Malaysia

Politics:

• Analysis

  Malaysia politics: Quick View - New report raises concern about capital fli

  Event

  Malaysia's illicit capital outflows reached a record high of US$64.4bn in 2010, according to a recently published report entitled Illicit Financial Flows from Developing Countries: 2001-2010.

  Analysis

  New figures published by Global Financial Integrity (GFI), a US-based institute that studies illicit financial flows from developing countries, show that capital flight from Malaysia jumped from US$30.4bn in 2009 to US$64.4bn in 2010 (latest available data). This put Malaysia in second-highest position for capital flight, exceeded only by China with US$420.4bn. Between 2001 and 2010 Malaysia lost US$285bn, according to GFI, ranking the country third behind China and Mexico but above Saudi Arabia and Russia.

  GFI claims that, on a global scale, four-fifths of the illicit financial flows from developing countries are generated by deliberate trade mispricing, when over- or under-invoicing is used to move profits overseas. One-fifth of capital flight is comprised of transfers from corruption, bribery and kickbacks. GFI claims that its estimates are extremely conservative and do not include trade in services or largely cash-based criminal activities, such as drug-trafficking.

  In December 2011 GFI published similar alarming figures. In response, Malaysia's prime minister, Najib Razak, who also helms the finance ministry, announced the creation of a special task-force to investigate the issue. Mr Najib promised that the central bank would comment on the report, although this did not occur. The deputy finance minister, Donald Lim Siang Chai, acknowledged the latest GFI report and agreed that the government should step up measures to arrest the flow of illicit capital from Malaysia. He expressed concern that if such flows continued unchecked, it could harm the country's image and integrity.

  The latest report is likely to be turned into an election issue. The opposition will claim that the government has not done enough to address the issue and that it would tackle corruption if it is elected into power at the next election.

  December 21, 2012

• Background

  Malaysia: Political forces at a glance

  Political outlook: Political forces at a glance

  Present government: the Barisan Nasional (BN) governs with a simple parliamentary majority, which allows it to pass the bulk of legislation unchallenged. However, a two-thirds majority is needed to amend the constitution. The prime minister, Najib Razak, will continue to pursue a strategy aimed at restoring public confidence in the BN and winning back the seats in state assemblies and the national parliament that the coalition lost at the general election in March 2008. The BN's 14-party coalition-the main component of which is the United Malays National Organisation (UMNO)-currently holds 137 of the 222 seats in parliament. The opposition Pakatan Rakyat (PR) comprises Parti Islam se-Malaysia (PAS), the Democratic Action Party (DAP) and Parti Keadilan Rakyat (PKR). Parti Sosialis Malaysia (PSM) remains an independent political party but won one parliamentary seat in the 2008 general poll under the banner of the PKR. Owing to the decision of a handful of opposition members of parliament (MPs) to serve as independents, the PR, including PSM, currently holds 75 seats, six less than after the 2008 election.

  Parliamentary forces, Sep 2012
  (no. of seats)
  Barisan Nasional	137
  United Malays National Organisation (UMNO)	78
  Malaysian Chinese Association (MCA)	15
  Parti Pesaka Bumiputera Bersatu (PBB)	14
  Parti Rakyat Sarawak (PRS)	6
  Sarawak United Peoples' Party (SUPP)	5
  Sarawak Progressive Democratic Party (SPDP)	4
  United Pasok Momogun Kadazandusum Organisation (UPKO)	4
  Malaysian Indian Congress (MIC)	4
  Parti Bersatu Sabah (PBS)	3
  Gerakan Rakyat Malaysia (GRM)	2
  Liberal Democratic Party (LDP)	1
  Parti Bersatu Rakyat Sabah (PBRS)	1
  Pakatan Rakyat	75
  Democratic Action Party (DAP)	29
  Parti Keadilan Rakyat (PKR)	23
  Parti Islam se-Malaysia (PAS)	22
  Parti Sosialis Malaysia (PSM)	1
  Independent	9
  Vacant	1
  Total	222
  Sources: Economist Intelligence Unit; Malaysia parliament.

