsector is expected to
record a smaller decline by 1.9% in the second SHARE CHANGE
half of the year with the gradual resumption (%) (%)
of business operations, online platforms, 2020¹ 2019 2020¹ 20212
cash assistance, sales campaigns and sales
Wholesale and retail 28.8 6.7 -6.1 8.5
tax exemption for the purchase of new cars. trade
For the year, the subsector is projected to
contract by 6.1%. The subsector is anticipated Finance and insurance 11.8 4.6 -0.1 5.5
to rebound by 8.5% in 2021, supported by all Information and 11.4 6.6 6.4 7.9
segments. The wholesale segment is expected communication
to be backed by food-related industries. At Real estate and business 7.7 7.8 -11.6 7.6
the same time, the expansion in e-commerce services
activities will support the retail segment. The Transportation and 6.0 6.8 -11.9 7.5
growth of the motor vehicles segment will storage
be underpinned by the introduction of new
Food & beverages and 5.5 9.6 -13.3 10.7
models and higher household disposable accommodation
income.
Utilities 4.9 6.0 1.7 5.7
The information and communication Other services 8.2 5.5 -8.1 6.2
subsector expanded by 5.8% in the first half Government services 15.7 3.7 4.0 3.7
of 2020, primarily supported by higher usage
Services 100.0 6.1 -3.7 7.0
of internet, particularly online transactions,
entertainments, educational and work from 1
Estimate
home (WFH) activities. The subsector is 2
Forecast
projected to expand further by 7.1% in the Note: Total may not add up due to rounding
Source: Department of Statistics and Ministry of Finance, Malaysia
second half of the year buoyed by various
Government initiatives. The initiatives include
a tax exemption of up to RM5,000 for moratorium and slower lending activities.
information, communication and technology Nonetheless, the better performance of the
(ICT) equipment to support WFH activities insurance segment reflects the increase in life
and individual income tax relief of up to insurance subscriptions, which partly cushioned
RM2,500 on the purchase of digital devices. the overall decline of the subsector. The trend
For the year, the subsector is anticipated to is expected to continue in the second half
accelerate by 6.4% as WFH activities, virtual following the extension of moratorium to
communication and online businesses become targeted borrowers. Overall for the year, the
the new normal. In 2021, the subsector is subsector is expected to contract marginally
projected to expand by 7.9%, with the fifth- by 0.1% with the expansion in the insurance
generation cellular network (5G) spectrum segment, reflecting the net impact of higher
facilitating e-commerce and e-learning premiums amid lower claims.
activities. The roll-out of the National Fourth
Industrial Revolution (4IR) Policy and Digital The subsector is projected to rebound by 5.5%
Economy Blueprint in the fourth quarter of
in 2021, driven mainly by the finance segment,
2020 is expected to enhance the productivity
benefitting from the normalisation of loan
and competitiveness of the subsector. The
repayments and continuation of bank lending
formation of the Malaysian Digital Economy
amid stronger domestic economic activities.
Task Force, which focusses on digital
The insurance segment is also expected to
technology, cybersecurity, trade and digital
content is expected to support the acceleration grow steadily with the promotion of innovative
of the subsector. and risk-based pricing in motor and fire
insurance. In addition, the launching of the
The finance and insurance subsector in the Financial Sector Blueprint 2021 – 2025 in the
first half of 2020 contracted marginally by first quarter of 2021 is expected to further
0.2%, mainly due to the six-month wide-scale boost the growth of the subsector.

72 economic outlook 2021

 chapter 3 macroeconomic outlook

FIGURE 3.1. Selected Indicators for the Services Sector

Tourist Arrivals and Receipts Volume Index of Wholesale & Retail Trade
(2015 = 100)
RM billion Million Index
120 42 200
TOURIST RECEIPTS WHOLESALE & RETAIL TRADE

TOURIST ARRIVALS (RIGHT SCALE) RETAIL TRADE

100 35 WHOLESALE TRADE
160
MOTOR VEHICLES
80 28
120
60 21
80
40 14

40
20 7

0 0 0
2016 2017 2018 2019 20201 J A J O J A J O J A J
2018 2019 2020

Container Handling and Ship Calls Information and Communication Index

Million Units Index (2015 = 100)
36 60,000 200
TEUS INFORMATION AND COMMUNICATION
SHIP CALLS (RIGHT SCALE) COMPUTER AND INFORMATION SERVICE
30 50,000
160 TELECOMMUNICATIONS
PUBLISHING AND BROADCASTING
ACTIVITIES
24 40,000
120
18 30,000
80
12 20,000

40
6 10,000

0 0 0
2016 2017 2018 2019 20201 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2016 2017 2018 2019 2020

Air Passengers and Cargo Electricity Consumption

Million tonne Million Million kilowatt-hours
1.5 150 18,000
AIR CARGO DOMESTIC AND PUBLIC LIGHTING
PASSENGER TRAFFIC (RIGHT SCALE) INDUSTRIAL, COMMERCIAL AND MINING
15,000
1.2 120

12,000
0.9 90
9,000
0.6 60
6,000

0.3 30
3,000

0.0 0 0
2016 2017 2018 2019 2020 1 J A J O J A J O J A J
2018 2019 2020
1
Estimate
Source: Department of Statistics, Malaysia; Malaysia Airports Holdings Berhad; Malaysia Tourism Promotion Board; Senai International Airport;
and seven major ports (Bintulu, Johor, Klang, Kuantan, Kuching,Pulau Pinang and Tanjung Pelepas)

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feature article 3.1

Gig Economy

Introduction

The gig economy is a free market system, characterised by temporary job positions where
corporations tend to engage independent workers for short-term durations. Unlike the traditional
economy, the gig economy is characterised by flexible, temporary, or freelance jobs with irregular
income and working hours. The primary distinction between the gig economy and traditional
working arrangements is the digital element (Burtch et al., 2016). According to Khazanah Research
Institute (2019), the benefits of being a freelancer or gigs include having an additional income,
more flexible working schedules, more accessibility to the market via the internet and lower cost of
doing business.

In 2019, the Global Gig-Economy Index revealed that freelancers in the US had the most significant
revenue growth at 78%, followed by the UK (59%) and Brazil (48%). Digital service intermediary
platform providers in the US, such as Uber, Airbnb and Lyft, are the cornerstone of the gig
economy. Furthermore, according to a survey by MBO Partners (2017), nearly 60% of the workforce
in the US would be independent professionals and companies will spend up to USD6 billion on
improving the rights of gig workers by 2027.

FIGURE 3.1.1. Top 10 Countries with the Fastest Growing Earnings for Freelancers, 2019

78%
59%
48%
47% 36% 35%
29% 27%
20% 19%

US UK BRAZIL PAKISTAN UKRAINE PHILIPPINES INDIA BANGLADESH RUSSIA SERBIA

Source: Global Gig-Economy Index, 2019

table 3.1.1. Comparison between Gig and Traditional Economies

characteristic gig economy traditional economy

Definition An economy characterised by flexible and An economy in which companies

temporary jobs. Hence companies tend to tend to employ workers on a full-
hire freelancers and independent contractors time basis
as opposed to full-time employees

Type of Jobs Offers temporal jobs such as contracts or Offers long-term and permanent
short-term gigs jobs

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characteristic gig economy traditional economy

Flexibility Has a high level of work flexibility Does not offer work flexibility with
rigid or set hours

Employee Benefits Employees do not enjoy additional benefits Employees enjoy additional benefits,
such as health insurance and leave
days

Cost to Employers Employers eliminate unnecessary overhead Employers incur overhead costs
costs, such as additional benefits, office including the payment of additional
space and employee training benefits, office space and employee
training

Work Monotony Breaks routine work, hence promoting Tend to be monotonous, thus could
enthusiasm creativity and innovation be demotivating, discouraging
creativity and innovation

Source: DifferenceBetween.net, 2020

Gig Economy in Malaysia

A study by the Zurich-University of Oxford (2018) found that 38% of the respondents in Malaysia,
who were in full-time employment, would be looking to enter the gig economy in the following
12 months. According to Employees Provident Fund (2019) nearly 40% of the workforce would be
gig workers in the next five years, significantly higher than the global average of 20%. The rise of
millennials1 and digital technology are the main factors contributing to this surge.

Rise of Millennials

Most millennials are no longer interested in the concept of secure and permanent employment.
Millennials grew up in the technological era, and so they are more immersed digitally. This means
gig economy often occurs due to its online platform element, which provides the facility for
millennials to use their talents and abilities (Hershatter & Epstein, 2010). Hence, they account for
the major share of employment in the gig economy as it offers greater flexibility. In Malaysia, there
are about 15.6 million people in the labour force, and 1.3 million are in the informal sector, with
50.2% in the 25 to 44 age group (2013: 46.5%) (Figure 3.1.2.). This reflects that many millennials
are opting out of the traditional workforce as the gig economy offers higher independence and
flexibility in line with their aspirations.

Rise of Digital Technology

The digital economy in Malaysia grew by 18.5% between 2015 and 2019 per annum. In 2020,
Malaysia remains ranked 26th out of 63 countries in the IMD World Digital Competitiveness Ranking
2020. With the Government investing heavily on digital technologies, Malaysians are among the
most digitally connected in the world and produce some of Southeast Asia’s most recognisable
digital start-ups (World Bank, 2018). As digitalisation is the main enabler for the gig economy, the
upsurge in digital platforms encourages more millennials to become gig workers and freelancers.
As of August 2020, there were around 140 platforms providing gig and freelance opportunities
with an estimated 540,000 gig and active freelance workers in Malaysia. Firms, such as Grab and
Foodpanda, continue to record an increasing number of gig workers. Furthermore, there were
about 190,000 gig workers providing services as riders and drivers on various logistic and delivery
platforms in the country.

1
Refers to anyone born between 1981 and 1996 (Pew Research Centre, 2019).

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FIGURE 3.1.2. Employment in the Informal FIGURE 3.1.3. Employment in the Informal Sector by Age
Sector by Age Group, 2019 Group, 2013 – 2019
(% share)
% ‘000
30 400
2013
2015
350 2017
25
2019
300
20
250

15 200

150
10
100
5
50

0 0
15-24 25-34 35-44 45-54 55-64 15-24 25-34 35-44 45-54 55-64

Source: Informal Sector Workforce Survey Report, Department of Statistics, Malaysia, 2019

Issues and Challenges Facing Gig Workers

Despite offering greater work flexibility, gig workers do not have the advantage of a steady job
with regular pay and benefits. In addition, there is still no specific regulation, law or guideline
to protect the welfare of the gig workers except for provisions under the Self-Employment Social
Security Act 2017 [Act 789] which require self-employed to register and contribute under this
scheme. As they are not formally recognised as employees, they are not legally covered under
specific labour provisions, such as the minimum wage, working hours limitation, paid annual and
sick leave as well as unfair dismissal. In addition, unlike traditional employees, gig workers do not
have financial safety nets, such as pension and savings in the EPF. A survey by The Centre (2019)
indicates that nearly 60% from more than 400 of e-hailing and delivery drivers did not have savings
for emergencies, and 59% did not have retirement or old age savings.

FIGURE 3.1.4. Financial Security among E-hailing and Delivery Drivers, 2019

76%

57%

37%

Do not have unemployment Do not have personal Do not insured against

insurance healthcare insurance any work-related injuries or accidents
Notes: Figure may not add up to 100% due to multiple choices by the respondents
Source: The Centre, 2019

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Way Forward

Preparing the Workforce

The workforce needs to be equipped with the required skills to support the gig economy as one
of the new sources of growth in the country. This includes more training in software development
and technology, creative and multimedia work, data entry and analyses as well as writing and
translation (Human Resources Development Fund, 2019). Towards this end, Malaysia Digital
Economy Corporation (MDEC) has embarked on the Global Online Workforce (GLOW) training
programme, with an allocation of RM25 million, to enable Malaysians to earn higher income
digitally. The Government also has launched the myGIG Programme on 23 June 2020 to support
youths to participate in the gig economy by providing appropriate training and supporting
equipment.

With the increasing number of graduates joining the gig economy, Institutions of Higher Learning
(IHLs) should move away from educating and preparing students for full-time employment. This
traditional method does a disservice to graduates who will be ill-equipped and unprepared to
succeed as independent workers in the gig economy. To better prepare students as gigs, IHLs
should embark on teaching the basic skills to work independently, expanding career services to
offer gigs and promoting online courses. Reframing business school syllabus, such as learning
how to be self-employed and running a business, will prepare students to work independently.
In addition, the use of technology needs to be further accelerated to teach crucial skills, such as
self-directed learning, effective communication, critical thinking, problem-solving, collaboration and
project management.

Providing career services by developing apps and websites will also help students to find short-
term projects and assignments. For example, in the US, The DePaul School of Music uses an
app called The Gig Connection to help students find a freelance job throughout Chicago. Boston
University has developed a Quick Job board, which offers short-term opportunities for students
to assist in medical research studies. In addition, IHLs also need to emphasise online courses
and programmes that provide options to students to learn at their own pace and location. These
approaches will enable IHLs to better prepare students to join the gig economy.

Regulating the Gig Economy

The Government is considering new laws to regulate the gig economy and to protect the welfare
of the gig workers. A committee comprising representatives from three ministries2 has been set up
to formulate long-term solutions to resolve various issues on the gig economy in the country. The
committee will also be looking for ways to create a win-win situation for workers and employers.

Conclusion

The emergence of digital platforms connecting freelancers with businesses and the rise of
millennials have all played a contributing role to the surge in the gig economy. It offers benefits,
particularly in the form of job flexibility for workers. Nonetheless, there are numerous issues and
challenges, including the status and welfare of the gig workers, that need to be addressed before
the gig economy becomes a source of sustainable growth. Given its importance, the Government has
implemented several initiatives to ensure its development. Moving forward, revamping of the syllabus,
incorporating project-based learning and upskilling are needed to better prepare graduates for the gig
economy.

2
Ministry of Human Resource, Ministry of Youth and Sports, and Ministry of Domestic Trade and Consumer Affairs.

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The real estate and business services The food & beverages and accommodation
subsector declined by 11.3% in the first half subsector declined by 19.9% in the first half
of 2020, attributed to temporarily suspension of 2020 due to stringent travel restrictions
of construction activities during the MCO. on movement and business operations. With
The subsector is expected to continue to a continuous drop in international tourist
decline by 11.9% in the second half and arrivals, the subsector is projected to contract
11.6% for the whole year. This is mainly by 7.3% in the second half of 2020. For the
due to deferred construction projects and whole year, the subsector is anticipated to
subdued business activities. However, with
decline by 13.3%, mainly due to the sluggish
projected economic recovery and the roll-out of
performance of the accommodation segment
delayed infrastructure projects, the subsector
following the significant drop in tourist arrivals.
is expected to rebound by 7.6% in 2021.
Nevertheless, an increase in demand for online
The exemption of Real Property Gains Tax
food delivery and domestic tourism activities
(RPGT), launching of the National Affordable
Housing Policy and Rent-to-Own (RTO) scheme, are expected to cushion the subsector.
extension of Youth Housing Scheme (YHS)
and Home Ownership Campaign (HOC) are The subsector is expected to expand markedly
expected to support the subsector. In addition, by 10.7% in 2021, mainly backed by domestic
higher demand for construction-related tourism-related activities with support from
services is expected to drive the business several initiatives. These initiatives include tax
services segment. exemptions on tourism and accommodation
services as well as an extension of income
The transportation and storage subsector tax relief of up to RM1,000 on domestic travel
contracted significantly by 24% in the first half services. In addition, attractive packages
of 2020 with all segments severely affected by coupled with promotions, marketing and
the border closure and lower trade activities. campaigns via digital platforms to restore
However, the subsector is anticipated to public confidence is expected to revitalise the
decline marginally by 0.5% in the second half domestic tourism industry. The implementation
following the lifting of interstate travel bans, of the Reciprocal Green Lane and Periodic
increasing domestic travellers, improving trade
Commuting Arrangement between Malaysia
activities and loosening of port restrictions.
and Singapore for official cross-border travel
With prolonged border closure for tourism-
for businesses and work purposes will also
related activities and the extension of Recovery
help to spur the subsector. The Government’s
Movement Control Order (RMCO) until year-
effort to promote travel bubbles with more
end, the subsector is forecast to record a
decline of 11.9% in 2020. destinations is anticipated to further support
the subsector.
The subsector is projected to rebound by 7.5%
in 2021, driven by the land transport segment, The utilities subsector declined by 2% in the
following operations of new highways, first half of 2020 following lower usage by the
including the Setiawangsa – Pantai Expressway industrial segment. Nevertheless, the subsector
(SPE), Damansara – Shah Alam Elevated is estimated to rebound in the second half of
Expressway (DASH) and partial alignment the year by 5.3% attributed to the resumption
of Pan Borneo Highway. In addition, the of industrial activities. Overall, the subsector is
launching of seven sets of four-car trains for expected to expand by 1.7% in 2020, supported
KL Monorail is expected to increase the daily by higher demand from both residential and
ridership. Likewise, the air transport segment industrial segments. In 2021, the subsector is
is anticipated to recover moderately, due to projected to further grow by 5.7%, primarily
the increase in domestic passenger traffic and supported by higher usage by the industrial
cargo movement. The water transport segment segment in line with expansion in economic
is forecast to improve gradually, as world
activities as well as the implementation of
maritime trade recovers.
renewable energy projects and Rural Electricity
Supply Programme.

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The other services subsector contracted by COVID-19 cases. Thus in 2020, the subsector is
9.6% in the first half of 2020 due to lower expected to decline by 8.1%. The subsector is
medical travellers and decline in enrolments projected to expand by 6.2% in 2021, following
in private colleges and universities. The aggressive branding and digital marketing for
contraction is expected to narrow to 6.6% health tourism in targeted countries, such as
in the second half of the year following Cambodia, China, Indonesia and Myanmar. The
the arrival of registered foreign students Government services subsector is projected to
and critically ill patients, except those from maintain its expansion by 4% in 2020 and 3.7%
high-risk countries with more than 150,000 in 2021.

feature article 3.2

Digitalisation in the Logistics Industry

Introduction

Logistics refer to the process of managing and controlling the flows of goods, energy, information
and other resources such as facilities, services and people. It involves the integration of
information, transportation, inventory, warehousing, material handling and packaging (Gen et al.,
2008). In general, this industry has undergone three phases and is now entering the fourth stage
which represents the integration of internet with production processes in line with the emergence
of Industrial Revolution 4.0 (IR4.0) (Figure 3.2.1.). This enables the communication between
machines and humans in real-time and the use of what is known as “smart products and smart
services” as well as the advanced digitalisation within factories (Lasi et al., 2014).

FIGURE 3.2.1. Evolution of Logistics

Degree of Complexity

Logistic 4.0 Logistics 4.0

Using Internet

Logistic 3.0 Logistics 3.0

System of Logistics
Management
Logistic 2.0 Logistics 2.0
Automation of
Handling System
Logistic 1.0 Logistics 1.0
Mechanisation of
Transport

Year
1700 Industry 1.0 1800 Industry 2.0 1969 Industry 3.0 2000 Industry 4.0 2020

Source: Wang, 2016

In Malaysia, the industry is highly integrated across various sectors. It has been a key enabler for
the advancement of industrialisation, international trade and competitiveness. The logistics industry
has contributed immensely in the production and distribution processes as well as facilitating
trade activities. In 2019, the logistics industry1 expanded by 6.8% contributing RM53.7 billion to the
country’s GDP (Department of Statistics Malaysia, 2020). Nevertheless, the industry faces various
challenges inhibiting it from reaching its full potential and efficiency. Accordingly, it is imperative to
transform the industry with the applications of IR4.0 to improve efficiency and productivity as well
as to remain competitive.

1
Proxied by the transportation and storage subsector.

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FIGURE 3.2.2. Application of Industrial Revolution 4.0 Technologies in Logistics 4.0

Automatic Identification Automatic Data Collection
Real-time Locating

Business Services
Wireless Sensors Internet Automatic 3D Printing Drone
Network of Things Guided Vehicle

LOGISTICS 4.0
Cloud Computing Blockchain Big Data Robotics and Automation Augmented Reality

Data Processing and Analysis Connectivity and Integration

Source: Radivojevic & Milosavljevic, 2019

Logistics 4.0

Logistics 4.0 is defined as the specific application of connecting machines, products, systems
and people that can share information and manage themselves (Bamberger et al., 2017). It uses
technologies such as Internet of Things (IoT), wireless sensor network, cloud computing, blockchain,
big data as well as robotics and automation. These technologies enable real-time information
flows, monitoring of market demand, personalisation of products and autonomous management of
global supply chains. Matyushenko et al. (2019) indicate that there are five elements of Logistics
4.0, namely, transparency, smart utilities, adaption to IoT, integration with IR4.0 and collection of
analytics.

FIGURE 3.2.3. Five Main Elements of Logistics 4.0

Transparency
Lor
Provides integrity control and quality condition on the products, thus enabling logistics to be much more
efficient and comprehensive.

Smart Utilities
Alerts the supplier on the stock level without requiring any human intervention.

Adaption to IoT
Provides an increased inventory visibility to ensure an environment of sustainability, safety and security
which reduces wastage, theft and tampering of products.

Integration with IR4.0

Refers to the application towards automation and digitalisation creating symbiotic,
synergistic relationships between suppliers and end-users.

Collection of Analytics
Improves demand and delivery forecasts while detecting possible improvement or potential risks in their
value streams.

Source: Matyushenko et al., 2019

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Digital transformation will benefit industries through lower cost and additional revenues. Cost
is expected to be reduced by 34.2% while increasing revenue by 33.6% in the logistics services
industry through this transformation (Lehmacher et al., 2017). According to the World Economic
Forum (2016), digitalisation in the logistics industry could unlock USD1.5 trillion of value for
logistics players and a further USD2.4 trillion worth of societal benefits over the next decade. A
study across EU countries indicate that a 10-percentage point rise in the share of firms using high-
speed broadband internet at the industry level results in an increase in multi-factor productivity
of 1.4% after one year and 3.9% after three years (Organisation for Economic Co-operation and
Development, 2019).

Challenges Facing the Logistics Industry in Malaysia

The logistics industry in Malaysia is still facing various challenges, such as inadequate infrastructure
and limited internet connectivity, low adoption of digitalisation, burdensome regulations, lack of
skilled workers, and external factors such as the COVID-19 pandemic. Furthermore, Malaysia’s
information communication and technology (ICT) infrastructure lag behind global standards,
especially in rural areas (Ismail & Masud, 2020). At the same time, high cost, unstable internet
connectivity and low digitalisation hamper efficiencies and competitiveness of Malaysian logistics
firms. In addition, the industry lacks expertise and skilled workers, especially in the design of the
supply chain network, integrated warehouse management and information technology application.

Given the immense variety of economic goods and the different modes of transportation, there
are various regulations concerning the governance of the logistics industry, which slows down the
adoption of digitalisation and innovation. External shocks, such as the COVID-19 pandemic, have
also disrupted the industry. The ensuing lockdown has restricted export-import activities globally
which severely affected the logistics industry in the country.

Way Forward

The Logistics and Trade Facilitation Masterplan (2015 – 2020) aims to provide the strategic
framework and roadmap to strengthen Malaysia’s position as the preferred logistics gateway in
Asia (Ministry of Transportation, 2017). The masterplan outlines that by leveraging the potential
of e-commerce and adopting digitalisation, competitiveness and efficiency in the logistics industry
will improve. This will pave the way for new, advanced and automated logistics services. The
core aspects of digital infrastructure, such as ICT networks, data infrastructure, digital platforms
and devices must be reliable and compatible for logistics firms to invest in digitalisation. For
instance, the broader roll-out of the fifth-generation cellular network (5G) internet would provide a
convenient way to send and track packages, schedule deliveries and get real-time updates anytime
and anywhere. Furthermore, the efficiency of the first and last mile aspects, including keeping
the customers informed throughout is vital in ensuring customer delivery experience is achieved
efficiently and effectively.

With the COVID-19 disrupting the logistics supply chain network, the industry needs to adopt a new
business model by accelerating digital transformation. Post COVID-19, consumers have adjusted
their behaviours and preferences to use logistics services that provide last-mile deliveries of various
sizes of appliances and commercial goods. As a result, many logistics firms are shifting from
business-to-business (B2B) to business-to-consumer (B2C) models which increases the demand for
couriers and online delivery services platforms. Government’s intervention by providing institutional
support and initiatives will ease the adoption of digitalisation in the logistics industry. This includes
developing skills and technology, reducing unnecessary regulatory burden and ensuring data
protection and security.

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Conclusion

The adoption of digitalisation enables the logistics players to manage their operations efficiently
and provide seamless logistics services to their clients worldwide. This will allow businesses to
run with greater resilience and flexibility to remain competitive. The COVID-19 pandemic has
precipitated the digital transformation of firms, including those in the logistics sector, which can no
longer do business conventionally. With the rise of e-commerce activities, logistics players need to
ramp up their performance while adjusting to strict guidelines to keep in pace with the new norms.
Therefore, Logistics 4.0 can enhance operational efficiency by reducing time and cost for goods to
reach consumers and subsequently increases the competitive advantage of domestic firms. It also
accelerates convergence with global supply chains and helps key export industries connect with
international markets.

FIGURE 3.2. Output of Manufacturing Sector

Manufacturing Sector (% change)

Essential segments cushion overall decline

%
The manufacturing sector contracted by 8.7% 10
during the first half of 2020, as almost all
5
industry operations were temporarily halted,
0
following supply chain disruptions amid the
MCO. Within the export-oriented industries, -5
the E&E cluster was severely affected as global
-10
demand decelerated sharply. Domestic-oriented
industries also recorded sluggish growth, with -15
transport equipment; and non-metallic mineral -20
products, basic metal and fabricated metal
-25
products segments registering a double-digit
contraction. -30

-35
Nonetheless, the manufacturing sector is
expected to improve by 2.4% in the second -40
J A J O J A J O J A J
half of 2020, as industrial activities resume 2018 2019 2020
operations in line with the gradual lifting of
MANUFACTURING PRODUCTION INDEX
the MCO. Within the export-oriented industries,
INDUSTRIAL PRODUCTION INDEX
the E&E segment is projected to improve
following rising demand for computer and
electronic products. Chemical and rubber Source: Department of Statistics, Malaysia

products are anticipated to continue to record digital transformation as WFH and virtual
high growth, benefitting from higher demand communication become part of new business
for rubber gloves and pharmaceutical products. practices. Higher demand for integrated
Within the domestic-oriented industries, circuits, memory and microchips within the
the food products and transport equipment global semiconductor market will further
segments are expected to rebound, supported support the segment. The production of
by higher demand. Overall, for the year, the chemical and rubber products is expected to
manufacturing sector is expected to decline expand rapidly in tandem with the increase
by 3%. in demand for disinfectants, sanitisers and
rubber gloves. With the economic recovery,
The manufacturing sector is forecast to consumer-related products will benefit from
rebound by 7% in 2021, driven by steady higher household disposable income, while
improvement in both the export- and construction-related products will be supported
domestic-oriented industries. The E&E segment by major infrastructure and affordable housing
is projected to accelerate in line with the projects.

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 chapter 3 macroeconomic outlook

Table 3.3. Manufacturing Production Index,

January – August 2019 and 2020
(2015 = 100)

CHANGE SHARE
INDEX
(%) (%)
2019 2020 2019 2020 2019 2020
Export-oriented industries 118.6 114.5 3.6 -3.5 69.2 70.8
Electronics and electrical product cluster 124.4 122.4 4.0 -1.6 27.2 28.3
Electronics 129.0 128.7 3.7 -0.2 15.1 16.0
Electrical products 119.1 115.1 4.4 -3.4 12.1 12.3
Primary-related cluster 115.1 109.8 3.4 -4.7 42.0 42.5
Chemical and chemical products 115.9 109.3 2.3 -5.7 12.8 12.8
Petroleum products 112.2 99.3 3.0 -11.5 12.9 12.1
Textiles, wearing apparel, leather products 123.8 101.0 5.3 -18.4 2.0 1.7
and footwear
Wood and wood products 119.9 100.7 4.8 -16.0 3.2 2.8
Rubber products 122.2 175.6 8.0 43.8 3.0 4.7
Off-estate processing 109.3 110.5 2.2 1.1 5.1 5.5
Paper and paper products 118.0 108.6 4.6 -8.0 3.0 2.9

Domestic-oriented industries 119.5 106.9 4.8 -10.5 30.8 29.2

Construction-related cluster 119.2 98.6 4.3 -17.3 13.7 12.0
Non-metallic mineral products 118.8 94.7 4.7 -20.3 4.4 3.7
Basic metals 116.4 105.9 3.8 -9.0 3.4 3.3
Fabricated metal products 121.1 97.2 4.3 -19.7 5.9 5.0
Consumer-related cluster 119.7 113.5 5.2 -5.2 17.1 17.2
Food products 125.9 132.0 5.0 4.8 6.1 6.7
Transport equipment 115.9 105.1 7.2 -9.3 6.6 6.3
Beverages 125.5 102.5 3.4 -18.3 1.0 0.9
Tobacco products 116.3 85.9 6.2 -26.1 0.7 0.6
Others 115.4 107.5 1.6 -6.8 2.7 2.7
Manufacturing Production Index 118.9 112.2 4.0 -5.6 100.0 100.0

Note: Total may not add up due to rounding

Source: Department of Statistics and Ministry of Finance, Malaysia

feature article 3.3

Small and Medium Enterprises: Building Resilience to Weather Crises

Introduction

Small and medium enterprises (SMEs) form a vital component of the Malaysian economy,
contributing more than a third of total gross domestic product (GDP). It also provides jobs
to more than seven million workers (Department of Statistics Malaysia, 2019). Furthermore,
SMEs account for 98.5% of total establishments, mainly in the services sector. In Malaysia, an
establishment is classified as an SME based on annual sales turnover or the number of employees,1
subject to further conditions stipulated under the guideline of SME definition established by SME
Corporation Malaysia (SME Corp. Malaysia) as the secretariat of the National Entrepreneur and SME
Development Council (Figure 3.3.1.).

