MALAYSIA — Southeast Asia’s third-largest economy — is now a highly open, upper-middle income economy. The growth rate was coupled with a dramatic poverty reduction from 49.3pc in 1970 to 1pc in 2014. It has achieved one of the highest levels of financial inclusion among Southeast Asian countries.
A major contributor to development success is its innovative, resilient, and inclusive financial sector.
From a major producer of raw materials, such as tin and rubber in 1970s, Malaysia now boosts of a diversified economy. It has become a leading exporter of electrical appliances, electronic parts and components, palm oil, and natural gas.
It is the world’s second largest producer of palm oil after Indonesia. Analysts forecast that an El Nino weather cycle is likely to slash palm oil output and boost its prices in 2016. But the ringgit has plunged more than 17pc this year versus the dollar, making palm cheaper for offshore buyers. A similar El Nino weather pattern in 2009 had boosted palm oil prices by 57pc.
Despite the declining international oil price and the sharp fall of Malaysian ringgit, the Malaysian Institute of Economic Research maintains the forecast for GDP growth at 4.8pc for 2015 and 5.5pc for 2016. The World Bank expects growth to slow to 4.7pc this year and next year before picking up to 5pc in 2017. The introduction of GST and elimination of fuel subsidies could help Malaysia weather the oil price shock.
In recent weeks, stock market has plummeted. Foreign investment inflow has fallen by nearly 50pc through the first-half of 2015. Globally low oil-price has also hurt Malaysia, a major exporter of oil and gas.
After growing by 5.3pc in the first quarter, the economy grew by 4.9pc in the second-quarter as both exports and private consumption fell. Business sentiment has been hurt by lacklustre prospects for exports, a sharp depreciation of the ringgit, a slide in stock prices, and spare manufacturing capacity.
The Malaysian central bank governor expects the economy to remain on a steady growth path, with domestic demand continuing to be the key driver of growth. The Malaysian Prime Ministerhas announced a multi-billion-dollar plan to help revitalise the country’s struggling economy.
The government is looking to stimulate growth through fiscal policy but is constrained by its pledge to narrow the budget deficit. The 2016 budget, scheduled to be tabled in Parliament on Oct 23, envisages a larger allocation for development expenditure with a reduction in revenue expenditure to contain the budget deficit.
The fiscal deficit for this year has been revised upward to 3.2pc of GDP due to the global challenges. The Malaysian finance minister is confident that his country can achieve developed economy status as it is on track for achieving its targeted income per capita of $15,690 by 2020.