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  Next elections: The next general election must be held by March 2013.

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  July 27, 2012

• Structure

  Malaysia: Political structure

  Official name

  Federation of Malaysia

  Form of state

  Federated constitutional monarchy

  The executive

  The king appoints a prime minister and, on the prime minister's advice, the cabinet

  Head of state

  The yang di-pertuan agong (king or supreme sovereign), elected by and from among the nine hereditary rulers of Malaysia's states. In practice the post is rotated every five years

  National legislature

  Bicameral federal parliament. The Senate (Dewan Negara, the upper house) has 70 members—26 elected from the state legislatures, and 44 appointed by the king. The House of Representatives (Dewan Rakyat, the lower house) has 222 directly elected members. Senators serve six-year terms and members of the lower house five-year terms

  State governments

  There are state governments in each of Malaysia's 13 states, in nine of which the head of state is a hereditary ruler. Each state has its own constitution, a council of state or cabinet with executive authority and a legislature that deals with matters not reserved to the federal parliament. There are also three federal territories, namely Kuala Lumpur, Labuan and Putrajaya

  National elections

  A general election took place in March 2008. The next poll must be held by April 2013

  National government

  The Barisan Nasional (BN), the governing 13-party coalition—the main element of which is the United Malays National Organisation (UMNO)—holds 135 of the 222 seats in the lower house. The BN has the simple majority that it needs in order to pass legislation but not the two-thirds majority that would enable it to amend the constitution

  Main political organisations

  Government—the main parties in the BN are UMNO, the Malaysian Chinese Association (MCA), the Malaysian Indian Congress (MIC), Parti Gerakan Rakyat Malaysia (Gerakan), Parti Pesaka Bumiputera Bersatu (PPBB) and the Sarawak United People's Party (SUPP). Opposition—the three founding parties in the Pakatan Rakyat (PR) alliance are Parti Islam se-Malaysia (PAS), the Democratic Action Party (DAP) and Parti Keadilan Rakyat (PKR)

  Key ministers

  Prime minister & finance minister: Najib Razak

  Deputy prime minister & education minister: Muhyiddin Yassin

  Agriculture: Noh Omar

  Defence: Ahmad Zahid Hamidi

  Domestic trade, co-operation & consumer affairs: Ismail Sabri Yaakob

  Energy, green technology & water: Peter Chin Fah Kui

  Foreign affairs: Anifah Aman

  Health: Liow Tiong Lai

  Home affairs: Hishammuddin Hussein

  Housing & local government: Chor Chee Heung

  Information: Rais Yatim

  International trade & industry: Mustapa Mohamed

  Public works: Shaziman Abu Mansor

  Science, technology & innovation: Maximus Ongkili

  Second finance minister: Ahmad Husni Hanadzlah

  Tourism: Ng Yen Yen

  Transport: Kong Cho Ha

  Central bank governor

  Zeti Akhtar Aziz

  December 04, 2012

• Outlook

  Malaysia: Key developments

  Outlook for 2013-17

  • The political scene is likely to be dominated by preparations for the next general election. The Economist Intelligence Unit expects the government to complete its full term, which ends in April 2013.
  • We expect the ruling Barisan Nasional (BN) coalition to win the next election. The BN hopes to regain the two-thirds majority in the lower house that it lost at the 2008 poll, but it will struggle to win enough seats to achieve this goal.
  • The government will fail to balance the budget in 2013-17 as it continues to allocate funds to infrastructure projects. The monetary authorities will maintain a neutral stance in 2013, but will tighten policy from 2014 onwards.
  • The economy is expected to remain on a sustainable growth path in the forecast period. The pace of expansion is forecast to slow slightly in 2013, to 4.5%, from an estimated 5.1% in 2012.
  • Annual inflation will average 3% in 2013-17, compared with 2.5% in 2008-12. The planned introduction of a new consumption tax and the gradual withdrawal of subsidies are expected to push up consumer prices from 2013.
  • The current account will remain in surplus in the forecast period, to the tune of 6.2% of GDP on average, compared with an estimated 6.8% in 2012.