1
Endorsed at the 14th National SME Development Council Meeting (now known as the National Entrepreneur and SME Development Council) in July
2013.

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FIGURE 3.3.1. Profile of Malaysian SMEs

SMEs by Sector SMEs by Size

1 0
5.3 4.3% .1% .1%
%
20,612 SMEs Medium
2.3%
89.2%
192,783 SMEs Small
21.2%

693,670 SMEs Micro

76.5%
SERVICES MANUFACTURING CONSTRUCTION
907,065 establishments
AGRICULTURE MINING

Malaysian SME Definition

Manufacturing Services and Other Sectors

Sales turnover: Sales turnover:

RM15 million ≤ RM50 million MEDIUM RM3 million ≤ RM20 million
OR OR
Employees: From 75 to ≤ 200 Employees: From 30 to ≤ 75

Sales turnover: Sales turnover:

RM300,000 < RM15 million RM300,000 < RM3 million
SMALL
OR OR
Employees: From 5 to < 75 Employees: From 5 to < 30

Sales turnover: Sales turnover:

< RM300,000 < RM300,000
OR MICRO OR
Employees: < 5 Employees: < 5

Source: Department of Statistics Malaysia, 2016 and SME Corporation Malaysia, 2020

Impact of COVID-19 Pandemic on Malaysian SMEs

The severity of the impact of COVID-19 on the global economy is unprecedented. The International
Monetary Fund (IMF) projects that global growth in 2020 would experience the worst recession
since the Great Depression in the 1930s and far worse than the 2009 Global Financial Crisis. The
crisis is mainly caused by the movement control, lockdowns and physical distancing measures
implemented globally to contain the spread of the virus. The cumulative loss to global GDP arising
from the pandemic crisis for 2020 – 2021 is estimated to be around USD9 trillion (International
Monetary Fund, 2020). In Malaysia, the impact of demand cut-backs and supply chain disruptions
on cash flow, employment and sustainability are the main challenges for most businesses, in
particular the SMEs. As the backbone of the country’s economy, the Government has introduced
various initiatives to support SMEs during the crisis, including soft loans, grants, wage subsidy, tax
exemptions and moratorium.

Findings by Omar et al. (2020) highlights the impact of the Movement Control Order (MCO) on
SMEs. The effect is characterised as operational problems, such as operation and supply chain
disruptions, difficulties in the fore-sighting of future business direction as well as financial-related
issues. This is in line with a quick survey by Marketing Insight (2020) on the impact of MCO in
Kuala Lumpur and Pulau Pinang, businesses were switching their business conduct into online
transactions in line with the changes in consumers’ purchasing behaviour. An online survey by the
Department of Statistics, Malaysia (2020), indicates that 68% of establishments had no source of
income during the initial MCO period and 12.3% earned revenue through online sales or services.

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To assess the impact of the MCO on SMEs, the SME Corp. Malaysia undertook a series of internal
surveys between March and May 2020.2 These surveys aimed to understand the challenges faced by
SMEs and to assess the effectiveness of Government assistance. More than 1,900 SMEs in various
sectors throughout the nation participated in the surveys.

Main Findings of SME Corp. Malaysia Surveys

The SME Corp. Malaysia's surveys indicate that cash flow disruptions were the main challenge
to SMEs during the COVID-19 crisis, followed by lower demand, supply chain disruption and
legal issues (Figure 3.3.2.). These challenges caused SMEs to halt their business operations
temporarily with the possibility of huge losses. This is in line with the findings of Bourletidis
and Triantafyllopoulos (2014) that SMEs in a period of prolonged economic crises may suffer
disproportionately from economic downturns because of limited financial resources.

FIGURE 3.3.2. SMEs Top Challenges and State of Business Operations During the Crisis by Ranking

Top Challenges Business Operations During Crisis

1 Company’s cash flow 1 Temporarily close business operations

2 Reduced demand 2 Continue operations/Essential services

3 Supply chain disruption 3 Business operations conducted online

4 4 Continue operations to avoid legal action

Legal issues for failure to deliver products/services

Source: SME Corporation Malaysia, 2020

Cash flow issues arise mainly due to the drop-in sales, insufficient cash-in-hand as well as high
overhead costs. The surveys revealed that nearly 60% of SMEs reported not having any sales during
the MCO period, while 39% experienced lower sales. SMEs also claimed to have cashflow problems
in paying employees’ salaries and benefits, business loan repayments, rental and utility payments
as well as for the purchase of raw materials and packaging. Consequently, more than 90% of SMEs
were expected to survive only up to five months with existing cash-in-hand.

The global economic fallout from COVID-19 has been devastating, with many losing jobs and
business, and unable to pay their commitments (Hakovirta & Denuwara, 2020). SME Corp. Malaysia
surveys reveal that only 34% of the SMEs were able to continue operations as essential services
providers. Majority of SMEs had to undertake various alternative actions, including negotiating with
employees on salary and benefits cut (37%), retrenching employees (34%), limiting business trips
(33%) and working from home (33%).3

The surveys also indicate that for SMEs to regain their pre-crisis growth momentum, assistance
other than commercial loans are necessary. This include, soft loans, deduction on corporate and
business tax as well as a dedicated government agency as SMEs focal point. In addition, advice on

2
The surveys cover the period between the MCO and the reopening of the economy (excluding the initiatives under Pelan Jana Semula Ekonomi
(PENJANA) which was announced in June 2020).
3
Figure may not add up to 100% due to multiple choices by the respondents.

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restructuring and remodelling of businesses, identifying new business areas and access to online
platforms are among assistance needed by SMEs. Hence, of all the initiatives under the stimulus
packages, the wage subsidy programme, six-month automatic moratorium on loans, free internet
services and special relief facility initiatives were the most impactful measures. Other beneficial
programmes include discounts on electricity bills and micro-credit schemes.

With the support and assistance, a total of 72% of SMEs are anticipated to rebound within a year.
However, the rest would require more than a year to stabilise their businesses. Nonetheless, most
SMEs faced challenges to restart their businesses due to lesser demand, insufficient capital, supply
chain issues and difficulties in complying with the standard operating procedures (SOPs).

Way Forward

With the significant presences of SMEs in the economy, any crisis will inevitably affect various
sectors and overall economic growth. Therefore, it is vital to ensure the sustainability and resilience
of SMEs at all times. Moving forward, among the initiatives that will enable SMEs to endure any
crisis are accelerating digitalisation, adopting strategic financial planning and enhancing branding
capabilities.

Accelerating Digitalisation

The adoption of digitalisation is necessary to transform SMEs to be more competitive and resilient.
Nonetheless, businesses in Malaysia have adopted digital technologies less readily than the
Government and the population in general. Only 62% of companies are connected to the internet,
46% have fixed broadband and 18% have a web presence of some kind (World Bank, 2018). A
study by Association of Small & Medium Enterprises, Singapore (2018) found that SMEs which have
embraced digitalisation saw revenue growth of 26% on average. The digitalisation helps businesses
better understand their customers, gauge the effectiveness of marketing campaigns, increase the
efficiency of their business operations, transform products and empower employees.

Adopting Strategic Financial Planning

According to a survey conducted by Bank Negara Malaysia (2018), more than 70% of SMEs’
financing needs are sourced internally or from personal savings and the rest obtained from banks
as well as development financial and microcredit institutions. It is also found that many SMEs lack
awareness and the know-how to conduct effective and efficient budgeting, including alternate
financing. Strategic financial planning involves a process by which firms derive a strategy to enable
them to anticipate and respond to the dynamic business environment (Kee Luen et al., 2013). Such
efforts inevitably improve the competitiveness of business firms and eventually their performances.
Thus, the study confirmed that adopting strategic financial planning would improve the business
performance and success rate of SMEs.

Enhancing Branding Capability

Currently, local SMEs contribute only 18% of total exports due to lack of knowledge on market
access and readiness in exporting. Insufficient funds for brand and marketing is the top internal
challenge for SMEs. In contrast, the high cost in brand communication was the main external
challenge (Bizsphere Online Reviews, 2017) (Figure 3.3.3.). The commercialisation process is claimed
to be more difficult for SMEs since they lack the presence and resources necessary for broad reach
on the marketplace (Walsh et al., 2017). Thus, there is a need for SMEs to adopt cost-effective
methods through technology-oriented approaches to commercialise their products.

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FIGURE 3.3.3. Top Five Challenges to Bring Brand to the Next Level

External Internal
53% 52%

36%
33% 32% 32%

25% 25% 26%

24%

INSUFFICIENT FUND FOR BRAND AND MARKETING HIGH COST IN BRAND COMMUNICATION
DIFFERENTIATING PRODUCTS AND SERVICES INTENSE PRICE COMPETITION
INCREASING COST OF OPERATION ACCESSING AND EXPANDING TO NEW MARKETS
LACK OF PROFESSIONAL GUIDANCE FROM BRANDING EXPERTS UNABLE TO GET GOVERNMENT ASSISTANCE FOR BRAND AND MARKETING
UNCLEAR ON HOW TO LEVERAGE ON DIGITAL PLATFORMS MARKET MOVING TOO FAST WITHOUT MARKET INTELLIGENCE TO PLAN

Notes: Figure may not add up to 100% due to multiple choices by the respondents
Source: Bizsphere Online Review, 2017

Conclusion

The COVID-19 pandemic has exposed underlying problems in the way SMEs conduct businesses.
The timely intervention by the Government through PRIHATIN dan PRIHATIN SME+ is expected to
sustain SMEs to survive in a challenging business environment. The pandemic has also created a
new normal in business practices, which includes adopting digital business models, re-orientation
in supply chains and embrace the shift in consumer behaviours. Thus, SMEs need to improve their
capability and capacity to be more resilient, agile and flexible to face uncertainties.

TABLE 3.4. Value-added in the Agriculture Sector,

Agriculture Sector 2019 – 2021
(at constant 2015 prices)
Oil palm subsector poise for recovery
SHARE CHANGE
The agriculture sector contracted by 3.9% (%) (%)
in the first half of 2020 due to lower growth 20202 2019 20202 20213
of oil palm and rubber subsectors following Oil palm 37.6 1.5 -1.3 5.9
supply disruptions. The oil palm subsector Rubber 2.4 6.1 -18.9 6.0
was affected even before the pandemic, Livestock 16.1 6.3 4.0 5.7
attributed to dry weather and cutbacks in Other
fertilisers by smallholders in 2019. The rubber 27.4 3.9 4.9 4.6
agriculture¹
subsector also declined due to unfavourable Fishing 11.5 -0.7 -5.2 2.9
weather and low rubber prices. The agriculture Forestry and
5.0 -8.6 -21.8 -3.0
sector was further affected by the MCO, logging
which led to lower production across most Agriculture 100.0 2.0 -1.2 4.7
of the subsectors. The sector is anticipated
1
Including paddy, fruits, vegetables, coconut, tobacco, tea, flowers,
to rebound by 1.4% in the second half of the pepper, cocoa and pineapple
year driven by the recovery in the oil palm Estimate
2

3
Forecast
subsector. The output of livestock and other Note: Total may not add up due to rounding
Source: Department of Statistics and Ministry of Finance, Malaysia

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agriculture subsectors are also expected to higher biodiesel mandate in Indonesia and
expand, supported by stable demand for food Malaysia. The rubber subsector is expected
items, primarily during festivities. Hence, the to surge as global demand for natural rubber
agriculture sector is projected to decline by increases in line with the expansion of the
1.2% in 2020. automotive industry. The production of
livestock and other agriculture and fishing is
The agriculture sector is expected to also expected to improve in line with various
turnaround by 4.7% in 2021, supported Government’s initiatives in modernising the
mainly by higher production of palm oil and agro-food subsector. This include integration
rubber. The oil palm subsector is anticipated of agriculture technologies, such as agro-
to rebound following improvements in robotic, sensor, precision farming, drones,
global demand, particularly from China agriculture data development and Internet
and India. The crude palm oil (CPO) price of Things (IoT) applications. In addition, the
is projected to remain stable with higher Government’s efforts to increase domestic
demand following recovery in the hotel, food production in ensuring food security are
restaurant and catering operations as well as expected to continue to sustain the growth of
the subsector.

information box 3.1

The Importance of Commodity Sector to the Malaysian Economy

Introduction

The commodity sector1 continues to play an important role in the Malaysian economy. However, with the
focus shifting from purely upstream to various downstream activities, the contribution of the commodity
sector has declined. Furthermore, the sector is vulnerable, mainly due to the volatility in global demand and
supply. Using an input-output methodology and a Dynamic Computable General Equilibrium (CGE) model,
this article assesses the contribution of the commodity sector to economic growth.

Contribution of the Commodity Sector

In 1970, the commodity sector accounted for 54.9%2 of gross domestic product (GDP) or RM43.2 billion
(in 2015 prices) (Figure 3.1.1.). The commodity sector constituted about 80% of total exports, comprising
mainly of rubber and tin (Figure 3.1.2.). However, during the subsequent decades, oil and gas (O&G) and
oil palm replaced rubber and tin as the major commodities. In 2019, despite an increase in value to RM203
billion, the share of the commodity sector to GDP had reduced to 14.3%. This was due to the rapid growth
of the manufacturing sector during the industrialisation phase of the mid-1980s. The sector’s share further
declined during the 1990s following the transformation into a services-driven economy. Despite accounting
for a smaller percentage of GDP, the sector has cushioned the economy from external shocks, especially
during the crises of 1998, 2009 and the recent COVID-19 pandemic.  

1
Includes oil palm, rubber as well as oil and gas.
2
Backcasting data from Economic Planning Unit, Prime Minister's Department.

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FIGURE 3.1.1. Value and Contribution of Commodity FIGURE 3.1.2. Contribution of Commodity and
and Non-Commodity Sectors Non-Commodity Sectors to Total Exports
RM'000 %
1,600 14.3% 100
1,400
1,200 80
20.2%
1,000
60
800
26.7%
600 40
400 37.6%
46.1% 20
200 54.9%
0 0
1970 1980 1990 2000 2010 2019 1970 1980 1990 2000 2010 2019

COMMODITIES (% GDP) COMMODITIES1

COMMODITIES NON-COMMODITIES
NON-COMMODITIES 1
Excluding commodity-related downstream activities
Source: Department of Statistics, Malaysia and Malaysia External Trade
Source: Economic Planning Unit, Prime Minister’s Department Development Corporation

Assessing the Contribution of the Commodity Sector

Based on the input-output analysis, there are three notable trends observed in the forward and backward
linkages3 for the commodity sector. Firstly, there was a gradual increase in the forward linkages for oil
palm and O&G since 2000. This reflects the compositional shift in both commodities as they moved
to higher value-added downstream activities in the resource-based industry, which constituted 44.3%
of the manufacturing sector. The output of crude palm oil was mainly used by oils and fats as well as
manufacturing of animal feeds industries. The output of O&G was consumed by the petroleum refinery,
basic chemicals, wholesale and retail trade as well as motor vehicle industries. The evolution of downstream
activities was in line with Industrial Master Plans (IMPs), which aimed at ensuring the manufacturing sector,
including the resource-based industry, remains an essential source of growth. On the contrary, the forward
linkage for rubber industry remained low following increasing usage of synthetic rubber for the production
of gloves.

FIGURE 3.1.3. Linkages and Multiplier Impacts of Commodity Industries

Backward linkages Forward linkages

1.8 3.5

3.0
1.6

2.5
1.4
2.0

1.2
1.5

1.0 1.0
1978 1983 1987 1991 2000 2005 2010 2015 1978 1983 1987 1991 2000 2005 2010 2015
OIL PALM OIL PALM
RUBBER RUBBER
CRUDE OIL AND NATURAL GAS CRUDE OIL AND NATURAL GAS

Source: Ministry of Finance, Malaysia (estimates)

3
Backward linkage is the interconnection with the industry of upstream industries for inputs. Forward linkage is the interconnection of the industry
to downstream industries as markets for its output (Miller & Blair, 2009).

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Secondly, all the three commodities have higher backward linkages for the period of 2000 – 2015 as
compared to 1978 – 1991. This reflects that industries consumed more input as they expanded to meet
demand from more diversified downstream industries (Figure 3.1.3.). Thirdly, the commodity sector has
more extensive forward linkages as compared to backward linkages as they supply natural raw materials
to the economy. This is in line with the study by Valdés and Foster (2010), which revealed that agricultural
commodities have higher forward linkages rather than backward linkages.

Subsequently, the CGE model was applied to assess the contribution of the commodity sector to the
economy. The analysis shows that with a 10% increase in productivity of O&G, oil palm and rubber
industries, real GDP will increase by 1.5, 0.5 and 0.03 percentage points, respectively (Figure 3.1.4., 3.1.5. and
3.1.6.). In addition, other industries that are associated with the commodity sector, such as civil engineering,
oils and fats as well as rubber processing, are also expected to benefit. The CGE results indicate that
industries that sell the most to households are expected to gain from higher household disposable income.
In comparison to the commodity industry, a 10% increase in productivity of electronics and basic chemicals
will increase real GDP by 0.3 and 0.12 percentage points, respectively. The lower contribution to GDP is
attributed to the high dependency of these industries on imports of intermediate inputs.

FIGURE 3.1.4. Crude Oil and FIGURE 3.1.5. Oil Palm FIGURE 3.1.6. Rubber
Natural Gas
Baseline deviation Baseline deviation Baseline deviation
(percentage point) (percentage point) (percentage point)
1.8 0.6 0.06
1.6
0.5 0.05
1.4
1.2 0.4 0.04
1.0
0.3 0.03
0.8
0.6 0.2 0.02
0.4
0.1 0.01
0.2
0.0 0.0 0.00
2020 2021 2020 2021 2020 2021

GDP GDP GDP

EMPLOYMENT EMPLOYMENT EMPLOYMENT

Source: Ministry of Finance, Malaysia (estimates)

Conclusion

The Malaysian economy has experienced a relatively rapid growth during the last four decades and has
also undergone a structural transformation. From an agriculture-based economy, diversification has
proceeded to the extent that services and manufacturing have become the engine of growth. Nevertheless,
the commodity sector continues to play an essential role in the economy through the inter-sectoral
linkages, particularly in terms of forward linkages. This is mainly attributed to the emphasis on enhancing
resource-based downstream activities. The oil palm and O&G industries also contribute higher to the GDP
as compared with electronics and basic chemicals industries which have high import content. Therefore,
research and development (R&D) collaborations between the industry and research institutes need to be
enhanced to produce more high value-added products. In line with the Industrial Revolution 4.0 (IR4.0),
adoption of technology such as usage of robotics, sensors and the Internet of Things (IoT) will increase
productivity and ensure the sustainability of the sector.

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Mining Sector FIGURE 3.3. Supply Indicators of Residential

Property

Higher demand to drive growth in 2021 Units Units

('000) ('000)
The mining sector recorded a double-digit 6,500 900

contraction of 11% in the first half of 2020,

6,000 800
affected by the slump in global demand due
to business closures as well as the reduction 5,500 700
in travel and transport activities. The sector
was further weighed down by the temporary 5,000 600
shutdowns of several oil and gas (O&G)
facilities for maintenance purposes. With the 4,500 500

COVID-19 pandemic crushing demand, storage

4,000 400
facilities filled rapidly, and Brent crude oil
price fell to its lowest level at USD17.32 per 3,500 300
barrel (pb) on 21 April 2020 before stabilising
at about USD40 pb. The sector is expected 3,000 200
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
to continue to decline in the second half of 2016 2017 2018 2019 2020
the year due to on-going maintenance works
and bearish outlook, following economic and EXISTING STOCK
INCOMING SUPPLY
geopolitical uncertainties as well as trade PLANNED SUPPLY RIGHT SCALE

tensions. Against this backdrop, the mining

sector is anticipated to contract by 7.8% in Source: National Property Information Centre

2020. Nonetheless, the sector is expected to

rebound by 4.1% in 2021, supported by the
recovery in global demand for crude oil and FIGURE 3.4. Malaysia House Price Index
condensate as well as liquified natural gas (% change)
(LNG). Brent crude oil price is expected to
improve in 2021 to an average of USD42 pb %
12
and recover to pre-pandemic level in the
medium-term.

Construction Sector 8

Civil engineering segment to spur recovery

4

The construction sector contracted by 25.9%

in the first half of 2020 and is expected to
shrink by 11.8% in the second half with all 0
segments declining significantly. At the same
time, prolonged property overhangs continue
to weigh down the performance of the sector. -4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
However, civil engineering and specialised 2019 2020
2016 2017 2018
construction activities subsectors are expected
to improve gradually, cushioned by various MALAYSIA HOUSE PRICE INDEX JOHOR
KUALA LUMPUR PULAU PINANG
measures under the economic stimulus
SELANGOR
packages. Overall, for the year, the sector is
projected to contract by 18.7%.
Source: National Property Information Centre

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FIGURE 3.5. Supply Indicators of Non-Residential Property

Incoming Supply Occupancy Rate

Square meter
Units ('000) %
100,000 3,000 86

80,000 2,400 84

60,000 1,800 82

40,000 1,200 80

20,000 600 78

0 0 76
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2016 2017 2018 2019 2020 2016 2017 2018 2019 2020

INDUSTRIAL OFFICE SPACES OFFICE SPACES

RIGHT SCALE
SHOPS RETAIL SPACES RETAIL SPACES

Source: National Property Information Centre

The construction sector is expected to

rebound by 13.9% in 2021 on account of the
Domestic Demand
acceleration and revival of major infrastructure
Domestic demand spearheads the recovery
projects, coupled with affordable housing
projects. The civil engineering subsector
Domestic demand is expected to contract
will continue to be the main driver of the
by 3% in 2020, with private and public
construction sector. Among the major
sectors’ spending declining by 3.2% and 2.1%,
infrastructure projects include Mass Rapid
respectively. In the first half of 2020, domestic
Transit 2 (MRT2), Light Rail Transit 3 (LRT3),
demand declined significantly by 7.7%, amid
West Coast Expressway (WCE) and Bayan Lepas
restricted movements to contain the COVID-19
Light Rail Transit (LRT) as well as Pan Borneo
and Coastal Highways in Sarawak. Utility pandemic. Nevertheless, the announcement
projects include the Langat 2 Water Treatment of various stimulus packages and the gradual
Plant, Baleh Hydroelectric Dam and Sarawak resumption of economic activities are expected
Water Supply Grid Programme (Phase 1). to restore business and consumer confidence
in the second half of the year. Hence, domestic
The residential subsector is anticipated to demand is anticipated to turnaround to 1.5%
improve, supported by various measures taken during the period and expand further by 6.9%
by the Government to address the property in 2021.
overhang situation. Among the measures
include the extension of HOC, exemption of Private consumption declined by 6%
RPGT, the introduction of RTO scheme as well during the first half of 2020, affected by
as reduction of foreign ownership threshold. the implementation of the MCO. However,
The performance of the non-residential household spending is anticipated to pick
subsector is expected to recover marginally, up during the second half of the year,
supported by on-going commercial projects, on the back of various stimulus packages
including Bukit Bintang City Centre, Cyberjaya aimed at providing support to households
City Centre, Forest City and Malaysia Vision and businesses. The measures include a
Valley 2.0. moratorium on loan repayments, temporary

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optional reduction in employees’ contributions Private investment is expected to contract

to the Employees Provident Fund (EPF) and by 11.7% in 2020, after declining significantly
discounts on electricity bill as well as low by 15.2% in the first half of the year. The
interest rates. As a result, private consumption significant decline was due to weak demand
is projected to rebound by 4.2% in the second and tight liquidity as businesses were
half, cushioning overall consumption activities, closed down for weeks following the MCO
which is expected to record a marginal and uncertainties in the financial markets.
decrease of 0.7% in 2020. Nonetheless, with various measures taken
to revitalise and accelerate businesses,
TABLE 3.5. GDP by Aggregate Demand, private investment is expected to record a
2019 – 2021
(at constant 2015 prices) smaller decrease of 7.8% in the second half
of the year. Among the measures include
SHARE CHANGE the establishment of funds to support
(%) (%) digitalisation, especially for SMEs, as well
20202 2019 20202 20213 as tax incentives to attract foreign direct
Domestic demand 95.5 4.3 -3.0 6.9 investment (FDI) and assistance to sustain
Private expenditure 76.6 6.2 -3.2 7.0 businesses. In addition, the MalaysiaMudah
Consumption 61.1 7.6 -0.7 7.1 (#MyMudah) initiative and the establishment
Investment 15.5 1.6 -11.7 6.7 of the Project Acceleration and Coordination
Public expenditure 18.9 -2.8 -2.1 6.7 Unit (PACU) will reduce bureaucracy to
Consumption 13.0 2.0 1.6 2.0 facilitate business operations and boost private
Investment 6.0 -10.8 -9.3 16.9 investment activities. With these policies in
External sector1 5.5 9.7 -24.9 4.1 place and coupled with spill-over effects from
Exports 57.8 -1.3 -13.4 8.7 the fiscal injection, private investment is
Imports 52.3 -2.5 -11.9 9.2 expected to rebound by 6.7% in 2021.
GDP 100.0 4.3 -4.5 6.5 – 7.5
Public investment is projected to decline
Goods and non-factor services
by 9.3% in 2020 on account of lower capital
1

2
Estimate
3
Forecast outlays, especially in the first half of the year.
Note: Total may not add up due to rounding and excluding change in
stocks component Public investment expenditure, which shrunk
Source: Department of Statistics and Ministry of Finance, Malaysia
by 24.2% during the period, is expected
Private consumption is anticipated to increase to gradually improve in the second half of
by 7.1% in 2021, mainly supported by higher 2020. This follows the implementation and
disposable income arising from buoyant acceleration of investment in infrastructure,
domestic economic activities, stronger export such as small-scale projects under the
earnings, accommodative financial stance, economic stimulus packages and the National
extension of tax relief on childcare and Fiberisation and Connectivity Plan (NFCP). The
favourable stock market conditions. Better Federal Government’s development expenditure
job prospects, following broader improvement (DE) continues to prioritise investment with
in the economy and measures addressing high multiplier impact and value for money.
employability, are also expected to contribute The DE, averaging about RM59 billion between
to household spending. Furthermore, the 2020 – 2021, is mostly targeted at promoting
expected recovery in the tourism-related sustainable development and bridging urban-
industries following tax incentives on domestic rural infrastructure gap as well as enhancing
tourism expenses for households will also the living standards of the people. Among
provide additional impetus to private sector major projects, include expansion of several
spending. As the nation rapidly shifts towards airports as well as construction of hospitals
adopting digitalisation, the broader availability and Klang Valley Double Track Phase 1 (KVDT
of various e-commerce platforms and roll- 1). The continuation of large-scale transport-
out of 5G technology will facilitate economic related projects, such as MRT2, LRT3, Rapid
activities.

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chapter 3 macroeconomic outlook

Transit System (RTS) and Pan Borneo Highway, these initiatives are expected to support public
will also provide impetus to public investment. investment to expand by 16.9% in 2021.
Public corporations are expected to continue
investing in new and on-going projects, Public consumption is anticipated to increase
among others, development of O&G-related by 1.6% in 2020, with higher expenditure
projects, upgrading of digitalisation-related on emoluments mainly to meet the staff
activities and construction of energy plants. All requirements in critical sectors. The 3.6%
increase in public consumption in the first
FIGURE 3.6. Savings-Investment Gap half of 2020 is mostly attributed to the
(% of GNI) implementation of stimulus packages. Public
consumption is expected to expand by 2%
RM billion %
35 16 in 2021 with the Government continuing to
further improve public services delivery and
optimising spending.

30 12
Gross national income (GNI) in current prices
is anticipated to decline by 3.7% in 2020,
following slower economic activities. Gross
25 8 national savings (GNS) is also expected to fall
by 11% to RM328.3 billion, with the bulk of
savings contributed by the private sector. With
20 4 total investment declining at a slower rate than
savings, the savings-investment gap is forecast
to record a surplus of RM48.5 billion.

