major macro economic indicators
|Main economic indicators||2016||2017||2018 (e)||2019 (f)|
|GDP growth (%)||4.2||5.9||5.1||5.0|
|Inflation (yearly average, %)||2.1||3.8||1.0||2.3|
|Budget balance (% GDP)||-3.0||-3.0||-3.2||-3.0|
|Current account balance (% GDP)||2.4||3.0||2.8||2.5|
|Public debt (% GDP)||56.2||54.1||55.1||54.2|
(e): Estimate. (f): Forecast.
- Diversified exports
- Dynamic services sector
- Good infrastructure, high R&D
- Investment supported by expansion of local financial market and access to FDIs
- Exchange rate flexibility
- High per capita income
- Travel hub
- Reliance on external demand
- Budget income highly dependent on performances in the gas and oil sector
- Very high private debt levels (80% of GDP)
- Erosion of price competitiveness due to increasing labour costs
- Persistent regional disparities
- Ethnic and religious disputes
Growth expected to remain strong
The economy will continue to expand rapidly thanks to strong domestic demand and good performances in the services and manufacturing industries. Despite still high household debt, consumption is strong thanks to rising urbanisation, real disposable income growth, and a tight labour market. And it is unlikely to be deterred by the increase in inflation, which – despite the reimplementation of a sales tax – will remain low, allowing the monetary policy to stay accommodative. This will help compensate the effects of fiscal tightening. Export growth will be less vigorous because of dimmer global demand for the country’s main exports (electronics and electrical goods) and slowing demand from the country’s main trading partners (China, United States). Palm oil export growth will also decelerate, as demand from India and China (the main importers) loses momentum. Export growth will also depend on the evolution of hydrocarbon prices (20% of total exports), which are set to be volatile in 2019. Trade should nonetheless contribute to growth, and even more so if the government decides to ratify the CPTPP that will come into force in 2019. The services industry has become a stronger driver of growth than manufacturing (53.6% of GDP in 2017), and will show strong performances in 2019, continuously benefitting from public investment to increase the sector’s potential and the growing number of tourists. The construction sector will perform less well than expected because of the cancellation or postponing of several long-term infrastructure projects. Capital investment in the private sector will continue to show strong growth, favoured by the country’s growing integration and upgrading within regional valuechains.
Challenging fiscal consolidation efforts and high levels of external debt
Fiscal consolidation is a priority objective for the government, but will be challenged by the revenue shortfall from the replacing of the GST by a less broad VAT. The cancelation of public investment for 2019 will help to reduce public spending and the future debt burden. The revenue shortfall should be partly compensated by new taxes, including a digital tax and one on imported services, and a special dividend (additional MYR 30 billion) for the government from the national oil company Petronas. However, this means that consolidation efforts remain exposed to the fluctuating income from state-run oil explorers and refineries, while oil prices will remain somewhat volatile throughout 2019. Public debt will remain high, but the associated risks are mitigated as it is almost completely denominated in local currency with medium- to long-term maturity – even if it is largely held externally. Moreover, although the public debt burden should be reduced in 2019, the government expects the actual debt figures to be higher than disclosed by the previous administration, and has announced that it could actually be as high as 65% of GDP for 2018. The current account surplus is expected to dip, mainly on the back of the trade surplus deteriorating, as imports (especially capital and intermediate goods) will grow faster than exports. The income balance will continue to show a deficit due to profit repatriation by foreign companies. Likewise, the transfers deficit is expected to endure because of remittances by foreign workers to their country of origin. Private external debt is high (65.4% of GDP) and mostly denominated in foreign exchange. The high levels of foreign exchange reserves (almost seven months of imports) are not at a satisfactory level to cover short-term external debt, but this shortfall could be compensated by the holding of external assets. The banking sector remains sufficiently capitalised and liquid, even if high household debt levels are a risk.
A new push for democracy
The 2018 parliamentary elections marked a turn in Malaysian politics, as the incumbent Barisan Nasional (BN) coalition lost office in favour of a centre-left four party coalition: Pakatan Hrapan (PH), headed by former Prime Minister Mahatir Mohamad. The BN suffered from the corruption charges brought against its leader, Najib Razak. The BN had been in power for sixty years (since the country’s independence), and was largely expected to retain office. This surprise election result comes as an omen for renewed democracy and rule of law. It also marks a return to the “Look East” diplomatic stance underlined by revived ties with Japan and less reverential, but still healthy, relations with Beijing. Mr Mahatir suspended two infrastructure projects part of the Belt and Road initiative, considering that Malaysia could not afford the USD 22 billion needed, and that the previous government might have overpriced the project. Governance will focus on achieving debt relief and the challenge of inequalities that are highly correlated with the segregation between the Malaysian majority and the Chinese and Indian minorities, as well as the rise of ultra-conservative Islam.
Last update : February 2019
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 reasonfor 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.
Restructruing 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.