  Review

  • A summit of the Association of South-East Asian Nations (ASEAN) took place in Cambodia in November. Members (including Malaysia) failed to reach consensus on the issue of competing territorial claims in the South China Sea.
  • A study presented to the government of Selangor in November expresses concerns over the state's inflated voter list.
  • A programme of infrastructure spending and targeted hand-outs helped to boost economic growth in the third quarter of 2012, when real GDP expanded by 5.2% year on year, following growth of 5.6% in the second quarter.
  • The current-account surplus stood at M$9.5bn (US$3.1bn) in the third quarter of 2012-down slightly from M$9.6bn in the second quarter, and the smallest surplus since the third quarter of 2002.
  • Palm oil prices have been under pressure during the past year or so. An expected fall in global commodity prices in 2013 does not bode well for the future of Malaysia's palm oil sector.
  • The country continues to boast one of the lowest rates of consumer price inflation in Asia. The annual rate of inflation stood at 1.3% in October, unchanged from September.

  December 04, 2012

Economy:

• Background

  Malaysia: Country fact sheet

  Fact sheet

  Annual data	2011a	Historical averages (%)	2007-11
  Population (m)	29.0	Population growth	1.5
  GDP (US$ m; market exchange rate)	287,933b	Real GDP growth	4.3
  GDP (US$ m; purchasing power parity)	463,690	Real domestic demand growth	6.3
  GDP per head (US$; market exchange rate)	9,941	Inflation	2.6
  GDP per head (US$; purchasing power parity)	16,009	Current-account balance (% of GDP)	14.0
  Exchange rate (av) M$:US$	3.06b	FDI inflows (% of GDP)	3.2
  a Economist Intelligence Unit estimates. b Actual.

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  Background: After the second world war and the end of Japanese occupation, the United Malays National Organisation (UMNO) led a campaign for independence from Great Britain. Malaya gained independence in 1957 and the Federation of Malaysia was formed in 1963, including the Borneo states of Sabah and Sarawak, as well as Singapore (which left the federation in 1965). Following a fiercely contested general election in 1969, rioting broke out between Malays and ethnic Chinese. In the ensuing political crisis, the Alliance, which had ruled since independence and which consisted of UMNO, the Malaysian Chinese Association and the Malaysian Indian Congress, was replaced by a broader coalition, the Barisan Nasional (BN). With only minor changes in its composition, the coalition has ruled ever since.

  Political structure: Malaysia's parliamentary democracy has an appointed Senate (the upper house) and an elected House of Representatives (the lower house). The prime minister, Najib Razak, heads the BN, of which UMNO is by far the largest component. Malaysia is a federation of peninsular Malaysia, Sabah and Sarawak. There are 13 states, each of which has an assembly and a chief minister, and three federal territories, which are directly governed.

  Policy issues: The government is expected to announce additional incentives in a bid to attract more foreign direct investment. The policy of treating bumiputera (ethnic Malays and other indigenous groups) more favourably than Chinese and Indian ethnic minorities is likely to be relaxed further in 2013-17, but it will continue to apply in certain parts of the economy, such as education and government procurement. The government is expected to maintain a relatively tight budgetary stance as it turns its attention to fiscal consolidation from the middle of the forecast period.

  Taxation: The current rate of corporation tax is 25%. Malaysia operates a progressive income tax system. The first M$2,500 (US$810) of earnings is untaxed, and income above this is subject to tax rates ranging from 1% to 27%, with the top rate applying to earnings in excess of M$250,000.