15 0
2017 2018 2019 20201 20212 In 2021, GNI is projected to rebound by 7.8%
to RM1.53 trillion, while GNS by 2% to RM335
GROSS NATIONAL SAVINGS
billion. During the year, the savings-investment
TOTAL INVESTMENT3
SAVINGS-INVESTMENT GAP (RIGHT SCALE) gap is anticipated to record a lower surplus
of RM20.3 billion. However, the surplus will
1
Estimate continue to provide ample liquidity to finance
2

3
Forecast
Including change in stocks
domestic economic activities and be mobilised
Source: Department of Statistics and Ministry of Finance, Malaysia for long-term productive investment.

feature article 3.4

Shadow Economy in Malaysia

Introduction

Shadow economy (SE) exists around the world. However, there is no standard definition and
methodology to account for its activities in the official national gross domestic product (GDP), given
its hidden nature. Apart from SE, there are many terms used, such as underground economy, non-
observed economy, hidden economy and informal economy (Organisation for Economic
Co-operation and Development, 2017). The SE includes all market-based legal production of goods
and services that are deliberately concealed from public authorities to avoid payment of taxes
and social security contributions as well as to avoid complying with labour market standards and
administrative obligations (Schneider, 2011).

The incentive to be in SE is driven by the higher cost in the hiring of workers, which includes tax
burden and social contributions as well as regulations to control economic activities (Schneider,
2011). An increase in the rate of self-employment as a percentage of the labour force also

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contributes to the size of SE (Dell’Anno, 2004). Although self-employment is high in many countries,
they may not enjoy the benefits of formal contracts (Organisation for Economic Co-operation
and Development, 2009). Thus, the information on the size of SE is crucial for the government in
making policy decisions to reduce tax evasion (Medina & Schneider, 2018). The estimation on SE
would also provide insights for governments to enhance social security protection among low-
income households and unemployed persons.

Many studies have estimated the size of the SE in Malaysia using various methodologies. Using the
Multiple Indicators Multiple Causes (MIMIC) model and Currency Demand Approach (CDA), Medina
and Schneider (2019) estimated the average size of SE in Malaysia at 31% of GDP between 1991
– 2017. This article estimates the size of the Malaysian SE between 1990 – 2019 using a similar
method. It also provides some insights on the main causes and best practices in other countries
to minimise shadow economic activities. In this context, SE is defined as legal productive economic
activities that remain unreported from the official authority to avoid government regulations, tax
obligations and social security contributions1.

Estimating the Shadow Economy

There are two steps in the estimation of SE. Firstly, the MIMIC model is applied to estimate
the relative size of the SE. The model is derived from structural equation modelling (SEM) to
confirm the influence of causal variables as well as the effect of SE on macroeconomic indicators.
Secondly, the CDA is applied to calibrate the relative estimates into the absolute size of SE in
Malaysia for the period between 1990 – 2019. The size of SE depends on various variables. The
MIMIC estimation uses causal variables of SE, which include trade openness, real GDP per capita,
unemployment rate, size of government and the rule of law. The effect of SE on macroeconomic
indicators are reflected in money supply (M1), labour force participation rate and real GDP.

The model shows that trade openness, real GDP per capita and size of government are
contributors to the larger size of SE. Many research indicate that real GDP per capita and trade
openness have an inverse relationship with the size of SE. However, for Malaysia, both variables
have a positive relationship with the size of SE, suggesting that an increase in real GDP per capita
or trade openness will lead to a larger size of the SE. These relationships are also observed in
advanced countries. A positive relationship with real GDP per capita occurs when an economy has
reached a certain threshold of real GDP per capita or when an economy is more developed (Wu
& Schneider, 2019). In addition, high trade openness indicates minimal trade barriers. As such,
businesses or individuals may involve in illegal trading without difficulty (International Chamber of
Commerce, 2017).

FIGURE 3.4.1. Causal and Macroeconomic Indicators of Shadow Economy in Malaysia

Trade Openness

+
Real GDP Per Capita Money Supply (M1)
+ +
SHADOW Labour Force
Unemployment Rate + -
ECONOMY Participation Rate
+ +
Size of Government Real GDP
-

Rule of Law

Source: Ministry of Finance, Malaysia (estimates)

1
Any undeclared, under-reporting and suppression of income in Malaysia are regarded as tax evasion (Malaysian Income Tax Act, 1967 and Service Tax Act, 1975).

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In the labour market, tight regulations have a significant effect on employers’ costs and workers’
incentives. In many Organisation for Economic Co-operation and Development (OECD) countries,
high labour costs are the leading reason for the rising unemployment rate, and thus, for the
expansion in the SE, which employs many unemployed people. As growing numbers of people work
in the hidden sector, participation rates in the official economy may fall (Schneider & Enste, 2000).
Nevertheless, better job prospects in the labour market are expected to reduce the size of SE.

A positive relationship exists between SE and the size of government, which is the proxy for the
burden of indirect taxation (Schneider et al., 2010). A bigger government is associated with greater
red tape, which induces some firms to operate underground (Goel et al., 2017). On the contrary,
the size of SE declines as the overall institutional quality and the rule of law improves. Businesses
also have an incentive to go underground, not to avoid high taxes but rather to reduce the burden
of the regulation (Friedman et al., 2000).

Heightened activities in SE is likely to push up the demand for the currency. This is because SE
transactions tend to be in cash or cryptocurrencies, which is difficult to be detected. Hidden
transactions are assumed to be carried out in cash to avoid leaving a paper trail for authorities
(Tanzi, 2002). Thus, higher M1 reflects the increase in the size of SE.

This article estimates the average size of Malaysian SE at 33.7% of GDP from 1990 – 2019. Figure
3.4.2. indicates that the size of SE has declined over the years fluctuating around 50% of GDP
between 1990 – 1999. The size of SE continued to fall to about 30% between 2000 – 2009 before
averaging about 21% between 2010 – 2019. In 2019, the size of SE stood at 18.2%.

FIGURE 3.4.2. Size of Shadow Economy in Malaysia, 1990 – 2019

(% GDP)
60
1990 –1999: 49.6%
50

40
2000 – 2009: 30.2%
30 2010 – 2019: 21.2%

20 18.2%

10

0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019

SE (% GDP) AVERAGE OF SE (% GDP)

Source: Ministry of Finance, Malaysia (estimates)

Best Practices to Curb the Shadow Economy

Tax administrators globally have strengthened their efforts to identify and reduce the size of SE.
Data sharing among agencies are crucial in detecting SE. For instance, New Zealand provides a tax
number to every new-born child upon registration of birth. The Australian Taxation Office allows
taxpayers to pre-fill their income tax returns with information, such as salary, interest and health
insurance, with data sourced directly from employers, banks and insurers. In Singapore, the inland
revenue agency sourced information from vehicle records and the Central Provident Fund Board to
help determine whether a company is active or dormant (Organisation for Economic Co-operation
and Development, 2017).

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In Nigeria, electronic payments and cashless transactions have been implemented to limit
undeclared economic activities by gradually reducing and eliminating unrecorded cash payments
(Yusuf & Agbi, 2018). Liberalising the labour market is also among measures implemented to
minimise SE. Denmark, for example, has a renowned “flexicurity” model, where businesses are
given the “flexibility” in hiring and firing workers. At the same time, the model has increased the
“security” for people who have lost their jobs by providing unemployment benefits, retraining and
job search assistance (Packard et al., 2012).

Way Forward

Advanced technology can help reduce the size of SE and the incidence of tax evasion. The
emergence of the sharing economy and gig economy allows the migration from cash to digital
transactions and creates digital footprints. Data sharing among government agencies, for example,
registration of properties and vehicles as well as the introduction of tax identification number,
will provide information on the expenditure patterns of individual and businesses. Thus, the
government could analyse the collected data effectively and enable the identification of fraudulent
tax activities. The government’s welfare distribution platforms could also be utilised to register
business entities in the informal sector.

The government will enhance efforts to make working in the formal sector more beneficial, for
example, by improving efficiency in the labour market and simplifying tax compliance procedures
with greater adoption of technology. Efforts will be continued to enhance and emphasise the rule
of law and enforcement rather than increasing the number of regulations.

Conclusion

As SE under-values the actual size of the economy, this article applies the MIMIC model and CDA
approach to estimate the size of SE in Malaysia between 1990 – 2019. The results indicate that
although the size of SE is on a declining trend, its presence is still significant and deters the
development of an inclusive economy. It deprives potential high tax revenue collection to finance
development projects, such as healthcare, education and public transportation. Measures to reduce
the size of SE include adopting advanced technologies, higher data sharing among government
agencies, emphasis on the rule of law and stringent enforcement.

External Sector agriculture products. Exports of palm oil are

projected to increase by 5.6% with higher
demand, particularly from China, India and
Green shoots emerging the Netherlands. The exemption of export
duties on CPO, crude palm kernel oil as well
Exports as refined, bleached and deodorised (RBD)
palm kernel oil is also expected to support
In 2020, gross exports are projected to decline the exports of palm oil. In contrast, receipts
by 5.2% weighed down by global supply from natural rubber are anticipated to drop
disruptions as a result of the unprecedented by 20.1% in 2020. Exports of mining goods
crisis. Consequently, exports of manufactured are projected to decrease further by 21.8%,
goods are estimated to contract by 3.8% dragged down by exports of crude petroleum
following lower demand for E&E and non-E&E and LNG by 27.6% and 15.7%, respectively. The
products which are expected to fall by 3.8% slowdown in demand from global industrial,
and 3.7% respectively. Nonetheless, exports travel and transportation activities as well
of agriculture goods are anticipated to rise by as price slump are the main reasons for the
0.7%, buoyed by palm oil and palm oil-based downtrend in exports of mining goods.

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TABLE 3.6. External Trade,

2019 – 2021

RM MILLION CHANGE
(%)
2019 20201 20212 2019 20201 20212
Total trade 1,844,483 1,738,477 1,805,749 -2.1 -5.7 3.9
Gross exports 995,072 943,761 968,793 -0.8 -5.2 2.7
of which:
Manufactured 840,586 808,851 828,862 0.4 -3.8 2.5
Agriculture 65,958 66,441 69,381 -1.6 0.7 4.4
Mining 81,520 63,771 65,118 -9.3 -21.8 2.1
Gross imports 849,411 794,716 836,956 -3.5 -6.4 5.3
of which:
Capital goods 100,179 87,642 100,219 -10.9 -12.5 14.3
Intermediate goods 467,211 437,406 460,280 1.1 -6.4 5.2
Consumption goods 74,155 74,718 76,967 1.5 0.8 3.0
Trade balance 145,661 149,045 131,838 17.7 2.3 -11.5

1
Estimate
2
Forecast
Note: Total may not add up due to rounding
Source: Department of Statistics, Malaysia External Trade Development Corporation and Ministry of Finance, Malaysia

TABLE 3.7. Gross Exports,

January – August 2019 and 2020

RM MILLION CHANGE SHARE

(%) (%)
2019 2020 2019 2020 2019 2020
Manufactured 553,834 533,378 1.7 -3.7 84.1 85.9
Agriculture 44,212 43,960 -1.6 -0.6 6.7 7.1
Mining 55,591 40,463 -1.9 -27.2 8.4 6.5
Others 1 4,940 2,841 -31.9 -42.5 0.8 0.5
Gross exports 658,576 620,642 0.8 -5.8 100.0 100.0

1
Including gold scrap and waste; worn clothing; and special transaction not classified
Note: Total may not add up due to rounding
Source: Department of Statistics, Malaysia and Malaysia External Trade Development Corporation

Gross exports are expected to rebound by demand for chemicals and chemical products,
2.7% in 2021, benefiting from the recovery rubber products and manufactures of metal.
in global trade and supply chains. Exports
of manufactured goods are anticipated to Exports of agriculture goods are projected to
turnaround by 2.5%, supported by improved expand by 4.4% in 2021, led by an increase
demand for E&E and non-E&E products. Higher in demand for palm oil and palm oil-based
demand for semiconductor, telecommunication agriculture products as well as natural rubber.
equipment parts as well as automatic data In line with the recovery in world economic
processing equipment in line with the global activities and improvement in crude oil prices,
digital transformation and 5G roll-out is export earnings from mining goods are
projected to recover by 2.1%, contributed by
expected to expand the exports of E&E by 3%.
higher demand from major markets for crude
Similarly, exports of the non-E&E are expected
petroleum (2%) and LNG (2.2%).
to improve by 2.1%, contributed by higher

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TABLE 3.8. Exports of Manufactured Goods,

January – August 2019 and 2020

RM MILLION CHANGE SHARE

(%) (%)
2019 2020 2019 2020 2019 2020
E&E 247,757 237,847 0.8 -4.0 44.7 44.6
Non-E&E 306,077 295,531 2.4 -3.4 55.3 55.4
Petroleum products 47,072 43,774 -4.4 -7.0 8.5 8.2
Chemicals and chemical products 38,458 32,712 4.6 -14.9 6.9 6.1
Optical and scientific equipment 24,592 25,914 4.5 5.4 4.4 4.9
Machinery, equipment and parts 27,723 25,310 0.6 -8.7 5.0 4.7
Rubber products 16,779 23,351 -3.8 39.2 3.0 4.4
Manufactures of metal 28,034 22,978 -7.6 -18.0 5.1 4.3
Iron and steel products 14,472 15,706 48.0 8.5 2.6 2.9
Palm oil-based manufactured products 16,020 13,769 5.1 -14.1 2.9 2.6
Processed food 14,024 13,719 11.8 -2.2 2.5 2.6
Transport equipment 11,733 13,064 -4.2 11.3 2.1 2.4
Wood products 10,101 9,836 -2.5 -2.6 1.8 1.8
Textiles, apparels and footwear 10,406 8,721 5.0 -16.2 1.9 1.6
Manufactures of plastics 9,905 8,554 3.9 -13.6 1.8 1.6
Non-metallic mineral products 5,633 5,081 19.5 -9.8 1.0 1.0
Paper and pulp products 4,071 4,195 29.2 3.0 0.7 0.8
Jewellery 4,712 2,286 9.0 -51.5 0.9 0.4
Beverages and tobacco 2,274 1,629 5.5 -28.4 0.4 0.3
Other manufactures 20,067 24,933 0.4 24.2 3.6 4.7
Exports of manufactured goods 553,834 533,378 1.7 -3.7 100.0 100.0

Note: Total may not add up due to rounding

Source: Department of Statistics, Malaysia and Malaysia External Trade Development Corporation

FIGURE 3.7. Top 10 Trading Partners,

January – August 2020
(% share)
Exports Imports

15.9%
20.7%
27.1% 25.3%

RM620.6 14.3%
billion RM517.7 9.3%
3.2% 3.0% billion
3.2%
3.4%
3.5% 10.8% 4.0% 9.0%
3.8% 4.4%
4.7% 6.8% 6.3% 7.4%
6.5% 7.3%

CHINA REPUBLIC OF KOREA CHINA INDONESIA

SINGAPORE TAIWAN SINGAPORE THAILAND
US INDONESIA US INDIA
HONG KONG VIET NAM JAPAN GERMANY
JAPAN REST OF THE WORLD TAIWAN REST OF THE WORLD
THAILAND REPUBLIC OF KOREA

Note: Total may not add up due to rounding

Source: Department of Statistics, Malaysia and Malaysia External Trade Development Corporation

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Imports mainly attributed to expansion in the

manufacturing and construction sectors.
Gross imports are projected to contract Similarly, imports of capital goods are
by 6.4% in 2020 due to lower imports of projected to expand by 14.3%, following
intermediate and capital goods as a result of improvement in investment activities and the
slower economic and investment activities. continuation of strategic projects. Imports of
Gross imports are expected to turnaround by consumption goods are expected to increase
5.3% in 2021, supported by an increase in all by 3%, led by higher demand from households
types of imports. Imports of intermediate as consumers’ confidence improves and income
goods are projected to rise by 5.2%, increases.

TABLE 3.9. Gross Imports by End Use,

January – August 2019 and 2020

RM MILLION CHANGE SHARE

(%) (%)
2019 2020 2019 2020 2019 2020
Capital goods 65,521 59,930 -13.4 -8.5 11.7 11.6

Capital goods (except transport equipment) 59,712 62,221 -5.3 4.2 10.7 12.0

Transport equipment (industrial) 5,809 -2,291 -53.9 -139.4 1.0 -0.4

Intermediate goods 306,810 278,266 -0.1 -9.3 54.9 53.8

Food and beverages, primary and processed, mainly 12,173 13,182 3.5 8.3 2.2 2.5
for industry
Fuel and lubricants, primary, processed and others 39,293 32,403 7.0 -17.5 7.0 6.3

Industrial supplies, primary, processed and n.e.s.1 143,404 125,442 1.2 -12.5 25.7 24.2

Parts and accessories of capital and transport equipment 111,940 107,239 -4.2 -4.2 20.0 20.7

Consumption goods 48,486 47,638 0.6 -1.7 8.7 9.2

Food and beverages, primary and processed, mainly 20,071 21,464 5.2 6.9 3.6 4.1
for household
Transport equipment (non-industrial) 689 562 32.1 -18.4 0.1 0.1

Other consumer goods 27,725 25,611 -3.0 -7.6 5.0 4.9

Durables 6,359 5,800 -6.7 -8.8 1.1 1.1

Semi-durables 8,881 7,980 -12.6 -10.1 1.6 1.5

Non-durables 12,486 11,832 7.5 -5.2 2.2 2.3

Others 24,766 12,871 32.0 -48.0 4.4 2.5

Re-exports 112,961 118,960 -14.4 5.3 20.2 23.0

Gross imports 558,543 517,665 -4.0 -7.3 100.0 100.0

1
Not elsewhere stated
Note: Total may not add up due to rounding
Source: Department of Statistics, Malaysia

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Balance of Payments 1989, on account of a significant decline in

tourist arrivals as international borders are
The current account surplus of the balance of closed to contain the COVID-19 pandemic. The
payments narrowed to RM17.1 billion or 2.6% deficit in the transport account is projected
of GNI in the first half of 2020. This is due to to reach RM26.8 billion due to lower earnings
a smaller surplus in the goods account and from freight charges, airline passenger fares,
a lower deficit in the income account. In the airport and port charges, such as aircraft
second half of the year, the current account landing and parking, ship docking and cargo
surplus is projected to widen to RM31.4 billion handling provided by domestic companies. The
or 4.1% of GNI following a wider surplus in other services account is expected to record
the goods account and a lower deficit in the a lower deficit due to declining outflow of
income account. Overall in 2020, the current payments for construction, financial as well as
account surplus is expected to narrow to maintenance and repair services.
RM48.5 billion or 3.4% of GNI. This is primarily
due to the widening deficit in the services The primary income account is projected to
account despite a higher surplus in the goods register a lower deficit of RM23.7 billion in
account and a lower deficit in income account. 2020, mainly with lower payments accruing
to foreign direct investors in Malaysia due
The goods account is anticipated to record a to sluggish performance of construction and
higher surplus of RM130.9 billion as exports manufacturing sectors. The investment income
are projected to outpace imports. The services payments are expected to record a decline of
account is expected to post a wider deficit of RM65.6 billion. Compensation of employees is
RM50.3 billion, mainly due to the decline in expected to record a smaller deficit following
receipts in the travel and transport accounts. a larger decline in payments, reflecting slower
The travel account is anticipated to record a domestic economic activities.
deficit of RM10.9 billion for the first time since

TABLE 3.10. Current Account of the Balance of Payments,

2019 – 2021
(RM million)

2019 20201 20212

RECEIPTS PAYMENTS NET RECEIPTS PAYMENTS NET RECEIPTS PAYMENTS NET
Balance on goods and 985,283 872,871 112,412 842,053 761,454 80,599 916,286 833,823 82,463
services
Goods 815,470 692,136 123,334 750,424 619,538 130,886 778,135 664,804 113,311
Services 169,814 180,735 -10,922 91,629 141,916 -50,287 138,151 169,019 -30,868
Transport 21,669 47,572 -25,903 14,962 41,805 -26,843 20,333 52,509 -32,176
Travel 82,114 51,296 30,818 12,414 23,283 -10,868 53,468 35,495 17,973
Other services 66,030 81,868 -15,837 64,252 76,829 -12,576 64,350 81,015 -16,665
Primary income 64,851 105,118 -40,267 56,516 80,202 -23,686 62,804 104,362 -41,558
Compensation of employees 6,784 15,906 -9,122 6,308 14,565 -8,257 6,809 15,351 -8,542
Investment income 58,067 89,212 -31,145 50,208 65,637 -15,429 55,995 89,011 -33,016
Secondary income 16,897 38,191 -21,294 26,118 34,575 -8,458 17,522 38,150 -20,628
Balance on current account 1,067,031 1,016,181 50,850 924,686 876,231 48,455 996,612 976,335 20,277
% of GNI 3.5 3.4 1.3

1
Estimate
2
Forecast
Note: Total may not add up due to rounding
Source: Department of Statistics and Ministry of Finance, Malaysia

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The outflows of secondary income account, The primary income account is anticipated
which primarily consist of remittances, are to record a larger deficit of RM41.6 billion,
expected to decline to RM34.6 billion as following improvements in investment
the income of foreign workers is affected activities. This is in line with higher
during the MCO. At the same time, inflows of repatriation of profits and dividends by foreign
secondary income account are anticipated to investors and net outflows of compensation
increase to RM26.1 billion following a one-off for foreign professionals. Net outflows in the
receipt, contributing to a lower deficit of RM8.5 secondary income account are projected to
billion in secondary income account. widen to RM20.6 billion as remittances by
foreign workers will more than offset inflows,
The financial account registered a net outflow following the anticipated recovery in domestic
of RM33.1 billion due to higher net outflows economic activities.
in portfolio investment amid lower net inflows
in direct investment and financial derivatives FIGURE 3.8. International Reserves
accounts. Despite the pandemic, FDI registered
RM billion Months/Times
a net inflow of RM8.6 billion during the first
500 10
half of the year and channelled mainly to the
manufacturing and mining sectors as well
as financial and insurance/takaful segments. 400 8

Direct investment abroad by Malaysian

companies registered a lower net outflow 300 6
of RM6.5 billion. The outflows were mainly
channelled into the mining sector, followed 4
200
by financial and insurance/takaful as well as
information and communication segments.
100 2

The current account balance is expected

to record a lower surplus in 2021 at 0 0
RM20.3 billion or 1.3% of GNI, in line with J A J O J A J O J A J
2018 2019 2020
the expansion in domestic industrial and
investment activities. The surplus in the INTERNATIONAL RESERVES
RESERVES/SHORT-TERM EXTERNAL DEBT
goods account is estimated to record RM113.3 RIGHT SCALE
MONTHS OF RETAINED IMPORTS
billion, supported by a gradual recovery
As at 30 September 2020, Malaysia's international reserves
in global trade activities. The deficit in the amounted to RM436.5 billion or USD105.0 billion, adequate to
services account is anticipated to narrow finance 8.4 months of retained imports and 1.1 times the
to RM30.9 billion amid surplus in the travel short-term external debt (end-December 2019: RM424.1
billion; USD103.6 billion; 7.5 months; 1.1 times).
account. During the year, the travel account
is expected to improve as tourism activities Source: Bank Negara Malaysia
recover gradually. Receipts from travel account
are projected to increase to RM53.5 billion
driven by higher tourist arrivals and per capita Prices
spending, which more than offset residents’
spending abroad for leisure, business and Inflationary pressure remains benign
pilgrimage purposes.
The Consumer Price Index (CPI) shrank by
Gross payments for transport services are 1% during the first eight months of 2020, and
expected to increase to RM52.5 billion, the trend is expected to continue for the rest
attributed to the continued reliance on foreign of the year. The contraction was due to lower
transport services amid the expansion in trade pump prices on account of weaker global
activities. Gross receipts are also anticipated crude oil prices as well as the discount given
to rise to RM20.3 billion, supported by on electricity bills as part of the stimulus
improved earnings from air travel as well as measures. However, the core index increased
cargo handling and shipping services provided by 1.2%, indicating sustained domestic demand
by domestic companies. A wider deficit is along with the gradual resumption of economic
expected in the other services account in line activities. In 2021, inflation is expected to
with higher payments attributed to expansion normalise at 2.5% in line with better economic
in the manufacturing and construction sectors. prospects and higher crude oil prices.

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TABLE 3.11. Consumer Price Index,

January – August 2019 and 2020
(2010 = 100)

CONTRIBUTION TO
CHANGE
CPI GROWTH
WEIGHT 1 (%)
(PERCENTAGE POINTS)
2019 2020 2019 2020
CPI 100.0 0.5 -1.0 0.50 -1.00
Food and non-alcoholic beverages 29.5 1.6 1.2 0.51 0.39
Alcoholic beverages and tobacco 2.4 1.6 0.2 0.05 0.01
Clothing and footwear 3.2 -2.4 -1.0 -0.06 -0.02
Housing, water, electricity, gas and other fuels 23.8 1.9 -1.0 0.44 -0.24
Furnishings, household equipment and routine household 4.1 1.3 0.3 0.05 0.01
maintenance
Health 1.9 0.3 1.2 0.01 0.02
Transport 14.6 -3.6 -10.0 -0.51 -1.37
Communication 4.8 0.0 1.6 0.00 0.06
Recreation services and culture 4.8 0.6 0.7 0.03 0.03
Education 1.3 1.3 1.2 0.02 0.02
Restaurants and hotels 2.9 1.2 0.7 0.04 0.02
Miscellaneous goods and services 6.7 -0.6 2.7 -0.04 0.17

1
Based on Household Expenditure Survey 2016
Note: Total may not add up due to rounding
Source: Department of Statistics, Malaysia

TABLE 3.12. Producer Price Index,

January – August 2019 and 2020
(2010 = 100)

CHANGE CONTRIBUTION TO
(%) PPI GROWTH
WEIGHT1 (PERCENTAGE POINTS)
2019 2020 2019 2020
PPI 100.000 -2.0 -2.4 -1.96 -2.39
Agriculture, forestry and fishing 6.730 -10.3 12.5 -0.66 0.74
Mining 7.927 -3.8 -32.7 -0.30 -2.50
Manufacturing 81.571 -1.1 -0.2 -0.92 -0.16
Electricity and gas supply 3.442 1.6 -0.2 0.06 -0.01
Water supply 0.330 -2.1 -0.6 -0.01 0.00
PPI by stage of processing 100.000 -2.0 -2.4 -1.96 -2.39
Crude materials for further processing 16.410 -5.7 -12.4 -0.97 -2.04
Intermediate materials, supplies and components 56.119 -1.6 -0.3 -0.89 -0.16
Finished goods 27.471 0.2 0.3 0.05 0.08

1
Based on Economic Census 2016
Note: Total may not add up due to rounding
Source: Department of Statistics, Malaysia

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chapter 3 macroeconomic outlook

The Producer Price Index (PPI) by local in the mining sector (-32.7%) followed by a
production declined by 2.4% during the first contraction in other sectors, namely water
eight months of 2020 and is expected to supply (-0.6%), manufacturing (-0.2%) and
remain stable due to low input costs. This electricity and gas supply (-0.2%). In contrast,
is attributed to weaker global commodity the index for agriculture, forestry and fishing
prices, particularly that of crude oil and sector rose by 12.5%. The PPI is expected
natural gas. The PPI by sector was weighed to improve in 2021 following the projected
down, particularly by a significant contraction recovery of the domestic and global economy.

FIGURE 3.9. CPI and PPI Trends

(% change)

% Consumer Price Index % % Producer Price Index %

12 20 25 50

9 20 40
15
15 30
6 10
10 20
3 5 5 10
0 0 0 0
-3 -5 -5 -10
-10 -20
-6 -10
-15 -30
-9 -15
-20 -40
-12 -20 -25 -50
-15 -25 -30 -60
J A J O J A J O J A J J A J O J A J O J A J
2018 2019 2020 2018 2019 2020

CPI PPI
TRANSPORT MANUFACTURING
FOOD AND NON-ALCOHOLIC BEVERAGES RIGHT SCALE MINING RIGHT SCALE
HOUSING, WATER, ELECTRICITY, AGRICULTURE, FORESTRY AND
GAS AND OTHER FUELS FISHING

Source: Department of Statistics, Malaysia

feature article 3.5

Dynamic Relationship between Consumer and Producer Price Indices

Introduction

The Consumer Price Index (CPI) measures the percentage change in the cost of purchasing a
constant “basket”1 of goods and services which represents the average pattern of purchases by a
particular population during a specified period. Changes in the costs of items in the basket are
therefore due only to “pure” price movements, not associated with changes in the quantity and
quality of the set of consumer goods and services in the basket. On the other hand, the Producer
Price Index (PPI) for local production is an output-based index, which measures the change in
the price of commodities sold to the domestic market valued at the ex-factory price. The PPI
for local production measures the average change in the prices charged by producers of goods
of an industry in a reference month compared with the base period. Thus, it is an important
macroeconomic indicator used for monitoring the price movements of local outputs and is often
viewed as a leading indicator of CPI (Department of Statistics Malaysia, 2020).

1
The “basket” is of an unchanging or equivalent quantity and quality of goods and services, consisting of items for which there are continually
measurable market prices over time.

104 economic outlook 2021

 chapter 3 macroeconomic outlook

According to Clark (1995), PPI can be transmitted to CPI via the pass-through effect. Meanwhile,
research on the developing economies (Sidaoui et al., 2010) and advanced economies (Woo et al.,
2018) revealed that there is a long-run relationship between CPI and PPI, which helps to forecast
inflation. This article analyses the relationship for the period from January 2011 to July 20202, which
provides an insight on inflation expectation for better management of the macroeconomic policy.

