major macro economic indicators
|2018||2019||2020 (e)||2021 (f)|
|GDP growth (%)||4.8||4.3||-5.0||6.0|
|Inflation (yearly average, %)||1.0||0.7||-1.0||2.5|
|Budget balance (% GDP)||-3.3||-3.5||-6.5||-4.0|
|Current account balance (% GDP)||2.2||3.5||0.9||1.8|
|Public debt (% GDP)*||55.5||57.2||67.5||66.0|
(e): Estimate (f): Forecast *Excluding 1MDB and state-owned enterprises
- Diversified exports
- Growing domestic demand mitigates external headwinds
- Dynamic services sector
- High 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
- Very high private debt levels (80% of GDP)
- Low fiscal revenues, lack of transparency in budget spending
- Erosion of price competitiveness due to increasing labour costs
- Persistent regional disparities
- Ethnic and religious disputes
Strong but probably uneven recovery
Growth is set to recover strongly in 2021, due to lower base effects than in 2020 and driven by stronger domestic consumption, but this recovery is likely to be uneven. The resurgence of infections, following the Sabah state elections in September, was stronger than in March 2020. This prompted the government to re-impose partial lockdowns in October and lockdowns in January 2021 under the Movement Control Order (MCO) in the capital and major states, which will delay the growth momentum to 2021. The gradual easing of restrictions on movement should set the stage for a recovery in domestic consumption (58% of GDP) in 2021, supported by five stimulus packages (4.9% of GDP as of September 2020) that include wage subsidies to low-income groups. Interest rates, at a historic low of 1.75% after 125 bps rate cuts in 2020, should also spur the economic recovery. That said, low interest rates in recent years have sustained a high level of household debt (87.5% of GDP) which, alongside a high unemployment rate (4.6% as of September 2020), could pose some risks to the recovery. Inflation should pick up as demand recovers and will be helped by lower base effects. Exports (67% of GDP) should also see some gains, driven by the recovery in key trade partners such as China and a higher demand for electronic components. Furthermore, palm oil exports, which account for 2.8% of GDP, should improve slightly this year on the back of stronger demand from the main export trade partners such as India and China, alongside a pick-up in palm oil price. The services industry contributes more to GDP (56.5% in 2020) than manufacturing, but it is expected to remain sluggish: tourism (13% of GDP) should remain muted due to international border closures. Investment is expected to rebound this year, as infrastructure projects should resume and will be revived under the 2021 budget, of which 4% is allocated for projects such as the largest transport infrastructure Mass Rapid Transit, or the Johor-Woodlands Train that links Malaysia and Singapore.
Fiscal deficit set to narrow amid some risks
The Parliament approved a USD 78.8 billion budget (22% of GDP) for 2021 in order to revive the economy, with an increase in welfare spending and cash handouts, which should support the recovery in consumption. The fiscal deficit is expected to narrow in 2021, as revenues will recover from the pandemic through an expected increase in tax revenue collection (15.1% of GDP). That said, it should remain higher than pre-COVID-19 levels because of support measures and political pressure for higher expenditures. The expected revenues might somehow face challenges due to oil price volatility, as petroleum revenues account for a significant proportion of public income (20% of total revenue). Another COVID-19 resurgence could also threaten revenues if lockdown measures linger on. Public debt, for which the ceiling was increased to 60% of GDP, will remain high. That said, a large share is denominated in local currency and around 24% of public debt is held by non-residents, which should mitigate the risks.
In 2021, the current account surplus is set to reverse some of its 2020 deterioration due to a base effect, as exports have rebounded faster than imports since the end of 2020 thanks to trade gradually restarting with key trade partners such as China (13% of total exports), which has recovered. This surplus is likely to be driven by a better performance in exports of goods, especially for electronic products, alongside a surplus in the secondary income (expatriates’ remittances). The services balance deficit increased with the fall in tourism receipts (6% of GDP and 9% of exports). External debt (61% of GDP in Q2 2020) is high but manageable, since one-third is denominated in local currency and half has medium to long-term maturity. Companies (both private and public) and banks mostly owe it. International reserves, fed by the current account surplus and foreign investment, remain adequate and cover 6 months of imports as of October 2020.
The Muhyiddin administration’s legitimacy is strengthening
In a twist of events, Muhyiddin Yassin was appointed Prime Minister in February 2020 and was able to form the National Alliance coalition with Malay-majority parties dominating the government (112 out of 222 MPs). The newly formed government is not entirely secure given its razor thin majority and political tensions are likely to linger on. Anwar Ibrahim, leader of the opposition and president of Parti Keadilan Rakyat (PKR), claimed that he had the majority support in the lower house of parliament but failed to win the king’s support in order to topple the government, while lawmakers showed support to Muhyiddin’s administration by passing the 2021 large budget unanimously. That said, he has been recently facing mounting pressure from its ruling coalition, fueling talks of snap elections soon after the pandemic is under control.
Last updated: March 2021
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.