- The ruling Barisan Nasional (BN) coalition is expected to maintain its hold on power in the coming five years, securing a victory at the next election.
- The Economist Intelligence Unit expects the BN, which is controlled by its largest component party, the United Malays National Organisation (UMNO), to call an election as early as 2011, two years before its current term ends.
- Fiscal policy will be tightened gradually during the forecast period (2011-15) as the government strives to balance its budget by 2020. Monetary policy will also be tightened as domestic demand strengthens.
- The economy is expected to resume a fairly stable growth path in 2011-15, following a mild recession in 2009 and a strong rebound in 2010. Real GDP growth will average 5% a year in 2011-15.
- The annual rate of inflation is expected to average 3.4% in 2011-15. Government efforts to rationalise the country's extensive subsidy schemes will exert an upward influence on prices.
- Despite the relatively rapid pace of growth in merchandise imports compared with that in exports, Malaysia will continue to run substantial trade and current-account surpluses in 2011-15.
- UMNO announced in November that it had postponed internal party elections for 18 months. The decision intensified speculation that a snap general election could be called in 2011.
- In December federal legislators voted to suspend from parliament Anwar Ibrahim, the de facto head of the opposition Pakatan Rakyat alliance, for six months for misleading the House of Representatives (the lower house).
- The government trimmed sugar and fuel price subsidies further in December. The reduction is part of the government's rationalisation programme, which aims at a gradual reduction of subsidies on a range of goods and services.
- In December the government unveiled the second part of an Economic Transformation Programme that it hopes will transform the country into a high-income nation by 2020.
- The successful initial public offering of a stake in a subsidiary of the state-owned energy company, Petronas, in November has triggered speculation that Petronas itself could be brought to the market in the near future.
- Industrial production growth has remained weak, standing at just 3% year on year in October. The slow rate of expansion has been mainly the result of a decline in mining output.
Since March 2008 the ability to make or break the BN has been in the hands of political parties from Sabah and Sarawak. BN legislators from the two states, which are located on the island of Borneo, number 52, thus making up over one-third of the BN's total of 137 members of parliament (MPs). The BN’s Borneo power base is likely to be severely tested at the Sarawak state elections, which must be held by July 2011. Unresolved issues, such as illegal foreign immigration to Sabah, may cause the BN parties based in Borneo, or individual MPs from the island, to defect to the opposition or use the threat to do so to secure greater influence within the coalition in the run-up to the next general election. Moreover, the Borneo-based parties will become even more influential if MPs from the island retain their seats at the next election and a substantial number of BN legislators based in peninsular Malaysia lose theirs.
Although voters in the rural heartland of peninsular Malaysia continue to support UMNO, a significant number of better-educated, liberal middle-class Malays have deserted the ruling party in favour of the opposition. This shift in support away from UMNO could be further encouraged by the greater availability of uncensored information on Internet news sites and blogs. Given the Malaysian government's heavy censorship of the print media and broadcast services, the Internet will continue to be the main arena for the exposure of alleged government corruption and the political intrigues of individual MPs. Some conservative Malays have also voiced concerns over the government's plan to reform policies that favour bumiputera (ethnic Malays and other indigenous peoples), believing that the special rights accorded to them in the constitution may be rescinded.
UMNO's internal leadership elections, which have been postponed until 2012, could be a source of instability, particularly if the party fails to secure a resounding victory in the snap general election that may well be called in 2011. Under such circumstances there would be even greater resistance to economic reforms, undermining the credibility of the prime minister, Najib Razak, and potentially placing his position as president of UMNO—and hence his role as head of government—at risk. The most likely contender to become UMNO's next leader is the deputy prime minister, Muhyiddin Yassin.
The leader of the PR, Anwar Ibrahim, a former deputy prime minister, is likely to be convicted on a charge of sodomy in the coming months. Mr Anwar claims that the case against him is politically motivated. Without him, the ties that unite the disparate parties making up the PR—the reformist, multicultural Parti Keadilan Rakyat (PKR), the conservative, Islamist Parti Islam se-Malaysia (PAS) and the left-of-centre, predominantly ethnic-Chinese Democratic Action Party (DAP)—are likely to fray, while the process of choosing a new PR spokesman could deepen divisions within Mr Anwar's PKR party and also between the opposition coalition's members. Yet the likely sentencing of Mr Anwar to a prison term could also facilitate a realignment of the opposition and elements of the BN, thus offering an alternative to the current political groupings.