CPI measures the price changes in a fixed basket of goods and services and used as a proxy for
inflation. In Malaysia, the CPI basket consists of 12 main groups of 552 items with fixed weights.
Food and non-alcoholic beverages (29.5%), housing, water, electricity, gas and other fuels (23.8%),
as well as transport groups (14.6%) form the largest weightage at 67.9% within the basket.
In comparison, the PPI is measured by stages of processing and by five sectors. By stages of
processing, the PPI is skewed towards intermediate materials, supplies and components, which
account for 56.1% of the total weightage, while by sector, manufacturing (81.6%) and mining (7.9%)
formed the largest weightage at 89.5%.

The CPI trend remained relatively stable and exhibited a smaller variation than PPI from January
2011 to July 2020 period (Figure 3.5.1.). In contrast, the PPI recorded two distinct trends during the
same period. From January 2011 until January 2017, the PPI had a wider variation before stabilising
and converging with the CPI after the weekly setting of fuel prices.

FIGURE 3.5.1. The Trend of CPI and PPI over 10-Year Period

%
15
PPI
Monthly setting Weekly setting Weekly setting
CPI of fuel prices of fuel prices of fuel prices
10 AVERAGE CPI (Dec 2014 - Feb 2017) (Mar 2017 - Aug 2018) (Jan 2019)

5
Average CPI = 2%

-5 Monthly setting
of fuel prices
(Sept - Dec 2018)
-10
Brent crude oil price above Implementation period of Goods and
USD100 per barrel Services Tax (GST) (Apr 2015 - June 2018)
-15
J A J O J A J O J A J O J A J O J A J O J A J O J A J O J A J O J A J O J A J
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Source: Department of Statistics and Ministry of Finance, Malaysia

By and large, the inflation rate has remained low and stable. The CPI hovered around 2% on
average, while the PPI at 0.6% during the analysis period. However, there were periods of high
inflation rate. The highest rate recorded for CPI was 4.9% in March 2017 following the shift from
a monthly to a weekly setting of fuel prices. CPI recorded its largest decline in April and May
2020 at -2.9%, attributed to the weaker private consumption during the second quarter of 2020

2
Base year index set at 2010 = 100.

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chapter 3 macroeconomic outlook

following the implementation of the Movement Control Order to stem the transmission of COVID-19
pandemic. Meanwhile, the PPI recorded its maximum rate increase of 15% in July 2011, which
coincided with the surge in global crude oil prices averaging USD116.46 per barrel. In May 2015,
the PPI reached the deepest trough at a rate of -9.4% following the slump in global crude oil prices
to an average of USD64.56 per barrel.

Methodology

The relationship between the CPI and PPI in the period under review was examined using the
Threshold Vector Error Correction Model (TVECM) with Momentum Threshold Autoregressive
(MTAR) adjustment (Enders & Granger, 1998; Woo et al., 2018). Both CPI and PPI variables were
transformed into natural logarithms. Within the relevant time series, the MTAR cointegration model
was deployed, followed by the TVECM to measure the asymmetric adjustments to equilibrium.

Findings

The analysis indicates the existence of a bidirectional relationship between the CPI and PPI. Thus,
price changes can be transmitted from producers to consumers and vice versa. Therefore, different
approaches are needed to address inflation, depending on the sources of price variation. Other
than that, the downward reversion of CPI to its long-run equilibrium will take approximately
9.1 months compared to PPI at approximately 15.5 months. This implies that more efforts are
needed to soften the impact on PPI as it takes a longer time for the PPI to return to its long-run
equilibrium.

table 3.5.1. Estimation of TVECM with MTAR Adjustment

change of cpi (∆cpi) change of ppi (∆ppi)

CPI adjust downward to reach equilibrium PPI adjust downward to reach

in approximately 9.1 months. equilibrium in approximately 15.5
Speed of months.
adjustment
CPI adjust upward to reach equilibrium PPI adjust upward to reach equilibrium
in approximately 11.6 months. in approximately 6.2 months.

Source: Ministry of Finance, Malaysia (estimates)

Recommendations

Based on the findings, the lengthy downward adjustment of PPI is a primary concern in Malaysia.
Therefore, effort should be focused on addressing this issue which in turn will contribute to a
lower cost of doing business and reduce the pass-through effect. Lowering barriers to entry for
new firms, especially small and medium enterprises, will increase the total number of domestic
producers while ensuring a highly competitive market environment. It is also imperative to
strengthen market competition and enhance domestic production capacity to increase aggregate
supply (Benkovskis, 2017). In addition, the existing rules and regulations could be strengthened
and strictly enforced. This is to prevent anti-competitive practices and ensure the prices of essential
goods remain reasonable for consumers.

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Conclusion

The analysis has established bidirectional properties between the CPI and PPI during the period
under review. It also indicates that the time taken for prices to adjust to long-run equilibrium
varies between both price indices, implying there are imperfections in the market. Thus, there is a
need for a more effective supply management policy to contain the transfer of impact between the
two indices. At the same time, cost-push factors in PPI should be identified to weaken the pass-
through effects from producers to consumers.

Labour Market The negative impact of the pandemic was also

reflected in other labour market indicators.
Job vacancies declined significantly by 50.8%
Labour market showing signs of recovery
to 251,944. In comparison, the number of
active job seekers rose by 16.9% to 277,840
The labour market deteriorated in the first
persons, of which 2% were new registrants.
half of the year as economic activities were
Retrenchment also increased considerably
severely disrupted by COVID-19 pandemic.
by 76.2% to 36,196 persons, mainly in the
Although employment was still recording a
manufacturing and tourism-related industries
positive performance with 71,300 new jobs
amid the closing down of businesses,
generated, the increase was marginal at
downsizing exercises and financial difficulties.
0.5%, which is lower than the growth of the
labour force of 1.5%. During the period, the
Nevertheless, the labour market condition
services sector was the largest source of
is anticipated to progressively recover
employment, accounting for 63.3% of total
during the second half of the year. With the
employment, followed by manufacturing
expectation of a more favourable economic
(16.8%) and agriculture (11%) sectors. The
outlook, the unemployment rate is expected
labour force participation rate remained
to fall to overall 4.2% in 2020, with more job
encouraging at 68.4%. However, the closure of
opportunities in the economy. Meanwhile, total
business operations and cost-cutting measures
employed persons are projected at 15.1 million
undertaken by firms due to the MCO have
in 2020 and further expand to 15.3 million
weakened aggregate demand. As a result,
in 2021, supported by stronger domestic
lesser employment opportunities were created
demand amid the sharp recovery in economic
as compared with the pre-COVID-19 period.
growth. Of the 15.3 million employed persons,
This has caused a spike of 30% in unemployed
9.7 million or 63.3% will be recruited in the
persons, which led the unemployment rate to
services sector, 17.4% in the manufacturing
soar to 4.3% or 670,200 persons.
and 10.2% in the agriculture sectors.
TABLE 3.13. Labour Market Indicators
Labour productivity, as measured by value-
(‘000) CHANGE added per worker, dropped sharply by 8.4% to
(%)
RM84,138 in the first half of 2020, attributed
H11 20202 20213 H11 20202 20213 to productivity contraction in all economic
Labour force 15,691.3 15,737.4 15,910.5 1.5 1.0 1.1 sectors, especially construction. Nonetheless,
Employment 15,021.1 15,084.0 15,347.9 0.5 0.1 1.8 the decline in labour productivity is expected
to moderate by 3.2% to reach RM90,900 for
Unemployment 670.2 653.5 562.6 (4.3) (4.2) (3.5)
the whole year. This follows from the wide-
1
January to June 2020 range of skills enhancement programmes and
2
Estimate
3
Forecast initiatives to encourage technology adoption
Note: Figures in parentheses refer to unemployment rate
Source: Department of Statistics and Ministry of Finance, Malaysia
in industries under the economic stimulus

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chapter 3 macroeconomic outlook

TABLE 3.14. Employed Persons by Sector

(‘000) SHARE
(%)
H12 20203 20214 H12 20203 20214
Agriculture, forestry and fishing 1,655.9 1,644.3 1,565.5 11.0 10.9 10.2

Mining and quarrying 94.9 90.5 92.1 0.6 0.6 0.6

Manufacturing 2,529.4 2,564.2 2,670.5 16.8 17.0 17.4

Construction 1,227.2 1,236.9 1,304.6 8.2 8.2 8.5

Services 9,513.7 9,548.1 9,715.2 63.3 63.3 63.3

Total 1 15,021.1 15,084.0 15,347.9 100.0 100.0 100.0

1
Total includes ‘Activities of extraterritorial organisations and bodies’
2
January to June 2020
3
Estimate
4
Forecast
Note: Total may not add up due to rounding
Source: Department of Statistics and Ministry of Finance, Malaysia

packages. The productivity of the agriculture followed by China (18.9%) and the Philippines
sector is projected to record an increase of (7.4%). They were mainly employed in the
0.6%, with a decline in manufacturing (-1.4%) services (50.5%), information technology
and services (-3.6%) sectors. In 2021, labour (34.5%) and construction (5.9%) sectors.
productivity is projected to rebound by 4.9% to The Government will continue to undertake
reach RM95,400, supported by strong economic initiatives to reduce the dependency on
growth, particularly in services, manufacturing migrant workers by ensuring the employment
and construction sectors. of migrant workers, particularly low-skilled
foreign workers, is based on the actual needs
Foreign workers continued to represent of the economy. This will allow for more
a substantial part of the Malaysian labour high-income job opportunities for the local
market, thus, they were not spared from the workforce and the opportunity for industries to
effects of the COVID-19 pandemic. As at end- automate.
August 2020, registered low-skilled foreign
workers fell to 1.7 million persons and is
expected to remain at this level throughout Conclusion
the year, due to the temporary halt in new
employment in most sectors. The foreign After a dismal economic performance in 2020
workers were mainly from Indonesia (34%), due to the COVID-19 pandemic, the Malaysian
Bangladesh (28.3%) and Nepal (15.3%). The economy is expected to rebound firmly in
manufacturing sector employed the highest 2021, in line with the expectation of a more
number of foreign workers with a share of synchronised global recovery. At the same
35.5%, followed by construction (21.3%) and time, domestic demand is projected to record
services (15.2%) sectors. Nevertheless, the a steady growth, supported by improvements
share of low-skilled foreign workers at 11.1% in labour market conditions, low inflation and
is still below the threshold of 15% to total favourable financing conditions as well as
employment. the revival of major infrastructure projects.
All sectors in the economy are expected to
Meanwhile, the number of expatriates fell by turnaround, with services and manufacturing
17.9% to reach 100,373 persons. The majority sectors continuing to spearhead growth.
of expatriates were from India (23.8%),

108 economic outlook 2021

 chapter 3 macroeconomic outlook

Nevertheless, downside risks to the growth the Government will continue to promote
outlook remain, arising from the resurgence resilient and sustainable economic growth,
of COVID-19 cases and the duration of while safeguarding the welfare of the people.
containment measures domestically and Efforts will be enhanced to accelerate the shift
globally. Geopolitical tensions, volatility in to digitalisation, skilled workforce, quality FDIs
financial and commodity markets as well as and strengthening environmental, social and
prolonged trade and tech war may dampen governance principles to ensure sustainable
the recovery pace. Against this background, and inclusive growth.

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chapter 3 macroeconomic outlook

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114 economic outlook 2021

ch ap ter 4

Monetary
and Financial
Developments

119 ov e rv i e w

119 mone ta ry de v e lopme nts

120 pe r for m a nce of r i nggi t

120 ba nk i ng s ec tor pe r for m a nce

Feature Article 4.1 – Digital Banks in Malaysia

126 c a p i ta l m a r k e t pe r for m a nce

Information Box 4.1 – Key Capital Market Measures

131 i s l a m ic ba nk i ng a nd c a p i ta l
m a r k e t pe r for m a nce
132 conclus ion

133 r e fe r e nce s
CHAPTER 4 SUMMARY: MONETARY AND FINANCIAL DEVELOPMENTS

Vibrant Monetary Operations & Sound

Financial System

Vibrant Money & Foreign Resilient Monetary &

Exchange Markets Financial Conditions
and intermediation throughout COVID-19
activities supported pandemic period supported
monetary operations economic recovery

Monetary Risks to Capital

Developments and Financial
Market
Performance

Monetary policy
cushioned the adverse Pace of global
effects of measures
implemented to contain economic
the spread of COVID-19 recovery
virus on the economy.

The Overnight Policy Monetary policy also Prolonged

Rate (OPR) was reduced provided additional US-China
successively by 125 basis stimulus to sustain the
points (bps) during the pace of economic trade tensions
first seven months of recovery.
2020 to a historic low
of 1.75%. Weak
commodity
Banking institutions were The Statutory Reserve
Requirement (SRR) was
prices
also given the flexibility
to use Malaysian reduced by 100 bps from
Government Securities 3.00% to 2.00%.
(MGS) and Malaysian Volatile global
Government Investment financial
Issues (MGII) to fully markets
meet SRR compliance.

Performance
JANUARY FEBRUARY

of Ringgit RM

In January 2020, the ringgit appreciated In February and March, the local note, along
against the US dollar mainly due to with regional currencies, faced significant
non-resident portfolio inflows. This was depreciation against the US dollar. The
supported by improved investors’ risk downward trend of the ringgit was
sentiment attributed to positive contributed by geopolitical uncertainties,
development in the US-China trade declining commodity prices and rapid
negotiation. escalation of the COVID-19 pandemic.
Robust & Orderly Resilient Capital
Banking Sector Market
ample liquidity & well-developed
strong capital buffers infrastructure & instruments

Banking Islamic Banking &

Sector Capital Market
Performance Performance

Islamic banking industry expanded with The growth is primarily contributed by

total assets valued at RM1,038.2 billion household sector financing, which
and market share at 33% as at end-July increased by 8.7% to RM490.9 billion,
2020. Total Islamic financing mainly for the purchase of residential
outstanding increased further by 10% properties.
to RM787.8 billion.

Islamic financing is expected to expand The Islamic Capital Market (ICM)

further supported by the recovery in continues to thrive with Malaysia being
economic activity and continuous among the largest issuer of sukuk and
promotion of Shariah-compliant Islamic equity in the world. As at
products. end-July 2020, the domestic size of ICM
was valued at RM2.2 trillion, accounting
Capitalisation of banking The demand for Shariah-compliant for 66.2% of RM3.3 trillion of Malaysia’s
sector remained strong, products is expected to be stronger in total capital market size.
supported by the the future, supported by its appeal to a
Sukuk issuances amounted to RM130.8
accumulation of high-quality broader group of investors.
billion or 60.2% of total bonds
loss-absorbing instruments. Ongoing promotion of issuances. Sukuk outstanding was
Shariah-compliant products and valued at RM986.9 billion or 62.6% of
As at end-July 2020, excess
digitalisation of services will provide the total bonds outstanding.
total capital buffer remained
impetus for the country to position
high at RM121.6 billion. Despite the challenging economic
itself as a prominent international
climate, the prospect for ICM remains
centre for Islamic financial services.
promising.

SECOND END- GOING

QUARTER SEPTEMBER RM
FORWARD

From the second quarter onwards, recovery in Going forward, the expected recovery in the global and
global investor sentiments amid monetary and domestic economy will provide some support for the
fiscal stimulus measures deployed to combat the ringgit.
pandemic led the ringgit to appreciate by 3.5%
against the US dollar, in line with the appreciation
of regional currencies. As at end-September, the
ringgit recorded a depreciation of 1.6% against the
US dollar.
 chapter 4 monetary and financial developments

chapter 4

Monetary and Financial Developments

Overview The interest rate in the banking system was

lowered in line with the OPR adjustment since
January 2020. In the first seven months of
The financial sector remains sound
2020, the average lending rate and weighted
base rate of commercial banks were reduced
Monetary and financial conditions have been
consecutively to 3.70% and 2.43%, respectively.
resilient throughout the COVID-19 pandemic
During the same period, the average interest
period and supportive of economic recovery.
rate on savings deposit of commercial banks
Monetary operations will be supported by
was lowered to 0.48% while fixed deposits of
vibrant money and foreign exchange markets
1-month to 12-month maturities moderated to
as well as intermediation activities. The
between 1.53% and 1.79%.
banking sector is expected to remain robust
and orderly, underpinned by ample liquidity
With accommodative monetary policy,
and strong capital buffers. The capital market
monetary aggregates expanded rapidly during
will continue to be resilient, driven by well-
the first seven months of 2020. M1 rose
developed infrastructure and instruments.
by 15.7% to RM497.2 billion, supported by
Nevertheless, concerns over the momentum of
higher currency in circulation and demand
global economic recovery due to the pandemic,
deposits which increased by 18.5% and 14.9%,
continued US-China trade tensions, weak
respectively. Similarly, M3 expanded by 6.1%
commodity prices, and volatile global financial
to RM2,029.7 billion, mainly due to higher net
markets may affect financial and capital market
performance.
FIGURE 4.1. Monetary Aggregates
(% change)
Monetary Developments
Monetary policy mitigates the impact of the %
pandemic 18

Monetary policy cushioned the adverse effects 15

of measures implemented to contain the

12
spread of COVID-19 virus on the economy.
The policy also provided additional stimulus
9
to sustain the pace of economic recovery.
The Overnight Policy Rate (OPR) was reduced
6
successively by 125 basis points (bps) during
the first seven months of 2020 to a historic
3
low of 1.75%. Similarly, the Statutory Reserve
Requirement (SRR) was reduced by 100 bps
0
from 3.00% to 2.00%. Banking institutions M J S D M J S D M J J1
were also given the flexibility to use Malaysian 2018 2019 2020
Government Securities (MGS) and Malaysian
Government Investment Issues (MGII) to fully M3
M1
meet SRR compliance. The measures were
implemented to ensure sufficient liquidity
and to support the orderly functioning of the 1
End-July 2020
domestic financial market. Source: Bank Negara Malaysia

economic outlook 2021 119

chapter 4 monetary and financial developments

claims on the Government and extension of 3.5% against the US dollar, in line with the
credit to the private sector, primarily through appreciation of regional currencies. As at end-
securities. The money supply is expected to September, the ringgit recorded a depreciation
expand further backed by higher demand for of 1.6% against the US dollar. Going forward,
loans and securities by the private sector. the expected recovery in the global and
domestic economy will provide some support
for the ringgit. However, lingering uncertainties
TABLE 4.1. Factors Affecting M3, over the COVID-19 pandemic, global political
January – July 2019 and 2020 and policy environment could lead to periods
of heightened exchange rate volatility.
CHANGE
(RM BILLION)
2019 2020 FIGURE 4.2. Performance of Ringgit against Selected
M3 18.8 68.1
Currencies
(% change)
Net claims on Government -10.9 62.8
Claims on Government 18.3 81.9
Less: Government deposits 29.2 19.1 End-2019 – End-September 2020

Claims on private sector 37.6 39.3 100 INDONESIAN RUPIAH

Loans 26.7 29.4
100 THAI BAHT
Securities 10.9 9.9
POUND STERLING
Net foreign assets1 11.2 35.9
SINGAPORE DOLLAR
Bank Negara Malaysia 10.8 22.0
100 KOREAN WON
Banking system 0.4 13.9
US DOLLAR
Other influences -19.1 -69.9
AUSTRALIAN DOLLAR
1
Includes exchange rate revaluation losses/gains
Note: Total may not add up due to rounding CHINESE RENMINBI
Source: Bank Negara Malaysia
100 JAPANESE YEN

EURO

Performance of Ringgit
100 PHILIPPINE PESO

-8 -6 -4 -2 0 2 4 6 8

Periods of volatility in the exchange rate

In January 2020, the ringgit appreciated Source: Bank Negara Malaysia

against the US dollar mainly due to non-

resident portfolio inflows. This was supported
by improved investors’ risk sentiment Banking Sector
attributed to positive development in the US-
China trade negotiation. However, in February Performance
and March, the local note, along with regional
currencies, faced significant depreciation Resilient banking sector
against the US dollar. The downward trend
of the ringgit was contributed by geopolitical The capitalisation of the banking sector
uncertainties, declining commodity prices and remained strong, supported by the
rapid escalation of the COVID-19 pandemic. accumulation of high-quality loss-absorbing
instruments. As at end-July 2020, excess total
From the second quarter onwards, recovery in capital buffer1 remained high at RM121.6
global investor sentiments amid monetary and billion. The banking sector remained well-
fiscal stimulus measures deployed to combat capitalised with Common Equity Tier 1 Capital,
the pandemic led the ringgit to appreciate by Tier 1 Capital and Total Capital Ratios at 14.6%,

1
Excess total capital buffer refers to the total capital above the banks’ regulatory minima, which also includes the capital conservation buffer (2.5%
of risk-weighted assets) and bank-specific higher minimum requirements.

120 economic outlook 2021

 chapter 4 monetary and financial developments

15.1% and 18.3%, respectively. The ratios are financial markets following the fallout from the
well above the Basel III minimum regulatory COVID-19 pandemic and ongoing geopolitical
levels of 4.5%, 6% and 8%, of risk-weighted tensions, the banking sector liquidity remains
assets. sufficient and stable in the near term.

The pre-tax profit of the banking sector fell Lending activities slowed down, reflecting
by 11.7% to RM20.5 billion in the first seven cautious sentiment on the global and domestic
months of 2020. Despite the challenging growth outlook. In the first seven months of
environment, domestic banks remain strong, 2020, loan approvals and disbursements fell by
supported by orderly financial markets and 22% and 7.3% to RM185.5 billion and RM657.1
sustained confidence in the banking sector. billion, respectively. This was mainly due to
As a result, returns on assets and equity financial institutions taking precautionary
continued to be stable at 1.2% and 10.5%, measures to approve new loans following
respectively. restricted economic activities. However, total
loans outstanding expanded by 4.5% to
The loan quality and liquidity of the banking RM1,806.1 billion as at end-July 2020.
sector also remain sound. As at end-July
2020, the net impaired loans ratio and loan
loss coverage ratio (including regulatory
TABLE 4.2. Banking System: Loan Indicators,
reserves) remained healthy at 0.91% and
January – July 2019 and 2020
121%, respectively. Similarly, the Liquidity
Coverage Ratio was at 152%, well above the CHANGE
RM BILLION
100% minimum requirement. Notwithstanding (%)
uncertainties and heightened risks from global 2019 2020 2019 2020
Total1
FIGURE 4.3. Banking System: Impaired Loans and Loans applications 501.3 447.9 -1.7 -10.6
Net Impaired Loans Ratio
Loans approvals 237.9 185.5 5.8 -22.0
(End-period)
Loans disbursements 709.0 657.1 3.2 -7.3
Loans outstanding 2,3
1,728.8 1,806.1 3.9 4.5
RM billion %
of which:
36 4
Businesses
Loans applications 203.8 200.9 -0.6 -1.4
27 3 Loans approvals 92.2 80.7 2.7 -12.5
Loans disbursements 450.2 430.7 1.0 -4.3

18 2 Loans outstanding 3
609.2 633.3 2.6 4.0
Households

9 1 Loans applications 276.3 225.9 -1.6 -18.2

Loans approvals 127.0 88.9 4.1 -30.0
Loans disbursements 197.4 165.3 1.6 -16.3
0 0
M J S D M J S D M J S D M J S D M J J1
Loans outstanding 3
981.1 1,024.0 4.8 4.4
2016 2017 2018 2019 2020
1
Includes foreign entities, other domestic entities, Government and
IMPAIRED LOANS others
2
Includes loans sold to Cagamas
NET IMPAIRED LOANS RATIO (RIGHT SCALE) 3
As at end-period
Note: Total may not add up due to rounding
Source: Bank Negara Malaysia

1
End-July 2020
Source: Bank Negara Malaysia

economic outlook 2021 121

chapter 4 monetary and financial developments

Loan approvals to businesses decreased by TABLE 4.3. Banking System: Loans Outstanding by
Sector,
12.5% to RM80.7 billion as at end-July 2020.
End-July 2019 and 2020
Total disbursements to businesses fell by 4.3%
to RM430.7 billion, representing 65.5% of
RM BILLION SHARE
total loans disbursed. The bulk of loans were (%)
channelled into manufacturing (22.2% of total
2019 2020 2019 2020
loans), wholesale and retail trade, restaurants
Businesses 609.2 633.3 35.3 35.2
and hotels (19.4%) as well as construction
Non-SMEs1 326.9 351.5 19.0 19.5
(6.6%) sectors. At the same time, total loans
outstanding to the business sector increased SMEs 282.3 281.8 16.4 15.6

by 4% to RM633.3 billion, accounting for 35.2% Selected sectors

of total loans outstanding. Primary agriculture 34.4 34.7 2.0 1.9
Mining and 7.9 9.0 0.5 0.5
Household borrowings slowed down with quarrying

loan approvals declining by 30% to RM88.9 Manufacturing2 115.0 122.3 6.7 6.8
billion. Loans disbursed to households also Electricity, gas and 13.0 14.7 0.8 0.8
water supply
declined by 16.3% to RM165.3 billion, mainly
for consumption credit (13.1% of total loans), Wholesale and retail 127.6 134.4 7.4 7.5
trade, restaurants
purchase of residential properties (6.3%) and and hotels
securities (2.7%). As at end-July 2020, total Construction 91.9 91.6 5.3 5.1
household loans outstanding rose by 4.4% Real estate 117.1 119.0 6.8 6.6
amounting to RM1,024 billion, which accounts
Transport, storage 37.2 39.8 2.2 2.2
for 56.8% of total loans outstanding in the and communication
banking sector. Finance, insurance 42.2 43.8 2.4 2.4
and business
activities
The overall household debt increased by 4%
Households 981.1 1,024.0 56.9 56.8
to RM1,265.9 billion, accounting for 87.5% of
Gross Domestic Product (GDP) as at end-June of which:

2020. The increase was mainly due to the Purchase of 551.6 594.4 32.0 33.0
residential
sharp contraction in GDP during the first half properties
of the year. The bulk of the debt comprises of Purchase of 80.4 80.5 4.7 4.5
loans for the purchase of residential properties non-residential
properties
(55.9%), followed by personal use (14.2%) and
passenger cars (12.3%). Total household assets Purchase of 145.1 146.2 8.4 8.1
passenger cars
were valued at RM2,751.9 billion with growth
Consumption credit 133.5 135.4 7.7 7.5
in household financial assets continuing to
of which:
outpace that of debt. Although household debt
has risen, it is expected to remain manageable, Credit cards 38.3 35.3 2.2 2.0

supported by programmes to rein in the debt Personal use 95.2 100.1 5.5 5.6
level and measures enacted to cushion the Purchase of 68.9 66.1 4.0 3.7
securities
impact of the COVID-19 pandemic on the
economy. Others 0.4 0.4 0.0 0.0
Other sectors 134.2 144.1 7.8 8.0
Total3 1,724.4 1,801.4 100.0 100.0

1
Non-SMEs refers to large corporations, including foreign entities,
other domestic entities, Government and others
2
Including agro-based
3
Total = Businesses + Households + Other sectors
Note: Total may not add up due to rounding
Source: Bank Negara Malaysia

122 economic outlook 2021

 chapter 4 monetary and financial developments

feature article 4.1

Digital Banks in Malaysia

Introduction

The banking industry has experienced multiple transformations to suit customer demands and
keep up with technological advancements, such as secure digital ledger transactions and artificial
intelligence (AI). Moreover, the COVID-19 pandemic has forced societies to favour cashless
transactions, all of which enable a faster shift towards the establishment of digital banks. A digital
bank is essentially a virtual bank, which operates in a digital environment and is devoid of brick-
and-mortar presence of a traditional bank. However, digital banks offer similar services to that of
traditional banks, such as savings and current accounts, withdrawals and transfers. As such, digital
banks are expected to revolutionise the financial landscape by offering financial services through
digital and automated platforms (Deloitte, 2020).

Currently, Australia, Brazil, Canada, China, Germany, Hong Kong SAR, Republic of Korea, South
Africa, Taiwan, the Philippines, the UK and the US have established their own digital banks
(PricewaterhouseCoopers, 2020). Singapore is expected to issue its digital bank licences in 2020.
Meanwhile, Bank Negara Malaysia (BNM) is at the stage of finalising the updated Exposure Draft
on Licensing Framework for Digital Banks issued on 3 March 2020. With this development, Malaysia
looks forward to establishing several digital banks in the near future, paving the way for a more
vibrant financial services landscape.

How Does Digital Bank Work?

A digital bank works differently from mobile or online platforms as it requires full digitalisation
of banking services. The bank makes use of high-end technology called middleware solution to
connect the nodes between front- and back-end processes. The middleware solution bridges
the operating systems or databases with other applications while adopting other technologies
in its processes (Figure 4.1.1.). Digital banks demand high-end technologies such as Application
Programming Interface (APIs), AI Machine Learning, Cloud Computing, Big Data, Cybersecurity, Data
Visualisation, User Interface (UI) – User Experience (UX) Design and Blockchain. These technologies
allow multilayer processes to be conducted simultaneously across all its delivery channels (Figure
4.1.2.).

FIGURE 4.1.1. Process Workflow of a Digital Bank

Back End Middleware Front End

Branches
and call centre

Web and mobile

API
Third-party apps

Core Banking System Value-Added Functionalities

Source: ATKearney

economic outlook 2021 123

chapter 4 monetary and financial developments

FIGURE 4.1.2. Key Aspects of a Digital Bank

Cybersecurity Big Data

State of being protected against criminal Extremely large data sets that are analysed
or unauthorised use of electronic data. computationally to reveal patterns, trends,
and associations, especially relating to human
behaviour and interactions.