  Foreign trade: In 2011 merchandise exports (on a balance-of-payments basis) totalled US$227.5bn and imports amounted to US$178.6bn, yielding a trade surplus of US$48.9bn.

  Major exports 2011	% of total	Major imports 2011	% of total
  Machinery & transport equipment	38.8	Machinery & transport equipment	44.6
  Mineral fuels	17.7	Manufactured goods	13.1
  Manufactured goods	9.4	Mineral fuels	11.8
  Chemicals	6.7	Chemicals	9.4
  Food	2.9	Food	6.0
  Leading markets 2011	% of total	Leading suppliers 2011	% of total
  China	20.3	Singapore	23.0
  Singapore	14.5	China	15.3
  Japan	11.2	Japan	11.2
  US	9.7	US	8.8
  Thailand	5.0	Thailand	6.7

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  December 05, 2012

• Structure

  Malaysia: Economic structure

  Data and charts: Annual trends charts

  
  

  

  December 04, 2012

• Outlook

  Malaysia: Country outlook

  Malaysia: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  POLITICAL STABILITY: The Barisan Nasional (BN) coalition government is expected complete its full term, which ends in April 2013. The Economist Intelligence Unit forecasts that the BN will maintain its hold on power throughout 2013-17, securing victory in the next general election but not attaining the two-thirds parliamentary majority that it will be seeking. Political stability in the coming five years will largely be determined by the levels of internal discipline within both the ruling BN and the main opposition Pakatan Rakyat (PR) alliance. The BN is tightly controlled by its largest constituent party, the United Malays National Organisation (UMNO). Although the results of the last general election, in March 2008, revealed that UMNO could no longer count on the strong support of the majority of ethnic Malays, the PR does not offer a sufficiently credible and stable alternative to the BN to give it a strong chance of winning enough seats at the next election to form a majority government.

  ELECTION WATCH: The next parliamentary election must be held by April 2013. Mr Najib is likely to make the performance of the economy a central plank of the BN's campaign, and will emphasis the fact that, despite the gloomy global economic situation, the government's policies have helped to bolster growth in the domestic economy. The BN will also carefully craft its campaign to appeal to voters in state assemblies that it lost to the PR at the last election. The opposition alliance, meanwhile, is likely to focus its election campaign on the need to uphold the political and economic rights and interests of all Malaysians.

  INTERNATIONAL RELATIONS: Relations with Singapore have become closer in recent years, and we expect this trend to continue during the forecast period, particularly in the area of economic ties. China will become an increasingly important trading partner in the next five years. The Malaysian government's apprehension about China's growing economic influence is mixed with ambivalence towards the ethnic-Chinese members of its own population and an awareness of the need to attract investment. Mr Najib has adopted a conciliatory stance on the issue of Malaysia's maritime claims in the South China Sea and the competing claims of other members of the Association of South-East Asian Nations (ASEAN), as well as China. Mr Najib is keen to achieve a resolution of the dispute with China through dialogue under existing regional security mechanisms. Malaysia also wishes to strengthen its ties with Australia. Growth in trade with the latter country is expected to accelerate in 2013-17, following the signing of a bilateral free-trade agreement in May 2012.

  POLICY TRENDS: Assuming that the BN wins the next election, its policy agenda over the next five years will centre on a host of initiatives outlined in two road maps, aimed at raising income levels and transforming Malaysia into a high-income country by 2020. (High-income countries are defined as those with gross national income per head of at least US$12,476, based on 2011 data). One of these plans is the Government Transformation Programme, which outlines seven main initiatives, including tackling corruption, improving education and upgrading basic rural infrastructure. The other is the Economic Transformation Programme, which identifies 12 national key economic areas (NKEAs). The government considers the NKEAs, which include tourism and palm oil cultivation, to be the sectors with the greatest potential to boost economic growth. The Tenth Malaysia Plan, a spending plan for 2011-15, will support the implementation of these programmes.

