Malaysia

Malaysia, a middle-income country, has transformed itself since the 1970s from a producer of raw materials into an emerging multi-sector economy. Under current Prime Minister NAJIB, Malaysia is attempting to achieve high-income status by 2020 and to move farther up the value-added production chain by attracting investments in Islamic finance, high technology industries, biotechnology, and services. They are also continuing efforts to boost domestic demand and reduce the economy's dependence on exports. Nevertheless, exports particularly of electronics, oil and gas, palm oil and rubber - remain a significant driver of the economy. This country owes its prosperity ti its economic openness, trade is its lifeblood and FDI its backbone.. As an oil and gas exporter, Malaysia has profited from higher world energy prices, although the rising cost of domestic gasoline and diesel fuel, combined with strained government finances, has forced Kuala Lumpur to begin to reduce government subsidies. The government is also trying to lessen its dependence on state oil producer Petronas. The oil and gas sector supplies more than 40% of government revenue. The central bank maintains healthy foreign exchange reserves, and a well-developed regulatory regime has limited Malaysia's exposure to riskier financial instruments and the global financial crisis. Nevertheless, Malaysia could be vulnerable to a fall in commodity prices or a general slowdown in global economic activity because exports are a major component of GDP. In order to attract increased investment, NAJIB has raised possible revisions to the special economic and social preferences accorded to ethnic Malays under the New Economic Policy of 1970, but he has encountered significant opposition, especially from Malay nationalists and other vested interests. Malaysia has, in many ways, been a bright spot amidst the gloom, and with the launch of the Economic Transformation Programme (ETP) two years ago, there has been huge economic strides: Gross Domestic Product (GDP) growth has been strong and stable, unemployment and inflation low, and investment, including what had been raised through the worlds third largest Initial Public Offering last year, has been increasing. This has been achieved despite difficulties elsewhere in the global economy. The ETP focuses on 12 National Key Economic Areas (NKEAs) and six Strategic Reform Initiatives(SRIs). In 2012, they recorded favourable results in meeting their Key Performance Indicator targets.

Economy Since independence, the real gross domestic product (GDP) grew by an average of 6.5% per year from 1957 to 2005.Once heavily dependent on primary products such as rubber and tin, Malaysia today is a middle-income country with a multi-sector economy based on services and manufacturing. Malaysia is one of the world's largest exporters of semiconductor

devices, electrical goods, solar panels, and information and communication technology (ICT) products. Malaysia struggled economically during the 1997-1998 Asian financial crisis and applied several valuable lessons to its economic management strategies that contributed to the economys resilience to the 2008-2009 global financial crisis. Malaysias GDP grew 7.2% in 2010 and 5.1% in 2011. Malaysian banks are well capitalized, conservatively managed, and had no measurable exposure to the U.S. sub-prime market. The central bank maintains a conservative regulatory environment, having prohibited some of the riskier assets in vogue elsewhere. Malaysia maintains high levels of foreign exchange reserves and has relatively little external debt. As per the recent reports of World Banks ease of doing business, Malaysia ranks 12th in the world standings with GNI per capita of $8420. The country exports majorly to Singapore 13.6%, China 12.6%, Japan 11.8%, US 8.7%, Thailand 5.4%, Hong Kong 4.3%, India 4.2%, Australia 4.1% (2012) of the entire trade. Tourism The government agency in charge of promoting tourism in Malaysia is Tourism Malaysia or the Malaysia Tourism Promotion Board (MTPB). In 1999, Malaysia launched a worldwide marketing campaign called Malaysia, Truly Asia which was largely successful in bringing in over 7.4 million tourists. The extra revenue recently generated by tourism helped the countrys economy during the economic crisis of 2008. FDI The rapid industrialization in Malaysia is largely attributed to inflow of foreign direct investment in its manufacturing sector. In 2011, Malaysia was the third largest recipient of FDI among the ASEAN countries. Monetary Policy Bank Negara Malaysia uses the Overnight Policy Rate to maintain the monetary policy. This is the interest rate at which a depository institution lends available funds to another depository institution overnight. This helps set interest rate at 3 percent. FiscalPolicy The Malaysian government has been planning to move away from its dependence on oil and gas and direct taxes to consumption-based tax whilst limiting borrowing and keeping a keen eye on spending. In 2012, the government managed to lower the budget deficit to 5.2 percent of GDP and has targeted 4 percent for 2013. The public debt to GDP ratio has been limited to 55 percent. Relations with Neighbouring countries

The IndonesiaMalaysiaSingapore Growth Triangle (IMS-GT)between three countries, Indonesia, Malaysia and Singapore, to strengthen economic links in the region and optimise the complementarity between the three countries. Society Malaysia has a relatively young population with almost 58.3 % of the population between the 15-54 years bracket. The literacy rate currently stands at 88.9% indicating presence of a pool of educated labour force. There has been much talk of the need to reorient the Malaysian economy towards the domestic market so as to render it more resilient. But although this is intuitively appealing, the reality suggests it would not work in practice. Malaysias domestic market is still too small to be a meaningful substitute for the huge external market. This observation does not ignore the role the domestic market can play when external demand caves in, but it does help to underscore the point that there is only so much the domestic market can do when exports slump, even in large economies, not to mention small ones like Malaysia. Input-Driven Growth unsustainable :To stay competitive, the growth strategy then was to keep wages low with the aid of a large migrant workforce. Obviously there was a dismal failure to understand that there were limits to economic expansion through input increases.

Migrant Workers depress wages : It was a major policy blunder to let migrant workers depress wages in the country, thereby throttling productivity improvements. Malaysia locked itself into low value-added manufacturing by allowing foreign workers to work in the sector for low wages, thus removing the incentive for manufacturers to automate. The size of the problem is huge: the country reportedly has 1.9 million registered migrant workers and another 600,000 unregistered ones (probably an underestimate), accounting for nearly onefifth of the working population. These workers are not confined to the so-called 3D jobs the difficult, dirty and dangerous jobs that the locals shun but compete with Malaysians in the wider labour market. Malaysia - 2013 Clearly, Asias resilience to capital flight has now been put to the test once again, as widespread capital withdrawal from the region sends its financial markets into disarray.The broad-based sell-off in assets of Asian emerging markets (from equities to bonds) has led to significant decline in the values of the regions currencies. Such is the case for Malaysia. The third-largest economy in South-East Asia has not been immune to the recent capital outflows, as evident in the movement of the ringgit, yet policymakers and economists alike believe that

the country could be able to hold its ground.While the external funding situation in Malaysia and Thailand is nowhere near as bad as either India or Indonesia, both remain susceptible to capital reversals due to their deteriorating current account balance. Future Outlook Vision 2020 Prime Minister Najibs New Economic Model reform program includes measures and proposals to modify these ethnic preferences and to divest state enterprises while increasing the private sectors role in the economy. The reforms and projects are intended to boost growth to enable Malaysia to meet its goal of becoming a high-income, developed nation by 2020.Under Vision 2020, the economy will be changed from one driven by physical capital and low costs into one geared by innovation, efficiency, human capital and entrepreneurship. The private sector will lead the economy with innovation and ingenuity whilst the government would be responsible for public goods, public interest and the regulatory framework. For Vision 2020 to be deemed successful, Malaysia has to maintain an annual growth rate of 8 percent for the remaining years.