Cloud Computing Data Visualisation

Practice of using a network of remote Describes any effort to help people understand
servers hosted on the Internet to store, the significance of data by placing it in a visual
manage and process data. context.

UI/UX Design AI Machine Learning

Human-computer interaction, The theory and development of computer
user interface. systems able to perform tasks normally
requiring human intelligence.

Source: Fintalent

FIGURE 4.1.3. Advantages and Disadvantages of Digital Banks

Advantages of Digital Banks

Elevate Improve Customer

Technologies Processes

Digital banking The intelligent

Reduce benefits from Increase
Enhance Financial feature of AI
Operational Cost investments in new Revenues
Processes enables banks to
technologies, such understand
The virtual features as data analytics, The lower
The seamless customers’
of digital banks open APIs, operational costs of
operation of digital requirements by
allow the reduction blockchain and digital banking will
banking will enable being more
and banking cognitive banking. generate higher
multiple products responsive towards
services fees revenue through
to be integrated as customers’ needs
through customer-centric
a one-time process, and preferences.
automation and experiences by
which allows for
self-serve providing custom-made
automation of core
technology products and services.
processes and
(Bertrand, 2020). eliminates
duplication.

Disadvantages of Digital Banks

124 economic outlook 2021

Data Protection and Security Issues Workforce related Challenges

• The complete dependency on online services will • In line with increasing digitalisation within the
expose customers with issues such as breach of financial sector, the automation feature of
 services fees revenue through
to be integrated as customers’ needs
through customer-centric
a one-time process, and preferences.
automation and experiences by
which allows for
self-serve providing custom-made
automation of core
technology chapter 4 monetary and financial developments
products and services.
processes and
(Bertrand, 2020). eliminates
duplication.

Disadvantages of Digital Banks

Data Protection and Security Issues Workforce related Challenges

• The complete dependency on online services will • In line with increasing digitalisation within the
expose customers with issues such as breach of financial sector, the automation feature of
confidential data as well as cybersecurity threats digital banking will reduce the need for human
(Chauhan, 2018). intervention since some of its essential
procedures are conducted digitally.
• Nevertheless, technologies to solve these
threats include cloud-based digital banking • While some roles may become obsolete in the
platforms which have a built-in functionality for future, the real concerns would be on tackling
constant security upgrades will provide data the change management, particularly on talent
security for customers. availability issue, which requires a small yet
succinct team force with technical knowledge
(TM & Akamia Netalliance, 2020).

• According to Comfort (2019), approximately

77,780 jobs were cut by 50 financial regulators
globally in 2019 to accommodate for the
transition to digital banks. It is also estimated
that another 200,000 positions will be displaced
in the next decade based on the global trend
(Zujev, 2020).

The Future of Digital Banks in Malaysia

Digital bank holds a promising future in Malaysia. The journey towards establishing digital banks
will become a reality with digital transformation in the Malaysian financial landscape subjected to
three key elements:

Effective Regulatory Ecosystem

The establishment of an effective regulatory ecosystem for digital banks in Malaysia is still in
progress. The updated draft by BNM on 3 March 2020 has proposed a balanced approach to enable
the admission of digital banks with strong value propositions while safeguarding the integrity and
stability of the financial system (BNM, 2020).1 Through the framework, up to five licences may be
issued, subject to applicants’ ability to meet the requirements of the Financial Services Act 2013
and the Islamic Financial Services Act 2013.

Strong Technology Backup

Digital banks should adopt and innovate the latest technologies, which leverage cloud systems,
APIs, automation and AI Machine Learning. Malaysia is not far off when it comes to digital
maturity, as most traditional banks are now adopting the digital approach as part of their business
models (TM & Akamia Netalliance, 2020). According to a survey by Finder.com conducted in
March 2020, there will be a rise in digital bank adoption in Malaysia with an estimated 8.4 million
people likely to open up a digital bank account by 2025 (Cruz, 2020). Similarly, a study conducted
by PricewaterhouseCoopers in November 2019 indicated that 74% of Malaysian respondents are
interested in becoming a digital bank customer (PricewaterhouseCoopers, 2019).2 The move towards
complete digitalisation in the financial sector is supported by the National Fiberisation Connectivity
Plan. This is also in line with the Communications and Multimedia Blueprint (2018 – 2025) to
accelerate the development of a digital economy.

1
New applicants for digital banks are referred to as challenger banks or entrants (PricewaterhouseCoopers, 2020).
2
1,517 respondents from Malaysia were surveyed for the study (PricewaterhouseCoopers, 2019).

economic outlook 2021 125

chapter 4 monetary and financial developments

Cultural Adaptation

The road towards digital bank requires digital transformation, mastering new skills, adopting new
processes, and changing the way business is being done. Thus, all interested parties need to
reform their business models and culture and emphasise on innovation as well as greater adoption
of big data analytics to create a customer-centric orientation. The transition to digital banks may
not be straightforward, and it could disrupt financial services (Sharko et al., 2017). Traditional
banks may also form new ventures and apply for a digital bank licence as part of efforts to reform
their business model. The models must also cater to the underserved and unserved segments of
society, such as low-income individuals, early income millennials, start-ups as well as small and
medium enterprises (SMEs).3

Conclusion

The journey towards the establishment of digital banks is an expected progression in the
Malaysian financial market as the country evolves into a digital economy. For the transformation
to materialise, a whole new wave of digital products and solutions must be in place. This has to
be supported by a robust regulatory ecosystem, innovative technology and cultural adaptation
to accelerating economic growth and financial inclusion in Malaysia. Furthermore, the COVID-19
pandemic, which accelerated remote and contactless transactions, provides the impetus for the
establishment of digital banks.
3
Refers to groups such as the bottom 40% of household income group (B40) as well as micro enterprises and SMEs, including those in rural and
remote areas (Raj, 2020). They are typically underserved due to high servicing cost and low revenue potential.

Capital Market projects, working capital and business

activities. On the back of global economic
Performance uncertainties and rising geopolitical risks,
fundraising in the domestic capital market
Fundraising activities to recover remains promising buoyed by ongoing and
resumption of strategic projects.
Gross funds raised in the capital market
declined by 14.4% to RM143.7 billion during Gross funds raised by the public sector
the first seven months of 2020. The lacklustre increased further by 24.5% to RM97.9 billion
performance was due to lower fundraising during the first seven months of 2020. The
activity in the private sector, which fell expansion was contributed by strong demand
significantly by 48.6% to RM45.8 billion. Gross for Government papers to support the various
funds raised by the private sector through the stimulus packages. The issuance of MGS rose
domestic equity market declined from RM5 to RM50 billion, while MGII expanded to
billion to RM0.3 billion. The sharp decline was RM47.9 billion. During the same period, foreign
due to cautious investors’ sentiment during the holdings of MGS and MGII stood at 38.2%
lockdown period. and 5.8%, respectively. The holding portfolios
indicate that Malaysia’s debt market remains
During the same period, funds raised through attractive to institutional and foreign investors,
new corporate bond issuances also fell by attributed to its deep, liquid and investor-
45.9% to RM45.6 billion. The bulk of issuances friendly nature.
were medium-term notes, accounting for 92.1%
of total corporate bonds. The majority of funds During the first seven months of 2020, MGS
were raised by finance, insurance, real estate, and corporate bond yields were broadly on a
and business services sector, accounting for declining trend across all tenures. The lower
72% of new corporate bond issuances. The MGS yields were influenced by the easing of
funds were mainly allocated for infrastructure domestic monetary stance given the slower-

126 economic outlook 2021

 chapter 4 monetary and financial developments

than-expected economic growth. Yields on MGS TABLE 4.5. New Issuance of Corporate Bonds by
1-year, 3-year, 5-year, and 10-year declined Sector,
within the range of 76 and 119 bps. Yields January – July 2019 and 2020
for the corporate bond on the 5-year AAA-
rated, AA-rated and A-rated securities also fell RM MILLION SHARE
between 75 and 77 bps. (%)

2019 2020 2019 2020

Agriculture, forestry 50.0 - 0.1 -
and fishing
TABLE 4.4. Funds Raised in the Capital Market,
January – July 2019 and 2020 Manufacturing 670.0 306.0 0.8 0.7
Construction 1,724.3 4,639.5 2.0 10.2
RM MILLION Electricity, gas and 4,600.0 3,185.0 5.5 7.0
2019 2020 water
Transport, storage 32.0 1,120.0 0.0 2.5
Public Sector
and communication
Government securities Finance, insurance, 70,263.5 32,791.7 83.5 72.0
Malaysian Government 38,797.1 49,969.9 real estate and
business services
Securities
Government and 5,354.9 3,301.0 6.4 7.2
Malaysian Government 39,853.7 47,916.4
other services
Investment Issues
Wholesale and retail 1,477.5 210.0 1.8 0.5
New issues of debt securities 78,650.8 97,886.3 trade, restaurant
and hotels
Less: Redemptions 26,093.4 38,000.0
Total 84,172.1 45,553.2 100.0 100.0
Net funds raised by the 52,557.3 59,886.3
public sector Note: Includes corporate bonds issued by Cagamas and non-resident
corporations
Private Sector Total may not add up due to rounding
Source: Bank Negara Malaysia
Shares1/Warrants

Initial Public Offers 1,570.0 292.1 FIGURE 4.4. Malaysian Government Securities (MGS)
Indicative Yields
Rights Issues 3,466.7 - (End-period)
Warrants - -
%
New issues of shares/warrants 5,036.8 292.1
5.0
Debt securities2
4.5
Straight bonds 3,090.0 386.5

Convertible bonds - - 4.0

Islamic bonds 2,944.3 3,200.0 3.5

Medium-term notes 78,137.8 41,966.7 3.0

New issues of debt securities 84,172.1 45,553.2
2.5
Less: Redemptions 41,630.0 29,073.9
2.0
Net issues of debt securities 42,542.1 16,479.2
1.5
Net funds raised by the 47,578.9 16,771.3 M J S D M J S D M J S D M J S D M J J1
private sector
2016 2017 2018 2019 2020
Total net funds raised 100,136.2 76,657.6
10-YEAR 3-YEAR
1
Excludes funds raised by the exercise of Employee Share Option 5-YEAR 1-YEAR
Scheme, Transferable Subscription Rights, Warrants and Irredeemable
Convertible Unsecured Loan Stocks
2
Excludes short-term papers in conventional and Islamic principles
Note: Total may not add up due to rounding
Source: Bank Negara Malaysia
1
End-July 2020
Source: Bank Negara Malaysia

economic outlook 2021 127

chapter 4 monetary and financial developments

FIGURE 4.5. Share of Foreign Holdings in Total MGS At the beginning of the year, the FTSE Bursa
Outstanding Malaysia Kuala Lumpur Composite Index
(End-period) (FBM KLCI) and other regional indices fell into
bearish territory. The local bourse was dragged
RM billion % down below 1,600 points in the second
460 60 week of January 2020, following the rising
geopolitical tensions between the US and
Iran. Despite the improvement in the US and
420 54
China trade deal on 15 January 2020, the FBM
KLCI along with major and regional bourses
380 48 remained on a softer note.

The FBM KLCI was subdued on the back

340 42 of global economic uncertainties, rising
geopolitical tensions, low commodity prices
300 36
and the spread of the COVID-19 pandemic,
which dampened investors’ risk appetite.
Furthermore, the enforcement of the
260 30 Movement Control Order (MCO) beginning 18
M J S D M J S D M J J1 March 2020 led to panic selling in the equities
2018 2019 2020
market. The MCO tapered investors’ risk
TOTAL MGS OUTSTANDING
appetite, resulting in the local bourse to hit
its decade-low of 1,219.72 points on 19 March
SHARE OF FOREIGN HOLDINGS (RIGHT SCALE)
2020.

1
End-July 2020
Nevertheless, the subsequent relaxation of
Source: Bank Negara Malaysia lockdown measures and gradual resumption
of economic activities supported the recovery
of the local bourse. The FBM KLCI rebounded
FIGURE 4.6. 5-Year Corporate Bond Yields
to 1,575.27 points on 10 June 2020 in tandem
(End-period)
with regional markets’ optimism amid the
upward performance of the Wall Street. In
% addition, the improvement of the local index
12
was also attributed to the launching of the
various stimulus packages announced by
10 the Government to mitigate the impact of
COVID-19 pandemic on the economy.
8
The FBM KLCI started to decline again to
1,488.14 points on 26 June 2020. This was due
6
to the announcements by the Fed, IMF and
World Bank on downside risks to global and
4 domestic growth following mounting concerns
over the second wave of COVID-19 pandemic.
2
However, the local bourse elevated to reach
M J S D M J S D M J S D M J S D M J J1 1,504.82 points at end-September 2020 upon
2016 2017 2018 2019 2020 investors’ positive sentiment towards the
Government’s effort to contain the pandemic
BBB
A
despite fresh lockdowns by several countries.
AA
AAA There has been a significant improvement in
trading activities in the first nine months of
2020. Total volume and total market transacted
1
End-July 2020 value rose by 162.2% to 1,272 billion units
Source: Bank Negara Malaysia
and 90% to RM749 billion, respectively. Market
velocity was sustained at 62.4%, while market

128 economic outlook 2021

 chapter 4 monetary and financial developments

volatility at 36.3%. Foreign holdings based 2020. Nevertheless, the market capitalisation
on market capitalisation in the local bourse declined by 2.1% to RM1,638.7 billion as at
remained stable at 12.6% as at end-September end-September 2020. The domestic equity
market is expected to regain traction following
FIGURE 4.7. Performance of Bursa Malaysia investors’ optimistic outlook on the pace of
global market recovery and domestic economic
Billion Points growth supported by various strategic projects.
800 2,200

2,000
600 TABLE 4.6. Bursa Malaysia: Selected Indicators,
End-September 2019 and 2020
1,800

400
2019 2020

1,600 Indices

200 FBM KLCI 1,583.91 1,504.82

1,400
FBM EMAS 11,203.71 10,831.56

0 1,200 FBM 100 11,037.83 10,660.70

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
FBM SCAP 12,978.08 12,835.21
2016 2017 2018 2019 2020

FBM ACE 4,495.12 9,914.01

TOTAL TRANSACTION (UNITS)
VALUE OF TRANSACTION (RM) Total turnover1
COMPOSITE INDEX (RIGHT SCALE)
1

Volume (million units) 485,046.82 1,271,710.10

1
As at end-period Value (RM million) 394,266.47 749,007.22
Source: Bursa Malaysia
Average daily turnover1

FIGURE 4.8. Performance of Selected Stock Markets Volume (million units) 2,694.70 6,911.47
(% change)
Value (RM million) 2,190.37 4,070.69
End-2019 – End-September 2020
Market capitalisation 1,673.53 1,638.72
US (NASDAQ)
(RM billion)

REPUBLIC OF KOREA
Total number of listed
CHINA (SHANGHAI) companies
JAPAN
Main Market 773 765
US (DOW JONES)

MALAYSIA ACE Market 127 133

VIET NAM LEAP Market 25 34

INDIA
Market liquidity
HONG KONG

THAILAND Turnover value/market 23.6 45.7

capitalisation (%)
UK

INDONESIA Market concentration

SINGAPORE
10 highest capitalised 33.8 32.0
PHILIPPINES stocks/market
capitalisation (%)
-30 -25 -20 -15 -10 -5 0 5 10 15 20 25 30

1
Based on market transactions and direct business transactions
between January and September
Source: Bloomberg Source: Bursa Malaysia

economic outlook 2021 129

chapter 4 monetary and financial developments

information box 4.1

Key Capital Market Measures

Several measures were undertaken in the first eight months of 2020 to enhance
liquidity and efficiency in the capital market. The measures include:

Introduction of the US Dollar

Denominated Refined, Bleached and
Deodorised (RBD) Palm Olein 13-Jan
Options Contract (OPOL)
$

The world’s first options contract Liberalisation of the Private

on palm olein to broaden the array of Retirement Schemes (PRS)
possible risk management tools Enhances the competitiveness of the
for palm oil industry players. 21-Feb industry by providing more flexibility
in asset allocation for PRS funds.
The funds are also allowed to be
invested in foreign markets and
Implementation of ISO 20022 exchange-traded-funds based on physical
Messaging Standards for gold to increase asset diversification into
Corporate Announcements 31-Mar ISO
alternative investments.
Allow seamless and timely corporate
announcements with innovative
Memorandum of Understanding
data-carrying capability.
between Bursa Malaysia and the
Shenzhen Stock Exchange
15-Apr Broadens opportunities in investment
and facilitates cross-border collaboration.
These include the display of mutual
benchmark indices in the respective
Amendments to the Main Market and markets and joint promotion of the
ACE Market Listing Requirements indices and its constituents.
Provides securities holders with the 24-Apr
option to subscribe for rights shares,
exercise convertible securities and Memorandum of Understanding
participate in a Dividend Reinvestment between Taiwan Futures Exchange
Scheme (DRS) electronically. (TAIFEX) and Bursa Malaysia
Derivatives Berhad (BMD)
MOU
18-May Promotes a mutually beneficial business
partnership between both parties. This
entails information sharing, exchanging
Launching of One-stop e-Learning best practices about product and
Bursa Academy market development, and exploring
Educates and enhances financial literacy 3-June common areas of interest.
among retail investors across the
Securities Market, Derivatives Market and
Islamic Capital Market. Temporary Revisions to Static and
Dynamic Price Limits, and the
10-July Circuit Breaker
Provides added stability and enhances
confidence in the marketplace with
revised market management and
control mechanisms.
Enhancing Initial Public Offering (IPO)
Framework for the Main Market 21-July
IPO
Promotes greater shared responsibility
among key stakeholders involved in the Amendments to Main Market and
IPO submission for listing on the ACE Market Listing Requirements in
Main Market of Bursa Malaysia. Relation to New Issues of Securities
and Other Areas
13-Aug Enhances disclosure requirements in
connection with the new issue of securities
and address gaps for greater shareholder
protection and confidence.

130 economic outlook 2021

 chapter 4 monetary and financial developments

TABLE 4.7. Islamic Banking: Key Indicators1,

Islamic Banking End-July 2019 and 2020

and Capital Market RM BILLION CHANGE

Performance (%)

2019 2020 2019 2020

Islamic banking and capital market to persevere Assets 806.5 857.6 11.1 6.3
Financing 594.8 650.3 8.2 9.3
The Islamic banking industry expanded with
total assets valued at RM1,038.2 billion2 Primary agriculture 16.3 18.6 7.6 13.8
and market share at 33% as at end-July Mining and quarrying 3.7 4.2 -28.1 15.4
2020. Meanwhile, the total Islamic financing Manufacturing 2 27.5 30.3 19.4 10.2
outstanding increased further by 10% to
Electricity, gas and 3.4 5.4 26.3 61.5
RM787.8 billion. The growth is primarily water supply
contributed by household sector financing,
Wholesale and retail 28.0 32.0 18.0 14.2
which increased by 8.7% to RM490.9 billion, trade, restaurants
mainly for the purchase of residential and hotels
properties. Islamic financing is expected to Construction 35.2 35.3 3.8 0.3
expand further supported by the recovery in
Real estate 28.8 31.6 8.7 9.5
economic activity and continuous promotion of
Transport, 17.4 20.0 6.5 15.2
Shariah-compliant products. storage and
communication
The Islamic Capital Market (ICM) continues Finance, insurance 31.9 33.8 -10.3 6.0
to thrive with Malaysia being among the and business
largest issuer of sukuk and Islamic equity in activities

the world. As at end-July 2020, the domestic Education, health 20.2 33.7 -4.6 66.8
size of ICM was valued at RM2.2 trillion, and others

accounting for 66.2% of RM3.3 trillion of Households 367.3 399.6 10.7 8.8
Malaysia’s total capital market size. Meanwhile, Others 15.1 5.7 1.6 -62.1
sukuk issuances amounted to RM130.8 billion
Liabilities 748.6 794.0 11.2 6.1
or 60.2% of total bonds issuances. Sukuk
Deposits and 610.3 633.1 13.6 3.7
outstanding was valued at RM986.9 billion
Investment Account
or 62.6% of total bonds outstanding. While
Investment 0.7 0.6 -16.1 -19.7
Malaysia continued to account for the largest
share of global sukuk outstanding at 45.6% Savings 44.2 58.1 8.1 31.4
as at end-June 2020, the turmoil in the global Demand 82.7 99.7 11.2 20.5
market has affected the performance of Investment account 80.6 97.1 6.0 20.5
the ICM. This was reflected in the subdued
Others 482.6 474.7 14.6 -1.6
performance of corporate sukuk issuances
during the initial MCO period. Nevertheless, 1
Excluding DFIs
2
Including agro-based
the reopening of almost all economic Note: Total may not add up due to rounding
sectors in the middle of the year led to the Source: Bank Negara Malaysia

improvement in corporate sukuk performance.

Bursa Malaysia continued to promote Shariah- capitalisation of Shariah-compliant securities

compliant securities products. As at end-July stood at RM1.18 trillion or 69.5% of the total
2020, a total of 716 or 76.8% of the 932 listed market capitalisation.
companies was Shariah-compliant. The market

2
Includes Development Financial Institutions (DFIs).

economic outlook 2021 131

chapter 4 monetary and financial developments

Despite the challenging economic climate, Shariah-compliant products and digitalisation

the prospect for ICM remains promising. of services will provide the impetus for the
The demand for Shariah-compliant products country to position itself as a prominent
is expected to be stronger in the future, international centre for Islamic financial
supported by its appeal to a broader group services.
of investors. The ongoing promotion of

FIGURE 4.9. Global Sukuk Outstanding by Country

(% share)

7.7% 11.0%
3.1%
4.4%
7.5%
7.2%

12.7% USD551.4 billion 47.4% USD532.3 billion

8.2% 45.6%
End-2019 End-June 2020

21.7% 23.6%

MALAYSIA UNITED ARAB EMIRATES MALAYSIA INDONESIA

SAUDI ARABIA TURKEY SAUDI ARABIA TURKEY
INDONESIA OTHERS1 UNITED ARAB EMIRATES OTHERS1

1
Others include Bahrain, Bangladesh, Brunei, Gambia, Hong Kong SAR, Ivory Coast, Jordan, Kuwait, Luxembourg, Maldives, Mauritius, Nigeria, Oman,
Pakistan, Qatar, Senegal, Singapore, South Africa, Turkey, the UK and the US
Note: Total may not add up due to rounding

Source: Malaysia International Islamic Financial Centre

Conclusion COVID-19 cases, geopolitical tensions and weak

commodity prices may pose downside risks
to the encouraging outlook. In this regard,
Monetary policy will continue to support
various initiatives are being undertaken to
economic recovery. The economy is anticipated
ensure the financial market continues to be
to improve during the second half of the
resilient. These initiatives include promoting
year and register a sharp turn-around in
green financing instruments, supporting
2021. The positive outlook will be backed by
financial platforms driven by digital technology,
favourable global growth projection along with
enhancing knowledge and awareness among
a revival in domestic economic activities. In
investors, and fostering greater collaboration
turn, this will bode well for financial market
with market players at domestic and
performance. However, the resurgence of
international levels.

132 economic outlook 2021

 chapter 4 monetary and financial developments

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134 economic outlook 2021

 statistical tables

Statistical
Tables

economic outlook 2021 135

 statistical tables

LIST OF STATISTICAL TABLES

Table No.
I. Socioeconomic Indicators
Selected Socioeconomic Statistics 1.1

II. International Economy

Key Economic Data of Selected Countries 2.1
Key Economic Data of ASEAN Member Countries 2.2

III. Macroeconomy
National Accounts
Gross Domestic Product by Kind of Economic Activity at Constant 2015 Prices 3.1
Index of Services 3.2
Industrial Production Index 3.3
Gross National Income by Demand Aggregates 3.4
Private Consumption Indicators 3.5
Private Investment Indicators 3.6

External Sector
Malaysia’s Trade with Major Trading Partners 3.7
External Trade Indices 3.8
Production, Exports Volume and Value of Major Primary Commodities 3.9
Direction of Major Exports 3.10
Exports of Manufactured Goods 3.11
Source of Major Imports 3.12
Balance of Payments 3.13

Prices
Consumer Price Index by Region 3.14
Consumer Price Index by Stratum 3.15
Consumer Price Index by State 3.16
Core Index 3.17
Producer Price Index - Local Production 3.18

Labour Market
Labour Force 3.19
Employment by Industry 3.20
Active Registrants 3.21
Vacancies and Placements 3.22

IV. Financial and Capital Markets

Interest Rates 4.1
Broad Money (M3) 4.2
Key Exchange Rates 4.3
Commercial Banks: Loans Outstanding by Purpose and Sector 4.4
Government and Corporate Bond Yields 4.5
Bursa Malaysia: Selected Indicators 4.6
Islamic Banks: Loans Outstanding by Purpose and Sector 4.7

economic outlook 2021 137

statistical tables

STATISTICAL ANNOTATION
The Statistics Appendix provides time series data on the economic variables. Each table contains current
selected economic data. Percentage changes are provided for important variables as an indication of
economic trends. In addition, percentage of totals and footnotes are also provided where necessary.
The sum of the component figures may not tally with the subtotal or total due to rounding. In some
series, historical figures have been revised. Estimates for 2020 are based on six to eight months of
data and forecasts for 2021 have been provided where appropriate. Unless otherwise stated, the
source of data is from the Ministry of Finance, Malaysia.

The Determination of Poverty Line Income (PLI)

The PLI measurement model used in Malaysia was reviewed in depth in 2005 by the Economic Planning
Unit, Prime Minister’s Department, and DOSM in collaboration with United Nations Development
Programme (UNDP). The Cost of Basic Needs method that takes into account three basic components
i.e. food items, non-food items and the characteristics of the household. In 2019, the calculation of
the PLI was reviewed and updated. The updating of PLI involves the process of updating of food items
by the Ministry of Health while the non-food items in the non-food component are updated based on
the latest household expenditure survey conducted by the Department of Statistics Malaysia in 2019.

The new methodology in determining the food item emphasises the intake of healthy foods at an
optimal rate as compared to the 2005 methodology that emphasised on consuming food to meet
minimum health requirements. The re-evaluation of the optimal food calorie requirement is based on
the Recommended Nutrient Intake (RNI) 2017 and the Malaysian Diet Guide (PDM) 2020. Therefore,
food needs are calculated based on individual caloric needs and converted to total meals according to
food groups in PDM 2020. The total serving of these food items will be converted to weight (grams)
/ quantity and then adjusted to the price data from the Consumer Price Index (CPI).

The Non-Food PLI takes into account the minimum requirements for a decent quality of life required
by a person including clothing, housing, transportation and other non-food needs according to one’s
gender and age. The Non-Food PLI component is calculated based on the pattern of low-income
households identified through the household expenditure survey. As a result of the study that includes
food and non-food items, the determination of the item of goods for the calculation of PLI is made
and adjusted to the current price based on the CPI. The PLI is constantly updated in line with the
implementation of the household income survey and basic amenities. It also takes into account the
needs of national planning and price changes that occur as well as changes in the lifestyle of the
Malaysian society.