  ECONOMIC GROWTH: The economy is expected to remain on a sustainable growth path in 2013-17. Its rate of expansion will slow slightly in 2013, to 4.5%, compared with an estimated 5.2% in 2012. Real GDP grew by 5.2% in the third quarter of this year. This means that even if the pace of expansion slows slightly in the fourth quarter, in 2012 as a whole the economy is set to grow at least as fast as it did in 2011.

  INFLATION: The expected strengthening of the ringgit against the US dollar, together with moderating global fuel and food prices, should help to contain inflationary pressures in Malaysia in 2013. However, the government's moves to rationalise its extensive subsidy scheme will put upward pressure on prices, with annual inflation averaging 2.2% in 2013, compared with an estimated 1.7% in 2012. That said, rises in domestic energy and fuel costs are likely to occur only gradually. From 2014 another source of inflationary impetus will be the GST, which the government will attempt to introduce towards the end of 2013. One factor that will help to keep price rises in check in 2014-17 will be the forecast steady appreciation of the ringgit against the US dollar. Given that most of Malaysia's imports and exports are denominated in US dollars, imports will become cheaper in local-currency terms as a consequence of the increase in the local currency's value.

  EXCHANGE RATES: Following a volatile performance during much of 2012, the exchange rate is expected to stabilise in 2013, when we forecast that it will strengthen slightly, to an average of M$3.05:US$1. Stronger macroeconomic fundamentals in Malaysia than in the US in the remainder of the forecast period are expected to push up the ringgit's value against the US dollar to an average of M$2.82:US$1 in 2017. The central bank will maintain its current exchange-rate regime, under which the ringgit is subject to a managed float against a trade-weighted basket of currencies. Offshore trading of the ringgit is prohibited under a rule imposed in the wake of the 1997-98 Asian financial crisis. However, expected further progress towards regional economic integration makes it likely that Bank Negara Malaysia (the central bank) will allow the ringgit to be traded offshore in future, and possibly by 2017.

  EXTERNAL SECTOR: At just 3.7%, merchandise export growth is forecast to remain sluggish in 2013 as economic activity in the euro zone--one of Malaysia's main export markets--remains feeble (it is forecast to contract by 0.2% in real terms next year). A gradual improvement in external conditions from the second half of 2013 is expected to boost overseas sales, as well as leading to an increase in Malaysian demand for imports of intermediate goods used in manufacturing for export. Merchandise import growth will also be supported by firm domestic demand next year, and the pace of expansion in imports in value terms will be faster than that in exports. Owing to a slight fall in the trade surplus and persistent deficits on the income and services accounts, the current-account surplus is expected to fall to the equivalent of 6% of GDP in 2013, from an estimated 6.8% in 2012. Subsequently, sustained global trade expansion will result in a rise in the current-account surplus to an average of 6.2% of GDP in 2014-17.

