major macro economic indicators
|2020||2021||2022||2023 (e)||2024 (f)|
|GDP growth (%)||-5.5||3.1||8.7||4.0||4.5|
|Inflation (yearly average, %)||-1.1||2.5||3.4||2.6||2.3|
|Budget balance (% GDP)||-4.9||-5.8||-5.9||-4.6||-4.5|
|Current account balance (% GDP)||4.2||3.8||2.6||2.7||2.7|
|Public debt (% GDP)||67.9||69.3||65.7||66.2||66.3|
(e): Estimate (f): Forecast *Excluding 1MDB and state-owned enterprises
- Diversified exports
- Large domestic demand mitigates external headwinds
- Dynamic services sector
- Robust R&D
- Investment supported by the expansion of the local financial market and access to FDIs
- Exchange rate flexibility
- High per capita income
- Travel hub
- Budget income highly dependent on performances in the oil and gas sector (28% of revenues in 2022)
- Low fiscal revenues (15-16% of GDP), lack of transparency in budget spending
- Very high household debt levels (81.2% of GDP in December 2022)
- Erosion of price competitiveness due to increasing labour costs
- High dependency on food imports (60% of food consumed is imported)
- Persistent regional disparities
- Ethnic and religious disputes
- Political uncertainty and instability
Economic momentum loses pace after exceptional growth in 2022
Economic momentum has slowed in 2023 after having posted one of the world’s fastest GDP growths in 2022. The trend chiefly reflects external headwinds. The export-dependent economy (exports of goods and services represented 74% of GDP in 2022) experienced declining merchandise exports in the first half of the year amid weak global demand, particularly for electronics, and lower energy prices, Malaysia being a net exporter of oil and gas. While some improvement may transpire in 2024, notably with the gradual recovery of China, which is Malaysia’s second goods export market, the prevailing gloomy global environment could result in a poor performance in goods exports, thereby denting growth again. Conversely, the upswing in tourism is likely to support services exports. In 2022, the number of international tourists which mainly come from Singapore (52% of the total) and Indonesia (15%) accounted for less than 40% of the number recorded in 2019, before the pandemic. Furthermore, the government is targeting the ratio to rise above 60% in 2023. After having been boosted by the country’s reopening in 2022, growth in private consumption (60% of GDP) will be slower in 2023-2024. Nevertheless, it should prove robust and be supported by an improved labour market, government aid for lower-income households and moderating inflation. Private consumption is therefore expected to remain the main driver of growth. However, there are downside risks to household spending, notably relating to Malaysia’s very high level of indebtedness, especially in the context of higher interest rates. In step with other major central banks, Bank Negara hiked its policy rate from 1.75% in May 2022 to 3% a year later in response to global tightening and inflationary pressures, although the latter were alleviated by public subsidies. While the central bank is unlikely to raise the interest rate further, no rate cuts are expected until at least 2024. Despite the risk of such high indebtedness, the country’s banking sector appears healthy with adequate capital and loss coverage ratios. In addition, the share of household debt under repayment assistance dropped significantly (from 18.8% of banking and development financial institutions’ loans in December 2021 to 1.9% in December 2022). Higher rates is expected to affect private investment in 2023 and at least the first part of 2024. That said, the government’s willingness to facilitate doing business and its support for automation and digitalisation will continue to drive investment. In the first quarter of 2023, approved private investment (in value) surged by around 60% year on year.
Fiscal consolidation is under way
The fiscal deficit will narrow in 2023-2024, albeit remaining higher than during the years preceding the pandemic. Despite a sharp increase in development expenditure aimed at addressing long-term economic development headwinds, the end of Covid-related spending and lower subsidies – mainly due to lower oil prices – helped reduce public expenditure in the 2023 budget. Meanwhile, the budget introduced several progressive revenue measures (i.e., a capital gains tax and a luxury goods tax). However, tax cuts for SMEs and lower- and middle-income households kept public revenue virtually unchanged. The 2024 budget should continue to respect its fiscal consolidation precepts with the expected transition toward targeted fuel subsidies, which will further limit public expenditure. Continued public deficits will fuel public debt, which will remain manageable, as residents hold most of it in local currency.