Acronyms and Abbreviations

NPISHs Non-profit institutions serving households
US United States
ASEAN Association of Southeast Asian Nations
IMF International Monetary Fund
GDP Gross Domestic Product
FBM-KLCI Financial Times Stock Exchange (FTSE) Bursa Malaysia Kuala Lumpur Composite Index
MSIC Malaysia Standard Industrial Classification
SITC Standard International Trade Classification
PT3 Pentaksiran Tingkatan 3
PMR Penilaian Menengah Rendah
SRP Sijil Rendah Pelajaran
LCE Lower Certificate of Education
SPM Sijil Pelajaran Malaysia
MCE Malaysian Certificate of Education
STPM Sijil Tinggi Pelajaran Malaysia
MHSC Malaysian Higher School Certificate
n.a. Not available
cont’d Continued
n.e.c. Not elsewhere classified
etc. et cetera

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1.1. SELECTED SOCIOECONOMIC STATISTICS

Malaysia

Indicator 2016 2017 2018 201910 202011

Demographic Statistics

Population1 (‘000)

Total 31,634 32,023 32,382 32,523 32,657

Male 16,346 16,543 16,721 16,765 16,806

Female 15,287 15,480 15,661 15,758 15,852

Sex ratio2 107 107 107 106 106

Population density (per square
96 97 98 98 99
kilometre)
Dependency ratio (%)

Total3 44.0 43.6 43.4 43.4 43.5

Young age 4
35.3 34.7 34.1 33.7 33.4

Old age5 8.7 9.0 9.3 9.7 10.1

Life expectancy at birth

Total 74.4 74.4 74.6 74.7 74.9

Male 72.1 72.1 72.3 72.4 72.6

Female 77.0 77.1 77.2 77.4 77.6

2015 2016 2017 2018 2019

Education

Primary school enrolment rate 6 (%) 97.2 97.2 97.9 97.9 98.1

Secondary school enrolment rate (%) 7

88.3 90.0 91.1 91.1 92.5

Higher education institutions enrolment 8

1,236,164 1,346,858 1,325,699 1,343,830 1,323,449

Pupil-teacher ratio

Primary schools 11.5 11.6 11.6 11.6 11.6

Secondary schools 12.0 12.6 12.0 12.0 11.0

Literacy rate (%)

9
95.1 95.6 95.9 95.9 96.0

1
Data refers to mid-year population estimates based on the adjusted 2010 Population and Housing Census of Malaysia
2
The number of males per 100 females
3
The ratio of the number of persons aged 0–14 years and 65 years and above to the number of persons aged 15–64 years
4
The ratio of the number of persons aged 0–14 years to the number of persons aged 15–64 years
5
The ratio of the number of persons aged 65 years and above to the number of persons aged 15–64 years
6
Percentage of school aged children between 6+ and 11+ years at primary level in Government and private schools
7
Percentage of school aged children between 12+ and 16+ years at secondary level in Government and private schools
8
Includes public university, private higher education institutions, polytechnic and community college
9
Aged 15 years and above with formal education, excluding non-Malaysian citizens
10
Preliminary
11
Estimate

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1.1. SELECTED SOCIOECONOMIC STATISTICS (cont’d)

Malaysia

Indicator 2015 2016 2017 2018 2019

Health

Population per doctor 656 632 554 530 482

Official beds strength in public sector12 45,087 45,678 46,194 46,611 46,988

Information Technology

Mobile-cellular penetration rate

143.8 139.9 131.2 130.2 135.4
per 100 inhabitants (%)

Broadband penetration rate

99.7 99.8 117.3 121.1 131.7
per 100 inhabitants (%)

Infrastructure

Rural electricity coverage (% of housing unit) 98.3 95.7 96.1 96.4 97.2

Water coverage (% of population)

Total 95.5 95.3 95.5 96.7 96.8

Rural 93.0 93.4 93.9 96.6 96.7

Urban 97.2 97.2 97.2 96.8 96.9

2012 2014 2014 2016 2019

Poverty Structure 13

Incidence of absolute poverty

(% of households)
Total 1.7 0.6 0.6 0.4 0.2

Urban 1.0 0.3 0.3 0.2 0.2

Rural 3.4 1.6 1.6 1.0 0.8

Incidence of hardcore poverty

(% of households)

Total 0.2 0.0 0.0 0.0 0.0

Urban 0.1 0.0 0.0 0.0 0.0

Rural 0.6 0.0 0.0 0.0 0.0

12
Comprising Ministry of Health (MOH) hospitals (includes special medical institutions) and non-MOh Hospitals (university hospitals and military hospitals)
13
Based on 2019 Household Income and Basic Aminities Survey year
Source: Department of Statistics; Malaysian Communications and Multimedia Commission; Ministry of Education; Ministry of Environment and Water,
Malaysia. Ministry of Higher Education; Ministry of Health and Ministry of Rural Development

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2.1. KEY  ECONOMIC  DATA  OF SELECTED COUNTRIES

Real GDP Consumer Unemployment Current Gross Gross Gross

GDP Per Capita1 Price Rate2 Account International Exports3 Imports4
(% Growth) (USD) Index (%) Balance Reserves (USD billion) (USD billion)
(%) (USD billion) (USD billion)

Advanced
Economies
2017 2.5 50,337.9 1.7 5.6 480.5 - 14,138.7 14,565.1

2018 2.2 52,492.9 2.0 5.1 392.6 - 15,442.0 15,797.2

2019 1.7 54,127.8 1.4 4.8 339.3 - 15,186.0 15,492.2

20205 -5.8 51,475.7 0.8 7.3 242.2 - 13,142.6 13,437.2

20216 3.9 54,523.8 1.6 6.9 314.1 - 14,641.9 14,978.2

United States

2017 2.3 60,105.8 2.1 4.3 -365.3 122.2 2,376.7 2,953.3

2018 3.0 63,056.0 2.4 3.9 -449.7 125.0 2,526.4 3,176.3

2019 2.2 65,253.5 1.8 3.7 -480.2 128.9 2,519.0 3,155.8

2020 5 -4.3 63,051.4 1.5 8.9 -441.7 139.1 9

1,210.2 7
1,590.17

20216 3.1 66,144.1 2.8 7.3 -463.0 - - -

United Kingdom
2017 1.9 40,406.6 2.7 4.4 -93.1 184.7 816.7 874.0
2018 1.3 43,114.2 2.5 4.1 -110.7 197.4 896.0 935.5
2019 1.5 42,378.6 1.8 3.8 -113.5 208.3 888.2 979.6
2020 5
-9.8 39,228.5 0.8 5.4 -54.0 216.68 438.67 455.17
2021 6
5.9 42,235.9 1.2 7.4 -107.6 - - -
Germany
2017 2.6 44,537.1 1.7 3.8 286.7 208.7 1,767.8 1,510.3
2018 1.3 47,832.1 2.0 3.4 292.4 200.1 1,909.7 1,656.6
2019 0.6 46,472.6 1.3 3.1 273.2 225.4 1,835.7 1,605.2
20205 -6.0 45,466.1 0.5 4.3 217.6 275.7 8
924.7 7
815.57
20216 4.2 51,967.3 1.1 4.2 294.9 - - -
France
2017 2.3 40,134.1 1.2 9.4 -19.9 176.1 810.3 866.3
2018 1.8 43,083.5 2.1 9.0 -15.6 174.8 884.8 949.9
2019 1.5 41,896.6 1.3 8.5 -18.1 196.8 865.5 923.7
2020 5
-9.8 39,257.4 0.5 8.9 -48.9 236.6 8
406.0 7
460.37
20216 6.0 44,769.8 0.6 10.2 -51.7 - - -
Japan
2017 2.2 38,398.6 0.5 2.8 203.5 1,322.4 885.2 865.2
2018 0.3 39,150.3 1.0 2.4 176.6 1,322.0 932.5 952.0
2019 0.7 40,255.9 0.5 2.4 184.3 1,368.9 912.9 927.2
20205 -5.3 39,047.9 -0.1 3.3 143.5 1,451.19 442.07 476.97
2021 6
2.3 40,733.0 0.3 2.8 165.6 - - -

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2.1. KEY  ECONOMIC DATA OF SELECTED COUNTRIES (cont’d)

Real GDP Consumer Unemployment Current Gross Gross Gross

GDP Per Capita1 Price Rate2 Account International Exports3 Imports4
(% Growth) (USD) Index (%) Balance Reserves (USD billion) (USD billion)
(%) (USD billion) (USD billion)

Australia
2017 2.4 55,967.9 2.0 5.6 -35.6 66.8 296.3 297.2
2018 2.8 56,453.4 1.9 5.3 -29.6 53.6 326.6 308.7
2019 1.8 54,348.2 1.6 5.2 8.3 59.1 342.0 293.4
2020 5
-4.2 51,885.5 0.7 6.9 24.6 43.98 171.67 139.77
2021 6
3.0 57,210.8 1.3 7.7 -1.3 - - -
Republic of Korea
2017 3.2 31,616.8 1.9 3.7 75.2 389.3 663.4 604.9
2018 2.9 33,422.9 1.5 3.8 77.5 403.7 708.5 668.3
2019 2.0 31,846.2 0.4 3.8 60.0 408.8 649.9 634.0
20205 -1.9 30,644.4 0.5 4.1 52.5 419.0 8
334.1 7
328.57
20216 2.9 32,305.3 0.9 4.1 57.7 - - -
China
2017 6.9 8,823.5 1.6 3.9 195.1 3,421.6 2,491.4 2,311.4
2018 6.8 9,919.8 2.1 3.8 25.5 3,351.9 2,753.5 2,660.8
2019 6.1 10,522.3 2.9 3.6 141.3 3,388.7 2,782.5 2,579.0
2020 5
1.9 10,839.4 2.9 3.8 193.4 3,473.9 8
1,490.4 7
1,324.37
20216 8.2 11,955.6 2.7 3.6 111.7 - - -
India
2017 7.0 1,981.7 3.6 - -48.7 411.3 465.9 548.8
2018 6.1 2,005.9 3.4 - -57.2 397.8 526.1 638.9
2019 4.2 2,097.8 4.8 - -24.6 461.8 542.5 624.7
20205 -10.3 1,876.5 4.9 - 8.5 545.58 272.07 272.57
2021 6
8.8 2,030.6 3.7 - -26.4 - - -

1
Expressed in current USD price except for Advanced Economies. GDP per capita for Advanced Economies is expressed in Purchasing Power Parity
(PPP) dollars per person
2
Composites for the country groups are averages of national unemployment rates weighted by labour force in the respective countries
3
Data refer to Exports of Merchandise and Services
4
Data refer to Imports of Merchandise and Services
5
Estimate
6
Forecast
7
As at 31 July 2020
8
As at 31 August 2020
9
As at 30 September 2020

Sources: International Monetary Fund (IMF), World Economic Outlook (October 2020); IMF Database; and World Trade Organization Trade Statistics

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2.2. KEY  ECONOMIC DATA OF ASEAN MEMBER COUNTRIES

Real GDP Consumer Unemployment Current Gross Gross Gross

GDP Per Capita1 Price Rate2 Account International Exports3 Imports4
(% Growth) (USD) Index (%) Balance Reserves (USD billion) (USD billion)
(%) (USD billion) (USD billion)

Brunei
Darussalam
2017 1.3 12.1 -1.3 9.3 2.0 - - -
2018 0.1 13.6 1.1 8.7 0.9 - - -
2019 3.9 13.5 -0.4 6.8 0.9 - - -
2020 5
0.1 10.6 0.3 6.8 -0.0 - - -
20216
3.2 12.1 0.5 6.8 0.3 - - -
Philippines
2017 6.9 328.5 2.9 5.7 -2.1 83.3 68.7 101.9
2018 6.3 346.8 5.2 5.3 -8.8 80.9 69.3 119.3
2019 6.0 376.8 2.5 5.1 -0.5 89.8 70.9 112.9
2020 5
-8.3 367.4 2.4 10.4 5.9 102.6 8
34.1 7
46.17
20216 7.4 398.3 3.0 7.4 -6.0 - - -
Indonesia
2017 5.1 1,015.5 3.8 5.5 -16.2 130.2 168.8 156.9
2018 5.2 1,042.7 3.3 5.3 -30.6 120.7 180.2 188.7
2019 5.0 1,120.1 2.8 5.3 -30.4 129.2 167.7 171.3
2020 5
-1.5 1,088.8 2.1 8.0 -14.2 137.0 8
90.1 7
81.47
20216 6.1 1,167.2 1.6 6.8 -28.1 - - -
Cambodia
2017 7.0 22.2 2.9 - -1.8 - - -
2018 7.5 24.4 2.4 - -3.0 - - -
2019 7.0 26.7 2.0 - -4.2 - - -
20205
-2.8 26.3 2.5 - -6.7 - - -
20216
6.8 28.5 2.9 - -4.6 - - -
Lao PDR
2017 6.8 17.1 0.7 - -1.8 - - -
2018 6.3 18.1 2.0 - -2.2 - - -
2019 5.2 19.1 3.3 - -1.2 - - -
20205
0.2 18.7 6.5 - -1.6 - - -
20216
4.8 19.3 4.9 - -1.5 - - -
Malaysia
2017 5.8 9,965.1 3.7 3.4 8.9 102.4 217.7 194.7
2018 4.8 11,077.4 1.0 3.3 8.0 101.4 248.7 218.0
2019 4.3 11,193.0 0.7 3.3 12.3 103.6 240.2 205.0
20205 -4.5 10,192.5 -1.0 4.2 11.4 105.08 146.47 122.17
20216
6.5 - 7.5 11,378.4 2.5 3.5 4.8 - - -

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2.2. KEY  ECONOMIC  DATA  OF ASEAN MEMBER COUNTRIES (cont’d)

Real GDP Consumer Unemployment Current Gross Gross Gross

GDP Per Capita1 Price Rate2 Account International Exports3 Imports4
(% Growth) (USD) Index (%) Balance Reserves (USD billion) (USD billion)
(%) (USD billion) (USD billion)

Myanmar
2017 5.8 61.3 4.6 - -4.2 - - -
2018 6.4 66.7 5.9 - -3.1 - - -
2019 6.5 68.6 8.6 - -1.8 - - -
2020 5
2.0 70.9 6.1 - -2.5 - - -
2021 6
5.7 77.2 6.2 - -3.4 - - -
Singapore
2017 4.3 341.9 0.6 2.2 55.6 279.9 373.4 327.9
2018 3.4 373.2 0.4 2.1 64.1 287.7 413.0 370.9
2019 0.7 372.1 0.6 2.3 63.1 279.5 390.8 359.3
2020 5
-6.0 337.5 -0.4 3.0 50.5 327.5 8
233.9 8
214.58
20216 5.0 362.5 0.3 2.6 52.7 - - -
Thailand
2017 4.1 456.4 0.7 1.2 44.0 202.6 236.6 221.5
2018 4.2 506.4 1.1 1.1 28.5 205.7 253.0 248.2
2019 2.4 543.6 0.7 1.0 38.4 224.4 246.3 236.3
2020 5
-7.1 509.2 -0.4 1.0 21.2 254.6 8
133.2 7
119.17
20216 4.0 536.8 1.8 1.0 24.7 - - -
Viet Nam
2017 6.9 277.1 3.5 2.2 -1.7 - 215.0 212.9
2018 7.1 304.0 3.5 2.2 5.8 - 243.7 236.9
2019 7.0 329.5 2.8 2.2 11.3 - 264.3 253.9
2020 5
1.6 340.6 3.8 3.3 4.0 - 175.3 8
161.68
20216 6.7 369.5 4.0 2.7 6.2 - - -

1
Expressed in current USD price except for Advanced Economies. GDP per capita for Advanced Economies is expressed in Purchasing Power Parity (PPP)
dollars per person
2
Composites for the country groups are averages of national unemployment rates weighted by labour force in the respective countries
3
Data refer to Exports of Merchandise only
4
Data refer to Imports of Merchandise only
5
Estimate
6
Forecast
7
As at 31 August 2020
8
As at 30 September 2020

Sources: International Monetary Fund (IMF), World Economic Outlook (October 2020); IMF Database; and World Trade Organization Trade Statistics

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3.1. GROSS DOMESTIC PRODUCT BY KIND OF ECONOMIC ACTIVITY

at constant 2015 prices, Malaysia
RM million

Kind of Economic Activity 2017 2018 20192 20203 20214

Agriculture 99,509 99,579 101,549 100,344 105,086

(5.9) (0.1) (2.0) (-1.2) (4.7)
Mining and quarrying 105,838 103,512 101,438 93,568 97,404
(0.4) (-2.2) (-2.0) (-7.8) (4.1)
Manufacturing 290,464 304,843 316,320 306,845 328,215
(6.0) (5.0) (3.8) (-3.0) (7.0)
Construction 63,522 66,194 66,266 53,859 61,340
(6.7) (4.2) (0.1) (-18.7) (13.9)
Services 723,361 772,685 820,069 789,379 844,554
(6.3) (6.8) (6.1) (-3.7) (7.0)
Utilities 34,396 36,079 38,254 38,894 41,130
(2.9) (4.9) (6.0) (1.7) (5.7)
Wholesale and retail trade 209,885 227,166 242,341 227,625 247,011
(7.2) (8.2) (6.7) (-6.1) (8.5)
Food & beverages and accommodation 41,748 45,494 49,880 43,239 47,846
(7.5) (9.0) (9.6) (-13.3) (10.7)
Transportation and storage 47,212 50,219 53,650 47,277 50,840
(6.2) (6.4) (6.8) (-11.9) (7.5)
Information and communication 73,113 79,210 84,426 89,856 96,946
(8.6) (8.3) (6.6) (6.4) (7.9)
Finance and insurance 84,532 89,080 93,211 93,087 98,171
(4.7) (5.4) (4.6) (-0.1) (5.5)
Real estate and business services 59,132 63,609 68,565 60,605 65,209
(7.6) (7.6) (7.8) (-11.6) (7.6)
Other services 1
63,649 67,145 70,870 65,135 69,165
(5.1) (5.5) (5.5) (-8.1) (6.2)
Government services 109,694 114,682 118,871 123,661 128,236
(4.8) (4.5) (3.7) (4.0) (3.7)
(+) Import duties 18,076 16,002 15,812 13,736 14,231
(13.0) (-11.5) (-1.2) (-13.1) (3.6)
GDP at purchasers’ prices 1,300,769 1,362,815 1,421,454 1,357,731 1,450,830
(5.8) (4.8) (4.3) (-4.5) (6.5 - 7.5)

1
Community, social and personal services, private non-profit services to households and domestic services of households
2
Preliminary
3
Estimate
4
Forecast
Note: Figures in parentheses are annual percentage changes
Source: Department of Statistics and Ministry of Finance, Malaysia

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3.2. INDEX OF SERVICES

2015 = 100, Malaysia

2016 2017 2018 2019 20201

Weights
(%) Annual Change (%)

Services 100.0 5.7 6.7 7.3 6.4 -9.7

Wholesale & retail trade, 45.2 6.1 7.0 7.8 6.6 -12.6
food & beverages and accommodation

Wholesale and retail trade 37.9 6.0 7.0 7.7 6.1 -11.1

Food and beverages 5.7 6.4 7.4 9.3 10.2 -14.5

Accommodation 1.6 5.8 5.8 6.3 6.8 -41.7

Business services and finance 26.8 4.3 5.9 6.4 6.1 -4.9

Finance and insurance 16.0 2.6 4.8 5.3 4.6 0.9

Professional, scientific & technical and 7.2 8.0 8.7 9.1 9.3 -17.0
administrative & support services

Real estate 3.6 5.0 5.3 5.1 5.2 4.6

Information & communication and 21.9 6.8 7.4 7.4 6.5 -6.2
transportation & storage

Information and communication 12.9 8.0 8.4 8.3 6.5 5.5

Transportation and storage 9.0 5.1 5.9 6.0 6.5 -24.5

Other services 6.1 5.6 6.2 6.7 6.4 -21.2

Arts, entertainment & recreation and 2.6 5.1 6.4 8.1 8.0 -40.8
personal services & other activities

Private education 1.9 6.5 6.3 5.3 4.9 -4.4

Private health 1.6 5.4 5.6 6.0 5.5 -8.6

1
January to June 2020
Source: Department of Statistics, Malaysia

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3.3. INDUSTRIAL PRODUCTION INDEX

2015 = 100, Malaysia

Weights 2016 2017 2018 2019 20201

Subsector
(%) Annual Change (%)

Total Industrial Production 100.00 4.1 4.4 3.1 2.3 -6.4

Mining 25.14 2.4 0.4 -2.1 -2.0 -9.4
Electricity 6.61 8.5 2.6 3.7 3.3 -5.0
Manufacturing 68.25 4.3 6.1 4.8 3.6 -5.6
Export-oriented industries
Petroleum, chemical, rubber and plastic products 20.60 4.1 4.0 4.0 2.9 -3.1
Coke and refined petroleum products 9.36 3.1 3.5 3.3 2.7 -11.5
Chemicals and chemical products 6.37 6.0 4.3 4.4 1.8 -8.6
Basic pharmaceutical products, medicinal chemical and 0.38 4.4 4.8 5.9 4.2 12.4
botanical products
Rubber and plastic products 4.49 3.6 4.6 4.6 4.9 20.3
Electrical and electronics products 18.23 7.5 7.3 6.0 3.0 -1.1
Computer, electronics and optical products 13.89 8.1 7.5 6.8 2.9 -1.2
Electrical equipment 2.20 5.8 6.4 2.7 3.4 -1.3
Machinery and equipment n.e.c. 2.14 5.5 6.6 4.3 3.5 0.2
Wood products, furniture, paper products and printing 4.56 5.5 4.8 4.7 5.4 -12.1
Wood and wood products 1.44 3.3 3.5 5.6 4.9 -17.6
Paper and paper products 1.15 4.5 5.6 4.2 4.3 -6.9
Printing and reproduction of recorded media 0.93 5.3 4.6 3.9 4.2 -9.4
Furniture 1.04 10.0 6.1 4.6 8.1 -12.8
Textiles, wearing apparel, leather products and 1.33 6.8 8.0 4.3 5.3 -18.4
footwear
Textiles 0.58 4.8 4.4 2.9 4.4 -18.2
Wearing apparel 0.60 8.3 11.7 5.6 6.1 -17.5
Leather and related products 0.15 8.5 6.4 3.8 5.1 -22.7
Domestic-oriented industries
Non-metallic mineral products, basic metal and 9.11 4.1 4.9 4.9 4.1 -17.4
fabricated metal products
Other non-metallic mineral products 2.97 4.4 4.5 5.5 4.5 -20.3
Basic metals 2.35 2.1 5.4 4.2 4.0 -9.0
Fabricated metal products, except machinery and 3.79 5.0 4.9 4.9 3.7 -20.2
equipment
Food, beverages and tobacco 8.55 2.1 10.8 3.2 2.9 -0.2
Food products 7.39 1.4 11.6 3.3 2.8 3.3
Beverages 0.65 9.9 9.1 3.1 2.8 -18.4
Tobacco products 0.52 3.2 2.1 1.8 5.8 -26.1
Transport equipment and other manufactures 5.87 -2.7 5.6 6.0 5.9 -10.8
Motor vehicles, trailers and semi-trailers 3.17 -4.7 4.8 6.6 7.0 -8.1
Other transport equipment 1.19 -2.8 3.7 3.9 4.8 -17.0
Other manufacturing 0.74 -2.8 5.3 5.2 5.3 -13.0
Repair and installation of machinery and equipment 0.76 5.9 11.2 7.2 3.9 -11.2
1
January to August 2020
Source: Department of Statistics, Malaysia

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3.4. GROSS NATIONAL INCOME BY DEMAND AGGREGATES

Malaysia
RM million

Type of Expenditure 2017 2018 20193 20204 20215

Current Prices

A. Final consumption expenditure

Public 167,320 172,951 176,673 179,779 183,713

Private 760,146 831,334 903,720 899,102 987,240

B. Gross fixed capital formation

Public1 109,422 104,546 94,374 85,546 100,337

Private 234,520 245,842 252,471 222,026 239,853

C. Changes in inventories and valuables 2

6,647 -4,327 -28,957 -27,679 -25,502

D. Exports of goods and services 960,778 992,511 985,283 842,053 916,286

E. Imports of goods and services 866,524 895,405 872,871 761,454 833,823

Gross Domestic Product at purchasers’

F. 1,372,310 1,447,451 1,510,693 1,439,374 1,568,104
prices (A+B+C+D-E)

G. Balance of primary income -38,658 -45,082 -40,267 -23,686 -41,558

H. Gross National Income (F+G) 1,333,652 1,402,369 1,470,426 1,415,688 1,526,546

Constant 2015 Prices

A. Final consumption expenditure

Public 164,450 169,631 173,077 175,931 179,387

Private 718,702 775,851 835,065 828,998 887,563

B. Gross fixed capital formation

Public1 105,499 100,263 89,385 81,083 94,789

Private 225,594 235,351 239,027 210,952 225,029

C. Changes in inventories and valuables2 1,032 -9,050 -14,649 -13,951 -13,689

D. Exports of goods and services 900,064 917,462 905,807 784,656 852,856

E. Imports of goods and services 814,571 826,694 806,258 709,940 775,105

F. Gross Domestic Product at purchasers’

1,300,769 1,362,815 1,421,454 1,357,731 1,450,830
prices (A+B+C+D-E)

G. Balance of primary income -19,050 -28,237 -22,533 -13,288 -22,867

H. Gross National Income (F+G) 1,281,719 1,334,578 1,398,921 1,344,443 1,427,963

1
Includes investment of public corporations
2
Includes statistical discrepancy arising from balancing
3
Preliminary
4
Estimate
5
Forecast
Source: Department of Statistics and Ministry of Finance, Malaysia

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3.5. PRIVATE CONSUMPTION INDICATORS

Malaysia

Indicator 2016 2017 2018 2019 2020

Imports of consumption goods1 (RM million) 66,977 71,037 73,031 74,155 47,6382

Bursa Malaysia (end-period)

FBM–KLCI 1,641.73 1,796.81 1,690.58 1,588.76 1,504.823

Market capitalisation (RM billion) 1,667.37 1,906.84 1,700.37 1,711.84 1,638.723

Sales number (units)

Passenger cars 514,594 514,675 533,202 550,179 310,0084

Motorcycles 396,343 434,850 471,782 546,813 332,7414

Production of televisions (‘000 units) 7,745 11,446 12,609 9,935 8,1882

Outstanding balance of credit card

37,149 38,659 39,920 41,192 36,3755
(RM million, end-period)

Banking system’s consumption credit

265,380 267,666 294,548 297,187 300,8645
(RM million, end-period)

1
Refers to imports by broad economic categories published by the Department of Statistics, Malaysia
2
January to August 2020
3
End-September 2020
4
January to September 2020
5
End-August 2020
Source: Bank Negara Malaysia, Bursa Malaysia, Malaysian Automotive Association, Motorcycle & Scooter Assemblers and Distributors Association of
Malaysia and Department of Statistics, Malaysia

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3.6. PRIVATE INVESTMENT INDICATORS

Malaysia

Indicator 2016 2017 2018 2019 2020

Imports (RM million)

Capital goods1 100,245 115,566 112,453 100,179 59,9303

Intermediate goods1 399,033 478,933 462,212 467,211 278,2663

Loan disbursements by banking system

(RM million)

Manufacturing 202,550 213,738 236,624 258,602 164,7703

Construction 67,349 77,674 89,885 90,047 48,6193

Housing loans (RM million, end-period)

Government2 48,518 55,882 63,464 80,675 85,9144

Banking system 477,988 519,631 563,031 603,988 632,6754

Production of construction materials

Cement roofing tiles ('000 units) 38,241 36,073 35,472 43,484 33,0973

Ready-mixed concrete ('000 cubic metres) 28,589 30,323 32,047 34,067 23,9973

Iron and steel bars and rods ('000 metric

2,064 1,698 1,853 1,404 1,0563
tonnes)

Sales of commercial vehicles (units) 65,491 61,950 65,512 54,108 31,4815

1
Refers to imports by broad economic categories published by the Department of Statistics, Malaysia
2
Based on principal amount
3
January to August 2020
4
End-August 2020
5
January to September 2020
Source: Bank Negara Malaysia, Department of Statistics Malaysia, Malaysian Automotive Association and Public Sector Home Financing Board

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3.7. MALAYSIA’S TRADE WITH MAJOR TRADING PARTNERS

RM million

2016 2017 2018 2019 20201

RM RM RM RM share RM share
million million million million (%) million (%)
Total Trade 1,485,783 1,771,349 1,883,391 1,844,483 100.0 1,138,307 100.0
Exports 786,964 934,927 1,003,587 995,072 53.9 620,642 54.5
Total
Imports 698,819 836,422 879,804 849,411 46.1 517,665 45.5
Net 88,145 98,505 123,783 145,661 - 102,977 -
Total Trade 240,965 290,402 314,564 316,598 100.0 206,301 100.0
Exports 98,578 125,957 139,147 140,931 44.5 98,983 48.0
China
Imports 142,387 164,445 175,417 175,667 55.5 107,317 52.0
Net -43,809 -38,488 -36,269 -34,735 - -8,334 -
Total Trade 186,840 228,357 243,320 226,574 100.0 136,890 100.0
Exports 114,442 135,628 140,249 137,078 60.5 88,622 64.7
Singapore
Imports 72,398 92,729 103,071 89,497 39.5 48,268 35.3
Net 42,045 42,899 37,178 47,581 - 40,353 -
Total Trade 135,891 153,955 155,758 165,220 100.0 113,509 100.0
Exports 80,233 88,680 90,811 96,542 58.4 66,768 58.8
United States
Imports 55,658 65,275 64,947 68,678 41.6 46,741 41.2
Net 24,575 23,406 25,864 27,863 - 20,027 -
Total Trade 120,725 139,208 134,242 129,592 100.0 78,751 100.0
Exports 63,743 75,597 70,385 65,998 50.9 40,387 51.3
Japan
Imports 56,982 63,611 63,858 63,594 49.1 38,364 48.7
Net 6,761 11,986 6,527 2,403 - 2,023 -
Total Trade 63,057 78,716 96,390 94,077 100.0 59,597 100.0
Exports 21,243 23,962 32,814 37,032 39.4 22,031 37.0
Taiwan
Imports 41,814 54,755 63,576 57,046 60.6 37,566 63.0
Net -20,571 -30,793 -30,762 -20,014 - -15,535 -
Total Trade 59,580 67,705 73,521 73,058 100.0 56,433 100.0
Exports 22,905 28,586 34,237 34,230 46.9 23,566 41.8
Republic of Korea
Imports 36,675 39,119 39,284 38,828 53.1 32,868 58.2
Net -13,769 -10,532 -5,047 -4,599 - -9,302 -
Total Trade 50,311 61,724 89,972 80,688 100.0 51,072 100.0
Exports 37,641 47,713 74,831 66,624 82.6 42,241 82.7
Hong Kong
Imports 12,669 14,011 15,141 14,064 17.4 8,832 17.3
Net 24,972 33,703 59,690 52,561 - 33,409 -
Total Trade 86,421 98,649 105,685 100,595 100.0 49,957 100.0
Exports 44,092 50,508 57,061 56,318 56.0 29,209 58.5
Thailand
Imports 42,328 48,141 48,624 44,277 44.0 20,748 41.5
Net 1,764 2,367 8,437 12,042 - 8,461 -
Total Trade 57,432 71,510 72,397 70,226 100.0 43,361 100.0
Exports 27,945 33,631 31,907 31,328 44.6 20,826 48.0
Indonesia
Imports 29,486 37,879 40,490 38,898 55.4 22,536 52.0
Net -1,541 -4,249 -8,583 -7,570 - -1,710 -
Total Trade 48,701 61,384 62,840 62,872 100.0 33,931 100.0
Exports 31,999 34,531 36,343 38,587 61.4 17,252 50.8
India
Imports 16,702 26,853 26,497 24,285 38.6 16,678 49.2
Net 15,297 7,678 9,846 14,303 - 574 -