|Economic growth (%)|
|Inflation indicators (%)|
|Manufactures (measured in US$)||3.2||0.7||0.2||1.8||1.2||1.8|
|Oil (Brent; US$/b)||80.0||82.0||81.3||78.3||75.5||71.0|
|Non-oil commodities (measured in US$)||23.2||9.5||-4.4||-4.0||1.5||0.1|
|US$ 3-month commercial paper rate (av; %)||0.2||0.3||0.7||2.2||4.1||5.1|
|¥ 3-month money market rate (av; %)||0.2||0.3||0.9||1.3||1.9||2.3|
|Exchange rate ¥:US$ (av)||88.0||82.4||82.4||81.0||82.1||83.5|
|Exchange rate M$:US$ (av)||3.22||3.03||2.98||2.95||2.92||2.89|
In supply-side terms, the services sector will be the largest and most dynamic part of the economy, as the government channels more resources into the sector in its bid to ensure that Malaysia becomes a high-income nation by 2020. The industrial sector will continue to constitute a sizeable part of the economy, but we expect it to remain smaller than the services sector during the forecast period. Growth in the industrial sector will generally track the rate of expansion in the economy as a whole. The most dynamic services subsectors will be financial services, wholesale trade, and hotels and restaurants. Growth in financial services will be encouraged by gradual liberalisation. This will help to improve the international competitiveness of Malaysia's financial system, especially in Islamic-finance products, and will make it more responsive to the financing needs of both the private and public sectors. The contribution of agriculture, and especially palm oil production, to the overall economy will be important; agricultural growth will help to raise rural incomes and consumption during the forecast period.
|Gross fixed investment||10.1||5.6||6.1||6.8||7.0||7.2|
|Exports of goods & services||11.2||6.6||8.2||8.4||8.7||9.0|
|Imports of goods & services||15.5||6.8||9.2||9.2||9.4||9.3|
|a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts.|
Malaysia will broaden its export range, but the economy will remain highly sensitive to the global electronic-goods cycle. Levels of non-manufactured exports, consisting largely of agricultural commodities (notably palm oil) and minerals (particularly crude petroleum and liquefied natural gas, or LNG), will also continue to be determined by global economic conditions. In addition, there will be a shift in the balance of export destinations and import suppliers in 2011-15. China will remain the fastest-growing economy in the Asia region, creating many opportunities for Malaysia (and particularly for its ethnic-Chinese minority). As a result, China is likely to overtake Singapore to become Malaysia's largest export market during the forecast period, while trade with the US, the EU and Japan will decline in relative importance.
|(% unless otherwise indicated)|
|Real GDP growth||6.8||4.3||4.8||5.1||5.4||5.6|
|Industrial production growth||6.9||4.3||5.2||5.0||5.7||5.5|
|Gross agricultural production growth||3.8||2.3||2.5||2.6||2.8||2.5|
|Unemployment rate (av)||3.5||3.3||3.2||3.2||3.1||2.8|
|Consumer price inflation (av)||1.8||2.7||3.2||3.4||3.8||3.9|
|Consumer price inflation (end-period)||2.0||3.2||3.7||3.7||3.4||3.8|
|Base lending rate||5.1||5.6||6.0||6.1||6.4||6.4|
|Central government balance (% of GDP)||-5.6||-5.4||-4.7||-4.6||-4.0||-3.9|
|Exports of goods fob (US$ bn)||189.5||213.0||229.0||251.7||280.0||304.0|
|Imports of goods fob (US$ bn)||-146.2||-161.9||-181.0||-200.5||-219.2||-235.9|
|Current-account balance (US$ bn)||29.4||36.2||32.6||35.6||45.2||53.7|
|Current-account balance (% of GDP)||12.5||13.3||11.0||10.9||12.5||13.2|
|External debt (end-period; US$ bn)||62.0||64.6||68.0||72.3||75.7||78.8|
|Exchange rate M$:US$ (av)||3.22||3.03||2.98||2.95||2.92||2.89|
|Exchange rate M$:US$ (end-period)||3.14||3.02||3.00||2.93||2.94||2.91|
|Exchange rate M$:¥100 (av)||3.66||3.67||3.62||3.64||3.55||3.46|
|Exchange rate M$:€ (end-period)||4.19||3.62||3.57||3.43||3.42||3.42|
|a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts.|
Having witnessed the splits that have arisen in the main opposition Parti Keadilan Rakyat (PKR) as a result of its internal elections in November, UMNO is probably keen to avoid any kind of internal party contest that could harm its public profile. Election to party posts in Malaysia, and particularly to positions in the parties making up the ruling BN, can pave the way to lucrative and influential positions in government. Another possible reason behind UMNO's decision to postpone internal elections is the party's desire to minimise the risk of defections to the opposition—an option that is likely to be considered by disappointed candidates for UMNO party posts. Since the March 2008 general election, Anwar Ibrahim, the de facto leader of the opposition Pakatan Rakyat (PR) alliance, has attempted to increase the PR's representation in parliament by encouraging BN lawmakers to defect.
