Malaysia Economic Analysis

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  • Topic: Malaysia, Bank Negara Malaysia, Economy of Malaysia
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  • Published : May 30, 2013
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Malasyia

Country Report
3/7/2013
By: Zara Khurram

Economic Analysis of Malaysia
Malaysia is a multi-cultural Southeast Asian country with a federal constitutional monarchy. Malaysia originated from the Malay Kingdoms which were subject to the British Empire for a long time. Malaysia gained independence in August 1957. Today, Due to Malaysia’s natural resources, it has an average GDP growth rate of 6.5% for around 50 years. Malaysia has a very attractive GDP growth, due to its various strengths in its economy, healthcare, abundance of natural resources and literacy. Malaysian economic strength is due to various factors including strong trading partners, controlled inflation, and positive balance of trade. Malaysia has the best facilities in healthcare. The government spends a lot on subsidizing infant industries, social security and education. Although the Malaysian government promotes privatization and market economy, the economy is to some extent regulated by the government. The global financial crisis hit Malaysia in 2008–09. Hence, the Central bank of Malaysia, Bank Negara Malaysia (BNM), reduced the discount rate by 150 basis points and also let the currency depreciate due to capital outflow. This countercyclical move softened the impact of the crisis and saved the economy from a –2.9 percent contraction in GDP growth. The inflation and unemployment is also controlled by the monetary policies of BNM (Figure A). All these factors result in a strong economy of Malaysia with high GDP growth. Furthermore, Malaysia has strong trade partnerships as shown in figure B. These lead to a positive balance of trade for Malaysia. Malaysia is also members with many trade organizations such as ASEAN Free Trade Area. Malaysia’s strength also lies in its high Literacy rate (around 96%). Another fact that needs mentioning is that Malaysia is the world leader in Islamic-finance. Over one fifth of Malaysian banking system is sharia-compliant. Also, Malaysia is dominant in global market for sukuk. This is one of the reason why Malaysian economy was not severely affected by the global financial crisis. Furthermore, Malaysia is endowed with abundance of natural resources and human capital. Therefore, the main export products in Malaysia are liquefied natural gas, petroleum products and palm oil. Moreover, Malaysia is today a manufacturing-based economy with high technology, knowledge-based and capital-intensive industries. Furthermore, it has low corporate taxes and trade tarrif. Hence, Malaysia provides an attractive investment environment. Malaysia scored a 66.1 on the index of economic freedom and a B+ on the happiness Index. This is because Malaysia faces a few drastic issues nowadays. First, Malaysia has a serious corruption problem. Malaysian Inequality is getting worst, the public debt is piling up and innovation is lacking in the economy. In Malaysia, based on the wealth there is a lot of income inequality. There is a heavy concentration of wealth in the hands of 5% of the households. Malaysia’s Gini coefficient is 46.21, among the highest in Asia. A state intervention and redistribution of income is called for but is unsupported by the elite, who have influence on the government. To aggravate matters further, the government launched an affirmative action program favoring Malays which is highly resented among non-Malays. This coupled with the religious tensions is leading to an ethical dispute within Malaysia. Corruption and nepotism is one of very critical weakness of Malaysia. According to Transparency International 2012 Bribe Payers Survey, Malaysia scored worst (Figure C). Due to this lack of transparency in businesses, the foreign investment is discouraged. Furthermore, judiciary can be politically influenced. Even though, in 2012, the government took steps to reduce corruption, corruption continues to be a growing concern. As mentioned earlier, Malaysia is a constitutional monarchy...
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