1
January to August 2020
Source: Department of Statistics, Malaysia and Malaysia External Trade Development Corporation

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3.8. EXTERNAL TRADE INDICES

2010 = 100, Malaysia

2016 2017 2018 2019 20202

Weights1
Commodity Section
(%)
Annual Change (%)

Export Unit Value Indices

Total 100.0 -2.0 7.2 1.6 0.8 -1.7

Food 3.5 5.6 6.9 3.2 2.5 3.3

Beverages and tobacco 0.6 6.5 7.6 6.6 7.5 4.0

Crude materials, inedible 2.7 -2.6 14.2 -6.9 -0.7 -1.3

Mineral fuels, lubricants, etc. 16.1 -24.7 27.8 16.4 0.1 -20.5

Animal and vegetable oils and fats 6.0 7.7 13.3 -14.6 -9.7 21.0

Chemicals 7.8 5.5 11.5 3.9 -0.7 -0.1

Manufactured goods 9.7 -0.5 4.8 1.4 -2.8 -1.6

Machinery and transport equipment 42.3 0.6 1.2 -0.8 2.5 1.5

Miscellaneous manufactured articles 10.9 3.3 3.2 1.6 2.2 0.6

Miscellaneous transactions and commodities 0.4 16.7 12.3 2.2 -5.1 -7.5

Import Unit Value Indices

Total 100.0 1.4 6.1 2.0 -0.3 -2.4

Food 6.8 0.9 8.9 2.6 2.5 2.6

Beverages and tobacco 0.6 1.9 3.6 2.6 2.7 1.7

Crude materials, inedible 3.3 -3.3 16.8 -6.0 -0.3 -1.0

Mineral fuels, lubricants, etc. 12.9 -19.6 32.5 21.7 -10.1 -23.1

Animal and vegetable oils and fats 1.1 18.9 25.8 -13.9 -12.0 12.5

Chemicals 10.5 0.2 4.1 2.4 0.3 -0.8

Manufactured goods 13.4 -1.4 5.0 1.8 0.4 -0.8

Machinery and transport equipment 41.8 5.0 2.0 -0.7 1.7 -0.3

Miscellaneous manufactured articles 7.6 4.0 2.2 -1.0 0.4 0.2

Miscellaneous transactions and commodities 2.0 17.0 4.7 -6.3 10.2 23.4

1
Weights based on values of Malaysia imports and exports of merchandise during 2015
2
Annual changes are calculated based on average unit value index from the period January to August 2020
Source: Department of Statistics, Malaysia

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3.9. PRODUCTION, EXPORTS VOLUME AND VALUE OF MAJOR PRIMARY COMMODITIES

Malaysia

Major Commodities 2016 2017 2018 2019 20201

Palm oil

Production (‘000 tonnes) 17,319 19,919 19,516 19,858 14,5872

Volume (‘000 tonnes) 15,310 15,188 15,364 17,429 10,192

Value (RM million) 41,443 46,086 38,656 39,129 27,415

Natural rubber

Production (‘000 tonnes) 674 746 603 640 326

Volume (‘000 tonnes) 642 616 639 631 344

Value (RM million) 3,614 4,726 3,774 3,773 1997

Crude petroleum

Volume (‘000 tonnes) 15,907 15,736 16,496 12,452 8,649

Value (RM million) 22,319 28,255 36,649 26,346 13,056

Liquefied natural gas (LNG)

Volume (‘000 tonnes) 24,868 26,794 23,955 25498 16,166

Value (RM million) 32,709 41,417 42,322 42,484 21,148

1
January to August 2020
2
January to September 2020
Source: Bank Negara Malaysia, Department of Statistics Malaysia and Malaysian Palm Oil Board

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3.10. DIRECTION  OF  MAJOR  EXPORTS

Malaysia

2016 2017
Exports ‘000 ‘000
RM million share (%) RM million share (%)
tonnes tonnes

Electrical and electronic products

Total 287,810 100.0 343,070 100.0
Singapore 47,189 16.4 61,417 17.9
Hong Kong 29,260 10.2 35,934 10.5
United States 46,646 16.2 49,169 14.3
China 42,884 14.9 50,388 14.7
European Union 38,979 13.5 47,805 13.9
Non-E&E
Total 357,958 100.0 422,788 100.0
China 38,097 10.6 53,757 12.7
Singapore 59,441 16.6 64,518 15.3
United States 30,106 8.4 35,575 8.4
European Union 31,698 8.9 37,049 8.8
Indonesia 22,034 6.2 27,402 6.5
Palm oil
Total 15,310 41,443 100.0 15,188 46,085 100.0
China 1,867 4,835 11.7 1,613 4,582 9.9
European Union 1,900 5,193 12.5 1,770 5,436 11.8
India 2,822 7,162 17.3 1,942 5,649 12.3
Pakistan 810 2,221 5.4 779 2,362 5.1
Turkey 641 1,756 4.2 703 2,019 4.4
Natural rubber
Total 642 3,614 100.0 616 4,726 100.0
China 301 1,656 45.8 297 2,225 47.1
European Union 158 915 25.3 158 1,252 26.5
United Arab Emirates 2 12 0.3 3 22 0.5
United States 23 131 3.6 24 179 3.8
Iran 44 237 6.6 33 250 5.3
Crude petroleum
Total 15,907 22,319 100.0 15,736 28,255 100.0
Australia 4,422 6,294 28.2 4,545 8,266 29.3
India 3,734 5,264 23.6 3,220 5,656 20.0
Thailand 3,249 4,634 20.8 3,651 6,565 23.2
Japan 635 871 3.9 726 1,337 4.7
China 368 471 2.1 457 788 2.8
Liquefied natural gas (LNG)
Total 24,868 32,709 100.0 26,794 41,417 100.0
Japan 15,249 20,096 61.4 14,843 24,144 58.3
Republic of Korea 4,005 5,671 17.3 3,821 5,826 14.1
China 2,870 3,142 9.6 4,355 5,642 13.6
Thailand 0 0 0.0 374 481 1.2
Taiwan 2,557 3,598 11.0 2,944 4,827 11.7
1
January to August 2020
Source: Department of Statistics, Malaysia and Malaysia External Trade Development Corporation

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2018 2019 20201

‘000 tonnes RM million share (%) ‘000 tonnes RM million share (%) ‘000 tonnes RM million share (%)

381,545 100.0 373,118 100.0 237,847 100.0

64,135 16.8 60,424 16.2 41,797 17.6
58,579 15.4 54,786 14.7 35,465 14.9
47,277 12.4 49,651 13.3 32,032 13.5
55,473 14.5 51,060 13.7 33,153 13.9
46,912 12.3 46,866 12.6 24,431 10.3

455,527 100.0 467,468 100.0 295,531 100.0

60,301 13.2 65,625 14.0 41,703 14.1
64,373 14.1 66,421 14.2 52,980 17.9
40,195 8.8 42,753 9.1 31,891 10.8
42,660 9.4 41,783 8.9 22,439 7.6
25,092 5.5 26,175 5.6 17,846 6.0

15,364 38,655 100.0 17,429 39,128 100.0 10,192 27,414 100.0

1,695 3,932 10.2 2,368 5,057 12.9 1,691 4,342 15.8
1,829 4,723 12.2 1,990 4,525 11.6 1,248 3,499 12.8
2,183 5,104 13.2 4,244 8,915 22.8 1,049 2,585 9.4
964 2,474 6.4 971 2,207 5.6 670 1,723 6.3
617 1,567 4.1 695 1,588 4.1 441 1,211 4.4

639 3,774 100.0 631 3,773 100.0 344 1,997 100.0

312 1,796 47.6 309 1,812 48.0 173.4 969 48.5
159 966 25.6 143 880 23.3 67.8 407 20.4
11 65 1.7 11 66 1.7 15.1 90 4.5
17 105 2.8 25 150 4.0 12.7 77 3.9
35 207 5.5 27 166 4.4 12.1 71 3.6

16,496 36,649 100.0 12,452 26,346 100.0 8,649 13,056 100.0

5,034 11,397 31.1 3,266 6,890 26.2 2,139 3,625 27.8
3,607 7,960 21.7 3,177 6,604 25.1 1,924 2,706 20.7
2,750 6,105 16.7 2,559 5,535 21.0 1,411 2,087 16.0
546 1,189 3.2 509 1,071 4.1 859 1,347 10.3
332 704 1.9 40 86 0.3 685 807 6.2

23,955 42,322 100.0 25,498 42,484 100.0 16,166 21,148 100.0

11,207 20,781 49.1 9,352 16,804 39.6 7,396 10,049 47.5
3,345 5,780 13.7 4,805 7,767 18.3 3,200 4,435 21.0
5,789 8,874 21.0 7,130 10,265 24.2 3,933 4,428 20.9
541 806 1.9 1,251 2,194 5.2 831 1,185 5.6
2,811 5,627 13.3 2,431 4,869 11.5 590 885 4.2

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3.11. EXPORTS  OF  MANUFACTURED  GOODS

Malaysia
RM million

2016 2017 2018 2019 20202

share (%)

Electrical and electronic products 287,810 343,070 381,545 373,118 237,847 44.6

Petroleum products 54,662 71,813 76,161 71,511 43,774 8.2

Chemicals and chemical products 41,396 47,138 57,715 57,477 32,712 6.1

Optical and scientific equipment 28,747 32,395 36,563 39,905 25,914 4.9

Machinery, equipment and parts 37,498 40,133 40,668 41,599 25,310 4.7

Rubber products  20,253 26,308 26,491 25,841 23,351 4.4

Manufactures of metal 33,352 37,937 44,664 41,490 22,978 4.3

Iron and steel products 6,935 12,562 15,504 21,691 15,706 2.9

Palm oil-based manufactured products 19,552 23,785 22,783 23,338 13,769 2.6

Processed food 18,958 19,713 19,414 21,773 13,719 2.6

Transport equipment 13,476 15,605 18,033 19,143 13,064 2.4

Wood products 15,680 16,369 15,944 15,777 9,836 1.8

Textiles, apparels and footwear 13,884 15,329 14,901 15,531 8,721 1.6

Manufactures of plastics 13,066 14,504 14,538 14,978 8,554 1.6

Non-metallic mineral products 5,562 5,996 7,273 9,079 5,081 1.0

Paper and pulp products 4,263 4,691 4,950 6,405 4,195 0.8

Jewellery  7,185 6,714 6,656 6,974 2,286 0.4

Beverages and tobacco 4,650 4,213 3,435 3,452 1,629 0.3

Other manufactures1 18,838 27,584 29,835 31,233 24,933 4.7

Total 645,768 765,858 837,071 840,586 533,378 100.0

1
Includes animal feed, printed matter, miscellaneous manufactured articles, etc
2
January to August 2020
Note: Total may not add up due to rounding
Source: Department of Statistics, Malaysia and Malaysia External Trade Development Corporation

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3.12. SOURCE OF MAJOR IMPORTS

Malaysia
RM million

Imports 2016 2017 2018 2019 20201

share share share share share

(%) (%) (%) (%) (%)
Electrical and
electronic products
Total 209,936 100.0 252,922 100.0 262,623 100.0 245,538 100.0 162,723 100.0
China 50,918 24.3 61,293 24.2 65,688 25.0 64,090 26.1 43,035 26.4
Taiwan 26,275 12.5 37,756 14.9 45,907 17.5 40,497 16.5 27,766 17.1
United States 25,486 12.1 31,166 12.3 29,549 11.3 27,180 11.1 20,000 12.3
Chemicals and 
chemical products
Total 63,757 100.0 74,507 100.0 82,934 100.0 81,589 100.0 47,333 100.0
China 11,013 17.3 13,022 17.5 14,268 17.2 13,976 17.1 8,559 18.1
United States 5,060 7.9 5,619 7.5 6,242 7.5 9,173 11.2 5,711 12.1
Singapore 7,301 11.5 8,774 11.8 8,934 10.8 7,695 9.4 4,212 8.9
Petroleum products
Total 52,534 100.0 75,360 100.0 86,015 100.0 77,480 100.0 40,828 100.0
Singapore 21,545 41.0 28,487 37.8 38,252 44.5 29,334 37.9 12,370 30.3
China 4,958 9.4 7,994 10.6 7,414 8.6 10,506 13.6 5,512 13.5
Republic of Korea 5,525 10.5 4,577 6.1 6,106 7.1 7,284 9.4 4,221 10.3
Machinery, 
equipment and
parts
Total 65,054 100.0 78,575 100.0 73,778 100.0 69,638 100.0 38,144 100.0
China 15,833 24.3 19,436 24.7 20,306 27.5 19,964 28.7 11,503 30.2
United States 5,713 8.8 7,580 9.6 7,528 10.2 7,182 10.3 4,490 11.8
Japan 8,822 13.6 10,583 13.5 8,918 12.1 7,816 11.2 4,464 11.7
Manufactures of 
metal
Total 39,212 100.0 43,649 100.0 46,148 100.0 47,132 100.0 29,024 100.0
China 10,694 27.3 11,274 25.8 12,542 27.2 11,763 25.0 6,054 20.9
India 2,557 6.5 3,635 8.3 3,473 7.5 4,987 10.6 4,904 16.9
Japan 4,658 11.9 5,170 11.8 5,292 11.5 4,866 10.3 3,117 10.7

1
January to August 2020
Source: Department of Statistics, Malaysia and Malaysia External Trade Development Corporation

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3.13. BALANCE  OF  PAYMENTS

Malaysia
RM million

2016 2017
Components
Credits Debits Net Credits Debits Net
(+) (-) (+) (-)

Balance on goods and services 834,491 751,363 83,128 960,778 866,524 94,255

Goods 686,896 584,850 102,046 801,394 684,281 117,113

Services 147,596 166,513 -18,917 159,384 182,243 -22,859

Transport 17,251 40,710 -23,459 19,256 48,878 -29,622

Travel 74,980 43,465 31,515 78,944 46,475 32,470

Other services 55,365 82,339 -26,974 61,183 86,890 -25,707

Primary income 47,452 82,045 -34,592 53,706 92,365 -38,658

Compensation of employees 6,648 12,254 -5,606 7,082 11,929 -4,848

Investment income 40,805 69,791 -28,986 46,625 80,435 -33,811

Secondary income 15,988 34,617 -18,629 16,797 34,097 -17,300

Balance on current account 897,932 868,024 29,907 1,031,281 992,985 38,296

% of Gross National Income 2.5 2.9

Capital account 102 -26

Financial account -249 -4,730

Direct investment 13,792 16,171

Assets -42,246 -24,234

Liabilities 56,038 40,405

Portfolio investment -14,203 -15,358

Financial derivatives -802 -197

Other investment 964 -5,346

Balance on capital and financial

-148 -4,756
accounts

Net errors and omissions -23,899 -17,132

Overall balance 5,860 16,409

1
January to June 2020
Note: Total may not add up due to rounding
Source: Department of Statistics, Malaysia

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2018 2019 20201

Credits Debits Net Credits Debits Net Credits Debits Net

(+) (-) (+) (-) (+) (-)

992,511 895,405 97,106 985,283 872,871 112,412 407,318 372,956 34,362

830,137 715,516 114,621 815,470 692,136 123,334 355,819 301,039 54,780

162,375 179,889 -17,515 169,814 180,735 -10,922 51,499 71,916 -20,417

20,524 48,212 -27,688 21,669 47,572 -25,903 7,162 20,305 -13,143

79,178 48,961 30,218 82,114 51,296 30,818 12,284 13,283 -998

62,672 82,717 -20,045 66,030 81,868 -15,837 32,052 38,329 -6,276

60,414 105,496 -45,082 64,851 105,118 -40,267 29,957 39,902 -9,945

6,793 14,450 -7,657 6,784 15,906 -9,122 3,129 7,265 -4,136

53,621 91,046 -37,426 58,067 89,212 -31,145 26,828 32,637 -5,809

15,602 35,330 -19,729 16,897 38,191 -21,294 8,418 15,775 -7,358

1,068,527 1,036,232 32,295 1,067,031 1,016,181 50,850 445,693 428,633 17,060

2.3 3.5 2.6

-89 331 -143

11,430 -33,796 -33,101

10,103 5,578 2,147

-23,431 -31,908 -3,181

33,535 37,486 5,328

-49,396 -29,026 -19,107

981 -478 3,092

49,742 -9,870 -19,231

11,341 -33,465 -33,243

-35,878 -8,969 1,153

7,758 8,416 -15,031

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3.14. CONSUMER PRICE INDEX BY REGION

2010 = 100, Malaysia

2016 2017 2018 2019 20202

Weights1
Groups
(%)
Annual Change (%)

Malaysia          

Total 100.0 2.1 3.7 1.0 0.7 -1.0

Food and non-alcoholic beverages 29.5 3.9 4.0 1.6 1.7 1.2

Alcoholic beverages and tobacco 2.4 17.2 0.2 -0.1 1.5 0.2

Clothing and footwear 3.2 -0.4 -0.3 -2.0 -2.0 -1.0

Housing, water, electricity, gas and other fuels 23.8 2.4 2.2 2.0 1.9 -1.0

Furnishings, household equipment and 4.1 2.4 2.1 0.3 1.4 0.3
routine household maintenance
Health 1.9 2.7 2.5 0.8 0.7 1.2

Transport 14.6 -4.6 13.2 1.6 -3.1 -10.0

Communication 4.8 -1.5 -0.4 -1.7 0.4 1.6

Recreation services and culture 4.8 2.5 1.9 -0.4 0.7 0.7

Education 1.3 2.1 1.7 1.1 1.4 1.2

Restaurants and hotels 2.9 2.8 2.5 1.6 1.2 0.7

Miscellaneous goods and services 6.7 2.9 1.2 -1.4 0.4 2.7

Peninsular Malaysia

Total 100.0 2.2 4.0 1.0 0.7 -0.9

Food and non-alcoholic beverages 29.0 4.1 4.1 1.7 1.8 1.3

Alcoholic beverages and tobacco 2.4 17.3 0.2 0.1 1.6 0.2

Clothing and footwear 3.3 -0.4 -0.2 -2.0 -2.0 -1.0

Housing, water, electricity, gas and other fuels 23.6 2.6 2.4 2.2 2.0 -0.9

Furnishings, household equipment and 4.2 2.5 2.2 0.5 1.6 0.4
routine household maintenance
Health 1.9 2.8 2.6 0.7 0.7 1.2

Transport 14.7 -4.4 13.2 1.5 -3.1 -9.8

Communication 4.9 -1.5 -0.3 -1.8 0.4 1.6

Recreation services and culture 4.9 2.5 2.0 -0.4 0.7 0.8

Education 1.4 2.2 1.6 1.2 1.5 1.2

Restaurants and hotels 3.0 2.7 2.6 1.5 1.2 0.7

Miscellaneous goods and services 6.7 3.0 1.2 -1.3 0.4 2.8

1
Based on Household Expenditure Survey 2016
2
January to August 2020
Source: Department of Statistics, Malaysia

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3.14. CONSUMER PRICE INDEX BY REGION (cont’d)

2010 = 100, Malaysia

2016 2017 2018 2019 20202

Weights1
Groups
(%)
Annual Change (%)

Sarawak        

Total 100.0 1.5 3.0 0.6 0.1 -1.6

Food and non-alcoholic beverages 33.5 3.1 2.6 1.6 1.0 0.6

Alcoholic beverages and tobacco 2.7 13.7 -0.1 -1.9 0.6 0.3

Clothing and footwear 2.8 -1.0 -1.2 -2.2 -2.5 -1.1

Housing, water, electricity, gas and other 21.9 2.5 0.8 0.8 0.9 -1.3
fuels
Furnishings, household equipment and 3.8 1.4 2.2 -0.9 0.7 0.0
routine household maintenance
Health 1.5 2.4 2.3 2.1 1.3 1.4

Transport 14.0 -5.8 15.2 1.8 -4.1 -13.2

Communication 4.6 -2.6 -0.6 -1.6 0.4 0.9

Recreation services and culture 4.8 1.5 0.6 -0.1 0.3 -0.2

Education 0.9 1.9 1.1 1.2 0.5 2.7

Restaurants and hotels 2.4 2.4 2.0 1.6 2.1 0.6

Miscellaneous goods and services 7.1 3.0 1.6 -1.8 -0.4 2.4

Sabah and Federal Territory of Labuan

Total 100.0 0.7 3.0 0.7 0.2 -1.7

Food and non-alcoholic beverages 31.3 1.5 3.6 1.6 0.5 0.4

Alcoholic beverages and tobacco 2.1 17.8 0.2 -0.5 1.2 0.1

Clothing and footwear 2.9 -0.1 -0.9 -2.3 -1.9 -1.1

Housing, water, electricity, gas and other 28.1 1.2 1.0 1.1 1.2 -1.7
fuels
Furnishings, household equipment and 3.6 0.5 1.1 -0.1 0.4 -0.4
routine household maintenance
Health 1.1 2.3 1.7 1.1 0.7 1.2

Transport 13.7 -5.3 11.7 1.6 -3.2 -10.9

Communication 4.6 -2.0 -0.2 -1.0 0.1 0.5

Recreation services and culture 3.7 2.7 2.0 -0.8 0.5 0.0

Education 0.8 0.9 1.2 1.2 0.9 0.3

Restaurants and hotels 2.0 2.7 1.3 1.5 1.2 0.5

Miscellaneous goods and services 6.1 1.5 0.6 -2.4 0.3 1.5

1
Based on Household Expenditure Survey 2016
2
January to August 2020
Source: Department of Statistics, Malaysia

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3.15. CONSUMER PRICE INDEX BY STRATUM

2010 = 100, Malaysia

2016 2017 2018 2019 20202

Weights1
Groups
(%)
Annual Change (%)

Rural        

Total 100.0 1.7 3.7 0.8 0.3 -1.3

Food and non-alcoholic beverages 35.6 2.9 3.6 1.0 0.9 0.8

Alcoholic beverages and tobacco 3.0 18.6 0.1 -0.1 1.6 0.1

Clothing and footwear 3.6 0.0 -0.1 -0.9 -0.5 -0.5

Housing, water, electricity, gas and other 19.9 2.6 1.8 1.4 1.8 -1.8
fuels
Furnishings, household equipment and 3.7 1.4 1.8 0.2 0.7 0.1
routine household maintenance
Health 2.0 2.4 1.7 0.6 0.6 1.7

Transport 14.6 -5.5 13.8 1.5 -3.6 -11.0

Communication 4.4 -2.5 -0.1 -0.9 0.5 1.4

Recreation services and culture 3.6 1.7 1.7 -0.4 1.0 1.2

Education 0.9 2.1 1.2 0.5 0.5 0.6

Restaurants and hotels 2.4 1.7 1.5 1.1 1.0 0.8

Miscellaneous goods and services 6.3 2.6 1.1 -1.2 0.8 2.2

Urban

Total 100.0 2.1 3.8 1.0 0.7 -0.9

Food and non-alcoholic beverages 28.4 4.1 4.0 1.8 1.8 1.3

Alcoholic beverages and tobacco 2.3 16.7 0.2 -0.1 1.5 0.3

Clothing and footwear 3.2 -0.6 -0.4 -2.4 -2.2 -1.1

Housing, water, electricity, gas and other 24.5 2.4 2.4 2.0 1.8 -0.9
fuels
Furnishings, household equipment and 4.2 2.5 2.3 0.3 1.6 0.4
routine household maintenance
Health 1.8 2.9 2.8 0.8 0.7 1.1

Transport 14.6 -4.3 13.0 1.5 -3.1 -9.9

Communication 4.9 -1.4 -0.3 -1.9 0.4 1.6

Recreation services and culture 5.0 2.6 1.9 -0.4 0.6 0.6

Education 1.4 2.1 1.7 1.2 1.5 1.3

Restaurants and hotels 3.0 2.9 2.7 1.5 1.3 0.7

Miscellaneous goods and services 6.7 2.9 1.2 -1.5 0.4 2.8

1
Based on Household Expenditure Survey 2016
2
January to August 2020
Source: Department of Statistics, Malaysia

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3.16. CONSUMER PRICE INDEX BY STATE

2010 = 100, Malaysia

2016 2017 2018 2019 20201

States
Annual Change (%)

Total

Malaysia 2.1 3.7 1.0 0.7 -1.0

Kedah and Perlis 1.7 3.9 0.3 0.2 -1.6

Pulau Pinang 2.5 4.0 0.9 1.1 -0.7

Perak 1.4 3.3 0.7 0.6 -1.1

Selangor and Federal Territory of Putrajaya 2.2 3.9 1.1 0.9 -0.4
Federal Territory of Kuala Lumpur 2.8 3.7 1.4 1.2 -0.4

Melaka 2.0 4.1 0.8 0.1 -1.7

Negeri Sembilan 1.9 4.2 1.2 0.7 -1.4

Johor 2.8 4.2 1.1 0.6 -1.2

Pahang 1.8 3.1 0.6 0.3 -1.0

Kelantan 1.5 3.5 0.7 0.4 -1.4

Terengganu 1.4 3.1 0.4 0.1 -1.3

Sabah and Federal Territory of Labuan 0.7 3.0 0.7 0.2 -1.7

Sarawak 1.5 3.0 0.6 0.1 -1.6

Food and Non-Alcoholic Beverages

Malaysia 3.9 4.0 1.6 1.7 1.2

Kedah and Perlis 3.3 4.3 0.4 1.0 0.7

Pulau Pinang 4.8 4.4 1.7 1.8 1.4

Perak 3.1 3.3 1.1 1.5 1.5

Selangor and Federal Territory of 4.2 4.2 1.6 1.9 1.9

Putrajaya

Federal Territory of Kuala Lumpur 4.2 4.5 4.0 3.5 0.6

Melaka 4.6 4.8 1.4 1.3 0.6

Negeri Sembilan 4.3 3.6 1.6 1.5 1.1

Johor 4.9 4.6 1.7 1.9 1.6

Pahang 3.6 2.5 1.1 0.9 1.1

Kelantan 3.0 3.4 1.0 1.0 0.6

Terengganu 3.2 2.8 1.1 1.2 1.3

Sabah and Federal Territory of Labuan 1.5 3.6 1.6 0.5 0.4

Sarawak 3.1 2.6 1.6 1.0 0.6

1
January to August 2020
Source: Department of Statistics, Malaysia

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3.17. CORE INDEX

2010 = 100, Malaysia

2016 2017 2018 2019 20202

Weights1
Groups
(%)
Annual Change (%)

Total 100.0 2.4 2.4 1.0 1.1 1.2

Food and non-alcoholic beverages 26.5 3.1 3.6 1.8 2.1 1.2

Alcoholic beverages and tobacco - - - - - -

Clothing and footwear 4.5 -0.4 -0.3 -2.0 -2.0 -1.0

Housing, water, electricity, gas and other 26.5 2.6 2.7 2.4 2.1 1.6
fuels

Furnishings, household equipment and 5.5 2.4 2.1 0.3 1.4 0.4
routine household maintenance

Health 2.6 2.7 2.5 0.8 0.7 1.2

Transport 6.5 3.9 2.7 -0.8 -3.1 0.2

Communication 6.5 -1.5 -0.4 -1.7 0.4 1.5

Recreation services and culture 6.6 2.5 1.9 -0.4 0.7 0.7

Education 1.8 2.1 1.7 1.1 1.4 1.2

Restaurants and hotels 3.9 2.8 2.5 1.6 1.2 0.7

Miscellaneous goods and services 9.1 2.9 1.2 -1.4 0.4 2.7

1
Based on Household Expenditure Survey 2016
2
January to August 2020
Source: Department of Statistics, Malaysia

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3.18. PRODUCER PRICE INDEX - LOCAL PRODUCTION

2010 = 100, Malaysia

2016 2017 2018 2019 20202

Weights1
Sectors and Stage of Processing
(%)
Annual Change (%)

Sector (MSIC 2008)

Total 100.0 -1.1 6.7 -1.1 -1.4 -2.4

Agriculture, forestry and fishing 6.7 16.3 7.0 -13.9 -4.0 12.5

Mining 7.9 -15.3 24.7 17.5 -3.7 -32.7

Manufacturing 81.6 -1.2 5.3 -1.8 -0.9 -0.2

Electricity and gas supply 3.4 -0.9 1.9 1.1 1.5 -0.2

Water supply 0.3 3.5 -0.1 0.3 -2.2 -0.6

Producer Price Index by

Stage of Processing

Total 100.0 -1.1 6.7 -1.1 -1.4 -2.4

Crude materials for further processing 16.4 3.4 14.8 2.6 -3.9 -12.4

Intermediate materials, supplies and 56.1 -3.2 6.7 -1.9 -1.4 -0.3
components

Finished goods 27.5 -0.4 0.9 -2.4 0.6 0.3

1
Based on Economic Census 2016
2
January to August 2020
Source:  Department of Statistics, Malaysia

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3.19. LABOUR FORCE

Malaysia

  2016 2017 2018 2019 20204

Labour force (‘000) 14,667.8 14,980.1 15,280.3 15,581.6 15,691.3

Employment (‘000) 14,163.7 14,476.8 14,776.0 15,073.4 15,021.1

Unemployment rate (%) 3.4 3.4 3.3 3.3 4.3

Labour force participation rate1 (%)