At the conference Chua Soi Lek, the president of the BN’s second-largest party, the Malaysian Chinese Alliance (MCA), angered many UMNO members with an impassioned and frank speech in which he said that certain words and phrases, such as "immigrant", "squatter" and "Malay supremacy", should be made taboo as they are currently used in a derogatory way against the local ethnic-Chinese and Indian populations. He said that there should not be a "big brother, small brother" attitude within the BN—a reference to the unequal treatment of UMNO's allies within coalition. Mr Chua also expressed disapproval of the fact that some national policy decisions are made at UMNO supreme council meetings rather than by the cabinet. He was supported by politicians from the BN's smaller Chinese party, Gerakan. The MCA leader appeared to be more in tune with the PKR than with UMNO. His complaints were a reminder that, in spite of all the talk of 1Malaysia and a "new BN", the country's Chinese and Indian minorities continue to feel discriminated against.
Meanwhile, there are signs that Mr Anwar’s sodomy trial may be drawing to a close, with his conviction the likely outcome. In November Mr Anwar's defence lawyers applied to have the presiding judge, Mohd Zabidin, disqualified on grounds of bias. The claim related to a row between Justice Mohd and Mr Anwar's lead counsel over the defence's attempts to obtain information relating to the trial. In what appeared to be a strange arrangement, the application for the judge's disqualification was made to Justice Mohd himself, who has the authority to rule on this point. The application, the second of its kind made by the defence team, was rejected in December. Later in that month Malaysia's legislators decided to suspend Mr Anwar from parliament for six months for misleading the body. Mr Anwar has claimed that Mr Najib’s 1Malaysia concept, drafted by a US-based public-relations firm, Apco, had been copied from a concept originating in Israel—an allegation that federal lawmakers decided was untrue. It is unclear whether members of parliament objected specifically to the implication of a link to Israel–a sensitive political issue, as Malaysia does not have diplomatic relations with that country—or that they disliked the suggestion that the 1Malaysia concept was copied from a similar programme in Israel. (One Israel was the name adopted by an alliance of political parties taking part in the 1999 parliamentary election in the Middle Eastern country.)
The Economist Intelligence Unit's 2010 democracy index ranks Malaysia 71st out of 167 countries. This represents a slight deterioration compared with the 2008 index, in which Malaysia was ranked 68th. The deterioration partly reflects a gradual erosion of civil liberties and political culture in the past year or so. A lack of public confidence in the junior partners within the Barisan Nasional (BN) governing coalition, and especially those representing ethnic minorities, persists. Voter confidence in political parties has been further undermined by an increase in politicking by members of the opposition Pakatan Rakyat alliance as well as by figures in the BN. Such activity is expected to increase as members of parliament make preparations for a possible early general election in 2011. Malaysia continues to score fairly well in the electoral process and pluralism category. Elections are generally free, and voters are not subject to serious intimidation. The transfer of power is orderly between the leaders of the United Malays National Organisation, which continues to dominate the political scene and has been part of every coalition government since independence.
|Regime type||Overall score||Overall rank|
|2010||Flawed democracy||6.19 out of 10||71 out of 167|
|2008||Flawed democracy||6.36 out of 10||68 out of 167|
Restrictions on civil liberties remain a concern
Problems relating to the media persist in Malaysia, with the print and broadcast media being subject to censorship. Although the government has pledged not to interfere in electronic media, in the past year or so charges have been filed with increasing frequency against anti-government authors. Malaysia also scores relatively poorly in the civil liberties category of the index, mainly because of the Internal Security Act (ISA), which allows indefinite detention without trial and has been used against opposition politicians and journalists. The opposition has pledged to dismantle the ISA if it comes to power, but the current government appears keen to keep it intact. Malaysia continues to operate a dual judicial system whereby secular law is applied alongside sharia law; all matters pertaining to Islam are referred to the sharia courts.
|Democracy index 2010 by category|
|(on a scale of 0-10)|
|Electoral process||Functioning of government||Political participation||Political culture||Civil liberties|
Democracy index 2010: Democracy in retreat, a free white paper containing the full index and detailed methodology, can be downloaded from www.eiu.com/
Note on methodology
There is no consensus on how to measure democracy, and definitions of democracy are contested. Having free and fair competitive elections, and satisfying related aspects of political freedom, is the sine qua non of all definitions. However, our index is based on the view that measures of democracy which reflect the state of political freedom and civil liberties are not "thick" enough: they do not encompass sufficiently some crucial features that determine the quality and substance of democracy. Thus, our index also includes measures of political participation, political culture and functioning of government, which are, at best, marginalised by other measures.