The current account is set to remain in surplus. After a rise in the balance of income deficit in 2023, following profit repatriation linked to good business performance in the previous year, this deficit is set to narrow in 2024. However, the services deficit – mainly led by transport – should widen amid robust private demand that will boost imports. Declining external debt remains high (63.8% of GDP in 2022), but is manageable since a third of it is denominated in local currency. International reserves, fed by the current account surplus and foreign investment, remain adequate and cover 5.0 months of imports and the totality of the country’s short-term external debt (at June 2023).
Political risk prevails after the 2022 elections
In office just over one year after the resignation of the former Prime Minister (PM), Ismail Sabri Yaakob and his cabinet, which held a tiny majority, lost power after the fifteen General Elections (GE15) held in May 2023. The polls resulted in a divisive political landscape, with none of the three main coalitions – Pakatan Harapan (PH), Perikatan Nasional (PN), and Barisan Nasional (BN) – securing a simple majority. Due to the King’s intervention, PH (81 out 222 parliamentary seats) and BN (30) agreed to form a coaltion government, and PH’s leader and long-time leader of the opposition, Anwar Ibrahim, was appointed as the tenth Prime Minister. The alliance was backed by other smaller coalitions and parties (GPS, Warisan, MUDA, and PBM), as well as independent members of Parliament, which enabled Anwar to win a vote of confidence in December 2022. Nevertheless, political risk subsists in such a fragmented political scene in which the government rules without a simple majority, which questions its capacity to remain in office during the entire five-year term. The elections in 6 states on 13 August 2023, which were seen as a crucial test for Anwar, resulted in a status quo, with both ruling and opposition parties retaining the states they governed before the polls.
Amid escalating tension between the US and China, Malaysia seems determined to maintain its relationship with both countries. This is despite the South China Sea dispute with Beijing, as it is a major trading partner and an important source of investment. Meanwhile, Malaysia’s relations with the EU cooled since the latter introduced a Deforestation Regulation in April 2023. The law, which aims to prevent goods being sold in the EU that contribute to deforestation, is seen by Malaysian authorities to be unfair and discriminatory. It could affect the country’s export of its main agricultural commodity, namely palm oil, for which the EU is its third export market.
Last updated: October 2023
Bank transfers, cash, and cheques are all popular means of payment in Malaysia. The well-developed banking network allows for online payments. Letters of Credit are also commonly used. As of 2017, the Central Bank requires that 75% of payments in foreign currencies are converted into the Malaysian ringgit (MYR) automatically upon receipt. Payments for transactions within Malaysia are required to be made in ringgit.
It is common for disputes and or debt to be settled amiably after negotiations. If there is no response from the buyer, a site visit and online searches are conducted to ascertain the operating status and legal status of the buyer. If the buyer continues to ignore and or neglect to settle the matter amicably, the supplier may begin legal proceedings to recover payments for goods sold and delivered. However, due diligence should be done to ensure that the buyer has sufficient assets to satisfy the debt before proceedings are initiated.
The Malaysian legal system is based upon the English common law system. The hierarchy of courts in Malaysia starts with the Magistrates’ Court at the first level, followed by the Sessions Court, High Court, Court of Appeal and the Federal Court of Malaysia. The High Court, Court of Appeal and the Federal Court are superior courts, while the Magistrates’ Court and the Sessions Courts are subordinate courts. There are also various other courts outside of this hierarchy, e.g. Employment Admiralty, Shariah or Muslim matters.
Claims in Magistrates’ court are limited up to MYR 100,000, whilst a Sessions Court may hear any civil matters where the amount in dispute does not exceed MYR 1,000,000. Where the amount claimed does not exceed MYR 5,000, a claim should be filed with the small claims division of the Magistrates’ Court. However, legal representation is not permitted. The High Court has the jurisdiction to try all civil matters and monetary claims exceeding MYR 1 million.
An unpaid debt normally has a six-year statute of limitation period. The creditor commences a writ action and serves the writ on the debtor within six months from the issue of the writ. When defendants are served with a writ, they have 14 days after service of the writ (or 21 days if the writ was served outside Malaysia) to file a Memorandum of Appearance with the court to indicate their intention to appear in court and defend the suit.