Total 67.7 68.0 68.3 68.7 68.4

Male 80.2 80.1 80.4 80.8 80.5

Female 54.3 54.7 55.2 55.6 55.4

Number of collective agreements signed in

308 269 294 298 81
the current year2

Number of workers covered (thousands) 133.7 60.6 46.3 - -

Labour productivity3 3.1 3.8 2.3 2.1 -8.4

Agriculture 1.8 2.2 -0.2 0.4 -3.7

Mining and quarrying 5.9 -4.8 4.0 -1.6 -8.7

Manufacturing 3.8 3.9 2.4 1.7 -8.8

Construction 8.8 6.8 3.4 3.3 -22.3

Services 2.0 4.3 3.5 2.9 -7.5

Foreign workers (‘000) 1,866.4 1,797.4 2,015.8 1,999.6 1,678.95

1
The ratio of the labour force to the working age population (15-64 years), expressed as percentage
2
Based on the information in the Collective Agreement and the feedback from the employer for which has been given cognisance by the Industrial Court for the year
3
Annual change (%)
4
January to June 2020
5
As at end-August 2020
Source: Department of Statistics, Ministry of Home Affairs and Ministry of Human Resources Malaysia

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3.20. EMPLOYMENT BY INDUSTRY

‘000 persons, Malaysia

Industry1 2016 2017 2018 2019 20203

share share
(%) (%)

Total employment2 14,163.7 14,476.8 14,776.0 15,073.4 100.0 15,021.1 100.0

Agriculture, forestry and fishing 1,609.9 1,635.0 1,570.3 1,541.1 10.2 1,655.9 11.0

Mining and quarrying 96.3 97.2 90.8 91.0 0.6 94.9 0.6

Manufacturing 2,390.6 2,513.3 2,499.9 2,681.5 17.8 2,529.4 16.8

Construction 1,251.7 1,258.9 1,257.8 1,276.4 8.5 1,227.2 8.2

Services 8,814.3 8,970.9 9,355.2 9,481.5 62.9 9,513.7 63.3

Electricity, gas, steam and air conditioning

77.9 62.2 68.8 71.4 0.5 101.4 0.7
supply

Water supply; sewerage, waste

76.4 81.0 88.6 88.8 0.6 92.7 0.6
management and remediation activities

Wholesale and retail trade; repair of motor

2,428.5 2,485.4 2,544.6 2,594.5 17.2 2,637.8 17.6
vehicles and motorcycles

Transportation and storage 630.4 658.2 697.9 667.6 4.4 691.0 4.6

Accommodation and food and beverage

1,260.7 1,323.2 1,473.4 1,549.7 10.3 1,393.3 9.3
service activities

Information and communication 208.7 220.3 216.4 213.9 1.4 231.8 1.5

Financial and insurance/takaful activities 346.9 369.0 338.6 335.1 2.2 382.1 2.5

Real estate activities 82.4 84.5 97.2 92.1 0.6 78.3 0.5

Professional, scientific and technical

361.8 348.1 367.7 385.7 2.6 372.6 2.5
activities

Administrative and support service

657.0 677.2 747.6 806.2 5.3 871.2 5.8
activities

Public administration and defence;

748.2 742.2 720.2 737.1 4.9 786.4 5.2
compulsory social security

Education 928.7 880.3 988.7 962.3 6.4 919.1 6.1

Human health and social work activities 570.3 588.0 551.2 527.7 3.5 557.9 3.7

Arts, entertainment and recreation 80.9 84.3 85.6 79.0 0.5 49.6 0.3

Others service activities 230.8 260.1 264.8 266.1 1.8 282.9 1.9

Activities of households as employers 124.7 106.9 103.9 104.3 0.7 64.8 0.4

1
Industry is classified according to the ‘Malaysia Standard Industrial Classification (MSIC) 2008 Ver. 1.0’
2
Total includes ‘Activities of extraterritorial organisations and bodies’
3
For the first half of 2020
Source: Department of Statistics, Malaysia

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3.21. ACTIVE REGISTRANTS

Malaysia

2016 2017 2018 2019 20202

share
(%)

Total Active Registrants (end-period) 306,037 262,756 154,850 299,648 100.0 277,840

Age

19 and below 33,386 27,829 20,959 36,966 12.3 33,581

20 – 24 204,116 177,111 104,868 199,476 66.6 185,930

25 – 29 52,909 46,460 22,039 49,080 16.4 45,996

30 and above 15,626 11,356 6,984 14,126 4.7 12,333

Gender

Male 110,577 91,528 54,979 109,227 36.5 96,706

Female 195,460 171,228 99,871 190,421 63.5 181,134

Educational Level

Less than PT3/PMR/SRP/LCE 691 766 402 924 0.3 753

PT3/PMR/SRP/LCE 4,110 2,870 1,438 2,516 0.8 2,027

SPM/MCE 67,373 51,245 7,557 14,754 4.9 13,812

Skills Certificate1 9,981 7,787 2,248 8,663 2.9 7,594

MHSC/STPM, Matriculation, Diploma

223,882 200,088 143,205 272,791 91.0 253,654
and Degree

Employment Status

Unemployed 154,548 129,581 71,852 137,712 46.0 128,914

Malaysian Skills Certificate (SKM), other skills certificate and non-technical skills certificate
1

2
January to June 2020
Note: Covers job seekers registered with Labour Department through JobsMalaysia and within valid registration period
Source: Ministry of Human Resources, Malaysia

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3.22. VACANCIES AND PLACEMENTS

Malaysia

2016 2017 2018 2019 20203

share
(%)

Number of Vacancies by Occupational

854,044 1,473,376 1,095,020 974,612 100.0 251,944
Category1

Managers 26,320 11,164 4,762 8,563 0.9 2,805

Professionals 36,204 41,171 21,334 31,900 3.3 13,727

Technician and associate professionals 14,026 16,904 19,466 34,429 3.5 8,075

Clerical support workers 14,654 14,083 7,690 11,554 1.2 8,670

Service and sales workers 41,301 63,335 34,926 42,462 4.4 8,462

Skilled agricultural, forestry and

9,649 12,212 5,633 2,089 0.2 418
fishery workers

Craft and related trade workers 22,228 35,244 25,063 31,982 3.3 6,837

Plant and machine operators and

118,178 151,779 127,391 147,321 15.1 48,883
assemblers

Elementary occupation 571,484 1,127,484 848,755 664,312 68.2 154,067

Number of Vacancies by Sector 854,044 1,473,376 1,095,020 974,612 100.0 251,944

Agriculture, forestry and fishing 174,751 264,216 240,470 204,324 21.0 47,391

Mining and quarrying 1,857 2,730 3,108 3,435 0.4 697

Manufacturing 376,349 617,308 421,582 351,942 36.1 94,657

Construction 127,985 255,851 191,045 141,783 14.5 27,566

Services 173,102 333,271 238,815 273,128 28.0 81,633

Number of Placements by Sector2 22,643 20,369 14,138 -

Agriculture, forestry and fishing 1,639 1,382 1,326 -

Mining and quarrying 0 7 16 -

Manufacturing 11,342 12,325 8,557 -

Construction 2,396 652 538 -

Services 7,266 6,003 3,701 -

1
Classification of occupational groups is based on the Malaysia Standard Classification of Occupations (MASCO) 2013
2
Data for 2016 covers period from January to November 2016. Data for 2018 covers period from January to June 2018
3
January to June 2020
Note: Definition of vacancies refers to job vacancy listings by employers in public (selected only) and private sector on JobsMalaysia. The job listing includes non-
substantive vacancies such as sales person, promoter, insurance agent and part-time workers as well as foreign workers
Source: Ministry of Human Resources, Malaysia

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4.1. INTEREST  RATES

Malaysia

Average rates during the period Average rates during the period in 2020
(%) (%)
2016 2017 2018 2019 Jan. Feb. Mar. Apr. May Jun. Jul. Aug.

Overnight interbank 3.06 2.98 3.19 3.05 2.89 2.75 2.51 2.51 2.03 1.99 1.79 1.74

1-week interbank 3.12 3.03 3.26 3.12 2.96 2.78 2.56 2.56 2.09 2.02 1.83 1.77

3-month interbank 3.48 3.38 3.66 3.46 3.24 - 2.76 2.75 - 2.27 - 1.96

Commercial banks

Fixed deposits

3-month 3.03 2.92 3.14 2.98 2.68 2.65 2.38 2.36 1.88 1.86 1.63 1.62

12-month 3.18 3.09 3.31 3.17 2.87 2.84 2.59 2.56 2.03 2.03 1.79 1.78

Savings deposit 1.00 0.96 1.04 1.01 0.89 0.87 0.78 0.77 0.61 0.59 0.48 0.48

Weighted Base Rate1

3.71 3.62 3.88 3.76 3.43 3.43 3.18 3.18 2.68 2.68 2.43 2.43
(BR)

Base lending rate (BLR) 6.73 6.67 6.89 6.78 6.50 6.48 6.26 6.26 5.78 5.75 5.52 5.49

1
Effective from 2 January 2015, the BR replaced the BLR as the main reference rate for new retail floating rate loans and financing facilities
Source: Bank Negara Malaysia

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4.2. BROAD MONEY (M3)

Malaysia
RM million

End-period

2016 2017 2018 2019 20204

Broad money (M3)1 1,655,225 1,736,445 1,894,517 1,961,554 2,031,377

Transaction balances 379,853 421,552 425,722 450,471 496,825

Currency in circulation2 85,480 92,388 94,297 100,159 114,852

Demand deposits 294,373 329,164 331,425 350,312 381,972

Broad quasi-money 1,275,372 1,314,893 1,468,796 1,511,083 1,534,552

Savings deposits 145,129 150,505 157,387 169,975 202,819

Fixed deposits 773,221 823,165 920,662 952,127 939,142

Negotiable instruments of deposits

8,327 8,154 11,547 12,671 8,688
(NIDs)

Repurchase agreements (Repos) - - - - -

Foreign currency deposits 137,593 133,268 151,496 156,727 169,645

Other deposits 211,103 199,800 227,704 219,583 214,258

Factors Affecting M3

Net claims on Government 113,193 129,824 183,634 194,584 254,074

Claims on Government 166,425 186,671 249,184 256,438 327,521

Less: Government deposits 53,232 56,848 65,550 61,854 73,447

Claims on private sector 1,648,719 1,745,091 1,892,470 1,976,463 2,020,700

Loans 1,480,345 1,537,001 1,645,784 1,715,637 1,749,460

Securities 168,375 208,090 246,686 260,825 271,240

Net foreign assets 3 517,821 517,269 522,402 514,447 553,911

Bank Negara Malaysia 415,756 406,832 411,768 416,413 438,882

Banking system 102,065 110,437 110,634 98,033 115,029

Other influences -624,508 -655,739 -703,989 -723,940 -797,308

1
Exclude interplacements among banking institutions
2
Exclude holdings by the banking system
3
Includes exchange rate revaluation losses/gains
4
End-August 2020
Note: Data based on BNM Monthly Statistical Bulletin (August 2020). Total may not add up due to rounding
Source: Bank Negara Malaysia

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4.3. KEY EXCHANGE RATES

Malaysia 

RM to one unit of foreign currency1 Change (%)

2016 2017 2018 2019 2020 2016 2017 2018 2019 20202
End-
End-December
September

Special Drawing
6.0116 5.7709 5.7558 5.6592 5.8522 -1.0 4.2 0.3 1.7 -3.3
Rights (SDR)

US dollar 4.4860 4.0620 4.1385 4.0925 4.1585 -4.3 10.4 -1.8 1.1 -1.6

Singapore dollar 3.1016 3.0392 3.0322 3.0387 3.0373 -2.1 2.1 0.2 -0.2 0.0

100 Japanese yen 3.8442 3.6020 3.7475 3.7655 3.9378 -7.3 6.7 -3.9 -0.5 -4.4

Pound sterling 5.5108 5.4660 5.2532 5.3722 5.3383 15.4 0.8 4.1 -2.2 0.6

Euro 4.7238 4.8510 4.7340 4.5852 4.8775 -0.7 -2.6 2.5 3.2 -6.0

100 Thai baht 12.5167 12.4334 12.7006 13.6827 13.1224 -4.7 0.7 -2.1 -7.2 4.3

100 Indonesian rupiah 0.0334 0.0300 0.0286 0.0295 0.0279 -6.9 11.3 4.9 -3.1 5.7

100 Korean won 0.3720 0.3801 0.3721 0.3540 0.3553 -1.9 -2.1 2.1 5.1 -0.4

100 Philippine peso 9.0516 8.1232 7.8739 8.0720 8.5902 1.1 11.4 3.2 -2.5 -6.0

Chinese renminbi 0.6455 0.6230 0.6017 0.5866 0.6105 2.4 3.6 3.5 2.6 -3.9

1
US dollar (USD) rates are the average of buying and selling rates at noon in the Kuala Lumpur Interbank Foreign Exchange Market. Rates for foreign currencies
other than USD are cross rates derived from rates of these currencies against the USD and the RM/USD rate
2
End-December 2019 – End-September 2020
Source: Bank Negara Malaysia

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4.4. COMMERCIAL BANKS: LOANS OUTSTANDING BY PURPOSE AND SECTOR

Malaysia

2016 2017 2018 2019 2020

December December December December August
RM share RM share RM share RM share RM share
million (%) million (%) million (%) million (%) million (%)

Purpose
Purchase of securities 41,368 3.8 37,505 3.4 34,092 3.0 30,864 2.7 29,221 2.5
Purchase of transport vehicles 98,152 9.1 94,928 8.6 93,847 8.3 89,358 7.7 88,595 7.6
of which:

Purchase of passenger cars 91,093 8.4 88,244 8.0 87,221 7.7 82,901 7.2 82,138 7.1
Purchase of residential property 364,966 33.8 386,446 35.2 404,159 35.6 421,993 36.6 435,311 37.5
Purchase of non-residential property 169,789 15.7 172,212 15.7 172,217 15.2 173,319 15.0 173,064 14.9
Purchase of fixed assets other than 7,570 0.7 6,620 0.6 7,415 0.7 8,945 0.8 9,640 0.8
land and building
Personal use 32,772 3.0 33,627 3.1 35,532 3.1 36,922 3.2 37,793 3.3
Credit card 34,350 3.2 35,459 3.2 36,240 3.2 37,098 3.2 32,676 2.8
Purchase of consumer durables 111 0.0 98 0.0 84 0.0 73 0.0 68 0.0
Construction 36,310 3.4 36,601 3.3 38,727 3.4 41,105 3.6 42,760 3.7
Working capital 254,908 23.6 253,462 23.1 266,071 23.4 264,301 22.9 264,645 22.8
Other purpose 39,964 3.7 41,343 3.8 46,591 4.1 49,621 4.3 48,258 4.2
Total Loans1 1,080,260 100.0 1,098,300 100.0 1,134,973 100.0 1,153,597 100.0 1,162,032 100.0
Sector 2

Primary agriculture 23,851 2.2 21,944 2.0 20,169 1.8 18,763 1.6 17,982 1.5
Mining and quarrying 7,939 0.7 5,726 0.5 5,615 0.5 7,542 0.7 7,013 0.6
Manufacturing (including agro- 81,741 7.6 81,072 7.4 86,185 7.6 94,548 8.2 92,162 7.9
based)
Electricity, gas and water supply 8,169 0.8 9,816 0.9 11,267 1.0 11,246 1.0 11,220 1.0
Wholesale and retail, restaurants 93,593 8.7 94,179 8.6 98,992 8.7 101,281 8.8 103,867 8.9
and hotels
Construction 48,002 4.4 51,381 4.7 54,033 4.8 57,140 5.0 57,148 4.9
Real estate 87,129 8.1 89,355 8.1 88,981 7.8 83,669 7.3 85,721 7.4
Transport, storage and 21,805 2.0 21,661 2.0 21,530 1.9 20,875 1.8 22,399 1.9
communication
Finance, insurance and business 73,275 6.8 71,548 6.5 84,051 7.4 82,491 7.2 80,887 7.0
services
Education, health and others 20,888 1.9 19,980 1.8 18,645 1.6 20,924 1.8 21,205 1.8
Household sector 606,544 56.1 622,330 56.7 636,839 56.1 648,438 56.2 655,060 56.4
Other sector 3
7,323 0.7 9,309 0.8 8,664 0.8 6,680 0.6 7,369 0.6

1
Includes loans sold to Cagamas
2
Definitions of economic sectors/industries are based on MSIC 2000
3
Includes loans to individual businesses
Note: Data based on BNM Monthly Statistical Bulletin (August 2020). Total may not add up due to rounding
Source: Bank Negara Malaysia

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4.5. GOVERNMENT AND CORPORATE BOND YIELDS

Malaysia

2020
2016 2017 2018 2019
Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep.

Malaysian Government Securities market indicative yield (%)

1-year 3.26 2.89 3.45 2.96 2.81 2.60 2.53 2.34 2.06 2.05 1.77 1.70 1.76

3-year 3.50 3.34 3.63 3.01 2.88 2.62 2.76 2.42 2.28 2.25 1.93 1.84 1.99

5-year 3.70 3.56 3.78 3.18 2.95 2.67 3.10 2.53 2.48 2.47 2.12 2.11 2.25

10-year 4.23 3.91 4.08 3.31 3.13 2.83 3.36 2.87 2.81 2.87 2.55 2.62 2.66

5-year corporate bond yields (%)

AAA 4.40 4.33 4.39 3.63 3.51 3.21 3.66 3.22 3.11 3.11 2.86 2.76 2.79

AA 4.78 4.64 4.69 3.95 3.87 3.56 3.99 3.56 3.47 3.42 3.18 3.13 3.18

A 6.66 6.36 6.37 5.27 5.09 4.60 5.03 4.74 4.70 4.69 4.52 4.59 4.56

BBB 10.12 9.62 9.66 7.65 7.31 6.61 6.91 6.81 6.64 6.65 6.78 6.39 6.35

Source: Bank Negara Malaysia

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 statistical tables

4.6. BURSA MALAYSIA: SELECTED INDICATORS

2016 2017 2018 2019 20203

Indices1

Composite 1,641.73 1,796.81 1,690.58 1,588.76 1,504.82

FBM EMAS 11,466.54 12,942.57 11,527.51 11,323.49 10,831.56

FBM ACE 4,780.71 6,603.55 4,317.49 5,226.59 9,914.01

Trading volume2 (million units) 433,678.5 641,315.6 643,208.1 653,085.5 1,271,710.1

Main Market 289,799.5 430,833.7 420,153.9 453,037.4 745,338.2

ACE Market 77,807.5 156,155.6 104,049.2 103,750.4 430,801.0

LEAP Market - 4.8 80.6 332.8 133.4

Daily Average 1,762.9 2,639.2 2,646.9 2,676.6 6,911.5

Trading value2 (RM million) 484,106.5 614,822.8 625,496.4 525,225.9 749,007.2

Main Market 457,858.7 578,620.9 579,691.7 483,252.3 606,701.8

ACE Market 14,050.5 29,040.4 19,781.8 21,404.7 116,375.6

LEAP Market - 1.4 5.1 33.2 26.5

Daily Average 1,967.9 2,530.1 2,574.1 2,152.6 4,070.7

Number of listed companies 904 905 915 929 932

Main Market 791 788 783 772 765

ACE Market 113 115 119 129 133

LEAP Market - 2 13 28 34

Market capitalisation1 (RM billion) 1,667.4 1,906.8 1,700.4 1,711.8 1,638.7

Main Market 1,649.4 1,881.9 1,680.3 1,682.5 1,583.9

ACE Market 10.0 15.6 12.1 18.8 34.5

LEAP Market - 0.2 0.9 2.4 3.1

Market capitalisation/GDP (%) 135.6 146.6 124.8 120.4 -

1
End-period
2
Based on market transactions and direct business transactions
3
End-September 2020
Source: Bursa Malaysia

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4.7. ISLAMIC BANKS: LOANS OUTSTANDING BY PURPOSE AND SECTOR

Malaysia

2016 2017 2018 2019 2020

December December December December August
RM share RM share RM share RM share RM share
million (%) million (%) million (%) million (%) million (%)

Purpose
Purchase of securities 28,486 6.6 32,443 6.8 41,622 7.4 48,017 7.9 48,529 7.5
Purchase of transport vehicles 72,368 16.7 74,266 15.5 75,161 13.3 77,821 12.7 82,044 12.7

of which:

Purchase of passenger cars 70,698 16.3 71,852 15.0 72,875 12.9 75,613 12.4 80,588 12.5
Purchase of residential property 112,780 26.0 132,956 27.8 158,812 28.2 181,933 29.8 197,289 30.6
Purchase of non-residential property 38,455 8.9 40,943 8.5 45,917 8.1 51,998 8.5 55,159 8.5
Purchase of fixed assets other than 2,502 0.6 2,231 0.5 3,041 0.5 3,563 0.6 3,695 0.6
land and building
Personal use 33,510 7.7 35,145 7.3 58,875 10.4 60,448 9.9 63,869 9.9
Credit card 2,799 0.6 3,200 0.7 3,680 0.7 4,094 0.7 3,699 0.6
Purchase of consumer durables 21 0.0 19 0.0 24 0.0 21 0.0 14 0.0
Construction 9,226 2.1 11,063 2.3 17,507 3.1 18,209 3.0 17,842 2.8
Working capital 112,914 26.0 117,920 24.6 126,704 22.5 132,878 21.7 137,789 21.3
Other purpose 21,270 4.9 28,767 6.0 32,757 5.8 32,086 5.3 35,476 5.5
Total Financing1 434,332 100.0 478,954 100.0 564,099 100.0 611,068 100.0 645,405 100.0
Sector2
Primary agriculture 12,359 2.8 14,234 3.0 14,876 2.6 17,175 2.8 17,590 2.7
Mining and quarrying 5,770 1.3 5,259 1.1 5,325 0.9 3,376 0.6 3,774 0.6
Manufacturing (including 20,930 4.8 21,497 4.5 24,975 4.4 27,555 4.5 29,348 4.5
agro-based)
Electricity, gas and water supply 2,286 0.5 2,271 0.5 2,880 0.5 4,516 0.7 4,635 0.7
Wholesale and retail, restaurants and 19,425 4.5 21,276 4.4 25,107 4.5 30,401 5.0 31,655 4.9
hotels
Construction 17,769 4.1 22,210 4.6 34,957 6.2 34,533 5.7 34,751 5.4
Real estate 22,621 5.2 25,419 5.3 27,569 4.9 30,163 4.9 30,951 4.8
Transport, storage and 16,684 3.8 15,786 3.3 16,277 2.9 18,567 3.0 18,248 2.8
communication
Finance, insurance and business 35,428 8.2 34,450 7.2 31,582 5.6 32,068 5.2 33,178 5.1
services
Education, health and others 22,162 5.1 21,846 4.6 21,842 3.9 19,381 3.2 32,904 5.1
Household sector 254,385 58.6 282,474 59.0 344,257 61.0 378,754 62.0 402,376 62.3
Other sectors3 4,512 1.0 12,231 2.6 14,454 2.6 14,581 2.4 5,996 0.9
1
Includes loans sold to Cagamas
2
Definitions of economic sectors/industries are based on MSIC 2000
3
Includes loans to individual businesses
Note: Data based on BNM Monthly Statistical Bulletin (August 2020). Total may not add up due to rounding
Source: Bank Negara Malaysia

176 economic outlook 2021

 organisation of the ministry of finance malaysia

ORGANISATION OF THE MINISTRY OF FINANCE MA L AYS I A

MINISTER OF FINANCE
YB Senator Tengku Dato’ Sri Zafrul Tengku Abdul Aziz

DEPUTY MINISTER OF FINANCE I DEPUTY MINISTER OF FINANCE II

YB Datuk Abd. Rahim Bakri YB Tuan Mohd Shahar Abdullah

DEPARTMENTS UNDER THE MINISTRY OF FINANCE

TREASURY OF MALAYSIA
Secretary General of Treasury
Dato’ Asri bin Hamidin @ Hamidon

ROYAL MALAYSIAN CUSTOMS ACCOUNTANT GENERAL’S VALUATION AND PROPERTY LANGKAWI DEVELOPMENT
DEPARTMENT DEPARTMENT OF MALAYSIA SERVICES DEPARTMENT AUTHORITY
Director General of Customs Accountant General Director General of Valuation Chief Executive Officer
Dato’ Sri Abdul Latif bin Abdul Kadir Datuk Dr. Yacob bin Mustafa and Property Services Dr. Hezri bin Adnan
Sr A’zmi bin Abdul Latif

AGENCIES UNDER THE MINISTRY OF FINANCE

BANK SIMPANAN NASIONAL PERBADANAN INSURANS BURSA MALAYSIA BERHAD INLAND REVENUE BOARD OF
Chief Executive DEPOSIT MALAYSIA Chief Executive Officer MALAYSIA
Datuk Yunos bin Abd Ghani Chief Executive Officer Datuk Muhamad Umar Swift Chief Executive Officer
En. Rafiz Azuan bin Abdullah Dato’ Sri Dr. Sabin bin Samitah

BANK NEGARA MALAYSIA EMPLOYEES PROVIDENT SECURITIES COMMISSION LABUAN FINANCIAL

Governor FUND MALAYSIA SERVICES AUTHORITY
Datuk Nor Shamsiah binti Mohd Yunus Chief EPF Officer Chairman Director General
En. Alizakri Alias Datuk Syed Zaid Albar Datuk Danial Mah Abdullah

YAYASAN TUN RAZAK MALAYSIA TOTALISATOR BOARD RETIREMENT FUND PUBLIC SECTOR HOME
Chairman Chief Executive Officer (INCORPORATED) FINANCING BOARD
Tun Mohammed Hanif bin Omar Dato’ Abdul Rauf bin Sani Chief Executive Officer Chief Executive Officer
Tuan Syed Hamadah bin En. Mohd Farid bin Dato’ Hj Nawawi
Syed Othman

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organisation of the ministry of finance malaysia

TREASURY OF MA L AYS I A

MINISTER OF FINANCE
YB Senator Tengku Dato’ Sri Zafrul Tengku Abdul Aziz

DEPUTY MINISTER OF FINANCE I DEPUTY MINISTER OF FINANCE II

YB Datuk Abd. Rahim Bakri YB Tuan Mohd Shahar Abdullah

SECRETARY GENERAL OF TREASURY

Dato’ Asri bin Hamidin @ Hamidon

DEPUTY SECRETARY GENERAL DEPUTY SECRETARY GENERAL DEPUTY SECRETARY GENERAL

OF TREASURY (POLICY) OF TREASURY (MANAGEMENT) OF TREASURY (INVESTMENT)
Pn. Zakiah binti Jaafar Dato’ Othman bin Semail Pn. Anis Rizana binti Mohd Zainudin

NATIONAL BUDGET OFFICE GOVERNMENT PROCUREMENT GOVERNMENT INVESTMENT

En. Johan bin Mahmood Merican DIVISION COMPANIES DIVISION
Dato’ Zamzuri bin Abdul Aziz Datin Rashidah binti Mohd Sies
TAX DIVISION
En. Ma Sivanesan CORPORATE STRATEGY AND STRATEGIC INVESTMENT DIVISION
COMMUNICATION DIVISION Dato’ Shahrol Anuwar bin Sarman
FISCAL AND ECONOMICS DIVISION En. Ahmad Suhaimi bin Endut
STATUTORY BODY STRATEGIC
Dr Sivabalasingam Veerasingam
REMUNERATION POLICY AND MANAGEMENT DIVISION
INTERNATIONAL DIVISION MANAGEMENT DIVISION En. Mohd Sakeri bin Abdul Kadir
Cik Azah Hanim binti Ahmad Dato’ Shamsul Azri bin Abu Bakar PUBLIC ASSET MANAGEMENT
DIVISION
REGISTRAR OFFICE OF CREDIT INFORMATION TECHNOLOGY Dr. Anuar bin Ariffin
REPORTING AGENCIES DIVISION
Pn. Suhara binti Husni En. Mohd Sori bin Husain

FEDERAL TREASURY SABAH

En. Alan bin Abdul Rahim

FEDERAL TREASURY SARAWAK

En. Mohd Saiful Sungkih bin Abdullah

OFFICE OF THE SPECIAL

COMMISSIONERS OF INCOME TAX
Pn. Haslina binti Mansor

LEGAL DIVISION
Pn. Rafidah binti Omar

CUSTOMS APPEAL TRIBUNAL

-

TREASURY INTERNAL AUDIT

DIVISION
En. Azunan bin Daud

NATIONAL INTER AGENCY UNIT

FOR ECONOMIC STIMULUS
IMPLEMENTATION AND
COORDINATION
-

INTEGRITY UNIT
Dato’ Zainul bin Darus

178 economic outlook 2021