  December 02, 2012

• Forecast

  Malaysia: Country forecast summary

  Country forecast overview: Highlights

  • The ruling Barisan Nasional (BN) coalition is expected complete its term, which ends in April 2013. The Economist Intelligence Unit forecasts that the BN will retain power in 2013-17, securing victory in the approaching general election but failing to attain the two-thirds parliamentary majority that it seeks.
  • The main opposition Pakatan Rakyat alliance is likely to increase its parliamentary representation at the next election, but it will fail to win enough seats to enable it to form the next government.
  • The government will struggle to balance the budget during the forecast period as it makes only slow progress in rationalising a wide range of subsidies. Assuming that the government reins in operating expenditure and manages to increase its revenue by expanding the tax base, we forecast that the fiscal deficit will shrink to the equivalent of 3.8% of GDP by 2017.
  • We expect Bank Negara Malaysia (the central bank) to keep its main policy interest rate, the overnight policy rate, unchanged at 3% in 2013 against a backdrop of weak external demand. A marked pick-up in overseas demand and continued expansion in domestic demand in 2014 are expected to prompt the central bank to start tightening monetary policy in that year.
  • Spurred by strong domestic demand, real GDP is estimated to have grown by 5.2% in 2012. Malaysia's economy will remain on a sustainable growth path in 2013-17, when we forecast that GDP will expand in real terms by an average of 5.2% a year. Domestic demand will continue to grow strongly. Private consumption will be boosted by the strength of the strong labour market, while the start of a number of infrastructure projects will support investment spending.
  • Malaysia's strong economic fundamentals compared with the US will help to support the value of the ringgit over the next five years. After a bout of volatility in 2012, the local currency is expected to follow an upward trend in 2013-17, averaging M$2.82:US$1 in the final year of the forecast period.
  • The current-account surplus is expected to fall to the equivalent of 6% of GDP in 2013, from an estimated 6.8% in 2012. The shrinking of the surplus will reflect persistent deficits on the services and income accounts, together with a deterioration in the trade balance as Malaysia's export sector struggles to increase overseas sales against a backdrop of weak external demand in the US and the euro zone. Sustained global trade growth in 2014-17 will result in a rise in the current-account surplus to an average of 6.2% of GDP.

  Country forecast overview: Key indicators

  Key indicators	2012	2013	2014	2015	2016	2017
  Real GDP growth (%)	5.2	4.5	5.3	5.2	5.6	5.5
  Consumer price inflation (av; %)	1.7	2.2	3.0	3.2	3.3	3.2
  Budget balance (% of GDP)	-4.7	-4.2	-4.2	-4.1	-4.0	-3.8
  Current-account balance (% of GDP)	6.8	6.0	5.8	6.5	6.2	6.4
  Lending rate (av; %)	4.8	4.9	5.4	5.8	6.1	6.1
  Exchange rate M$:US$ (av)	3.09	3.05	2.97	2.87	2.84	2.82
  Exchange rate M$:¥100 (av)	3.89	3.69	3.43	3.23	3.08	3.09

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  December 05, 2012

View detailed map

Country Briefing

Total area

330,252 sq km

Population

28.3m (2010 mid-year government estimate)

Main towns

Population in '000 (2009)

Kuala Lumpur (capital): 1,655

Subang Jaya: 1,175

Klang: 1,004

Johor Baru: 868

Ampang Jaya: 724

Climate

Tropical

Weather in Kuala Lumpur (altitude 39 metres)

Hottest months, April and May, 23-33°C (average daily minimum and maximum); coldest month, December, 22-32°C; driest month, July, 99 mm average rainfall; wettest month, April, 292 mm average rainfall

Languages

Malay (the official language); other main languages: Chinese (Min Nan, Hakka, Mandarin and Min Dong), English, Tamil, Iban (in Sarawak), Banjar (in Sabah). There are 140 languages spoken in Malaysia (peninsular Malaysia 40, Sabah 54, Sarawak 46)

Measures

Malaysia uses the metric system, but some British weights and measures are still in use. Local measures include:

1 pikul = 25 gantang = 100 katis = 60.48 kg

1 koyan = 40 pikul = 2.419 tonnes

Currency

Ringgit or Malaysian dollar (M$ or RM); M$1 = 100 sen (cents). Average exchange rate in 2011: M$3.06:US$1

Time

Peninsular Malaysia: 7 hours ahead of GMT; Sabah and Sarawak: 8 hours ahead of GMT

Public holidays

January 1st (New Year's Day); 23rd-24th (Chinese New Year); February 6th (the Prophet Mohammed's birthday observance); May 1st (Labour Day); June 2nd (the king's birthday); August 20th-21st (Hari  Raya Puasa); 31st (National Day); September 17th (Malaysia Day); November 13th (Deepavali); November 6th-7th (Hari Raya Qurban); November 15th (Awal Muharam), December 25th (Christmas Day)

March 09, 2012