Before a writ can be issued, it must be endorsed with a statement of claim or, with a general endorsement consisting of a concise statement of the nature of the claim made and the requisite relief or remedy. When the writ only has a general endorsement, the statement of claim must be served before the expiration of 14 days after the defendant enters an appearance.
When the defendant has entered appearance, he is required to file and serve his defence on the plaintiff 14 days after the time limit for entering an appearance, or after service of the statement of claim, whichever is later. A defendant may make a counterclaim in the same action brought by the plaintiff. A plaintiff must serve on the defendant his reply and defence to a counterclaim, if any, within 14 days after the defence (and counterclaim) has been served on him.
Proceedings may be resolved and/or otherwise summarily terminated and/or determined and/or disposed of at an early stage before the trial of the action.
Failure to enter an appearance may result in a plaintiff proceeding to enter a judgment-in-default against a defendant. Ordinarily, when a defendant has filed an appearance and also a statement of defence subsequent to other procedures of filing of documents in support, the matter would be set for trial. If the defendant has entered an appearance and filed a defence, but it is clear that the defendant has no real defence to the claim, the plaintiff may apply to court for summary judgment against the defendant. To avoid summary judgment being entered, the defendant has to show that the dispute concerns a triable issue or that there is some other reason for trial.
Enforcement of a court decision
Writ of Seizure and Sale (WSS)
A WSS may be enforced against both movable and immovable property as well as against securities. When the property to be seized consists of immovable property or any registered interest, the seizure shall be made by an order prohibiting the judgment debtor from transferring, charging or leasing the property.
A Judgment Creditor may garnish monies a Judgment Debtor is supposed to receive from a third party. If the garnishee does not attend court, then the order is made absolute. If the garnishee does attend, the court can either decide the matter summarily or fix the matter for trial.
Judgment Debtor Summons
The objective of this summons is to give the judgment debtor an opportunity to pay the judgment debt in instalments to commensurate his means. Debtors themselves can apply for such a procedure. Alternatively, under Order 14 the defendant can admit the plaintiff’s claim and propose to pay by instalments, which the court can subsequently order if the plaintiff accepts the proposal.
If the total judgment of debt exceeds MYR 30,000, bankruptcy proceedings can be triggered if the judgment debtor has not complied with the judgment or order made against him. Once a debtor has been adjudged bankrupt, other creditors are also entitled to file the Proof of Debt form and Proxy in order to be entitled to share in any distribution from the estate of the bankrupt. The distribution of the estate is according to the priority of the creditors’ claim.
Any decision rendered by a foreign country must be recognized as a domestic judgment in order to become enforceable through an exequatur procedure. Malaysia has reciprocal Recognition and Enforcement Agreements with some countries, including Hong Kong, India, and New Zealand.
There are several insolvency and restructuring procedures available. Under the Companies Act, the available insolvency proceedings include:
- compulsory and voluntary winding-up of companies;
- appointment of receivers and managers;
- restructuring mechanisms.
In a compulsory winding-up, the court can wind up a company on a number of grounds under the Companies Act. The most common of these is the company’s inability to pay its debts. The creditor initiates this process by filing a winding-up petition with the court. If an order is made, the court will appoint a liquidator to oversee the liquidation process.
Court-appointed receivers will either manage the company’s operations as normal, or take custody and possession of the assets of the company. Alternatively, receivers appointed by debenture holders based on the terms of the debenture agreement (privately-appointed receivers), may take possession of the company’s assets subject to the floating charge that has since crystallized in the debenture.
Restructuring mechanisms include:
- scheme of arrangement: a company can enter into a scheme of arrangement with the approval of 75% of the creditors in value and a simple majority. After creditors approve the scheme, the court must sanction it before it can be implemented. Debtors can apply for an order restraining all proceedings against it while it develops its scheme;
- special administration: it involves the appointment of a special administrator. The appointment must serve the public interest;
- conservatorship: the Malaysia Deposit Insurance Corporation takes control of a non-viable financial institution or acquires and takes control of non-performing loans that are outstanding between the financial institution, borrowers and security providers.