Our index of democracy covers 167 countries and territories. The index, on a 0-10 scale, is based on the ratings for 60 indicators grouped in five categories: electoral process and pluralism; civil liberties; functioning of government; political participation; and political culture. The five categories are interrelated and form a coherent conceptual whole. Each category has a rating on a 0-10 scale, and the overall index of democracy is the simple average of the five category indices.
The category indices are based on the sum of the indicator scores in the category, converted to a 0-10 scale. Adjustments to the category scores are made if countries fall short in the following critical areas for democracy:
- whether national elections are free and fair;
- the security of voters;
- the influence of foreign powers on government; and
- the capability of the civil service to implement policies.
- full democracies—scores of 8 to 10;
- flawed democracies—score of 6 to 7.9;
- hybrid regimes—scores of 4 to 5.9;
- authoritarian regimes—scores below 4.
The pace of privatisations and IPOs is likely to be stepped up considerably if the recommendations of the National Economic Advisory Council (NEAC, a government agency) that are included in the second part of the New Economic Model (NEM) are fully adopted. (The NEM outlines reforms and a deregulation agenda that the government believes will enable Malaysia to achieve high-income status by 2020.) The NEAC argues that the government should not hold large stakes in non-strategic companies unless they are part of a liquid trading portfolio. It has also advised the government to privatise all non-strategic government-linked companies (GLCs) and to reduce to 30% its equity stakes in strategic GLCs, such as those involved in electricity generation, telecommunications, postal services, civil aviation, airports and public transport. According to the council, the majority of GLCs have become too big, have strayed beyond their mandates and are crowding out private businesses. It is also widely believed such enterprises receive preferential treatment from the government. The activities of the GLCs are a grey area: the NEAC admitted that there were significantly more than the 445 corporations that it had identified, covering a wide spectrum of business activities. The council recommended a full audit of all such companies and the creating of a transparent GLC Oversight Authority under the auspices of the Prime Minister’s Department, which would publish annual reports and ensure that GLCs adhere to their original mandates.
The NEAC also recommended the creation of a second sovereign wealth fund using the proceeds from the sale of stakes in GLCs, with any profits made by the fund to be used to encourage new private-sector initiatives. It said that, unlike the existing sovereign wealth fund, Khazanah Nasional, which is run by the Ministry of Finance, the new fund should not be under direct government control and should be accountable and transparent.
Full implementation of the NEAC's proposals would mean a radical change in Malaysia’s industrial policy, an objective that is likely to be beyond the government’s capabilities. Mr Najib, who is sympathetic to the council's proposals, has declared that a divestment strategy is underway and will be gradually implemented. However, there are concerns that GLCs will continue to receive preferential treatment from the government and that they will be awarded contracts for projects outlined in the ETP, many of which will not be subject to competitive tendering. The NEAC's recommendations for the GLCs are probably the most important proposals in the second part of the NEM, which was published on December 3rd, three months after it was delivered to the prime minister. The first part of the NEM was unveiled on March 30th and aroused strong opposition from conservative Malay groups opposed to economic liberalisation, which claim that deregulation and liberalisation threaten Malays' constitutional rights and privileges. There is no reference to the possibility of entirely scrapping the long-standing policy aim of increasing the bumiputera share of national wealth to 30% (from a tiny 2.4% in the 1970s), but the NEM pays much attention to the market distortions and inefficiencies resulting from affirmative-action policies.
Export revenue growth stood at only 1.3% year on year in October, despite strong global commodity prices. In terms of unit values, palm oil was up by 16.6% year on year, LNG by 12.5% and crude oil by 2.7%. Electronic and electrical products were still Malaysia’s largest export revenue earner, with a share of 40% of total exports, but shipments declined by 5.9% year on year. Merchandise imports, meanwhile, were relatively strong in October, rising by 12.4% year on year (representing only a slight deceleration from the previous month’s gain of 14.6%), with the value of intermediate goods imports surging by 15.1%. On a quarterly basis the value of merchandise exports has remained broadly unchanged since the fourth quarter of 2009. By contrast, the value of imports has continued to rise since the first quarter of 2010, reflecting restocking and firm domestic demand.
|Nominal GDP (US$ m)||156.6||186.8||222.3||192.8||235.2||271.1||296.6|
|Nominal GDP (M$ bn)||574.4||642.0||740.9||679.7||756.7||820.1||884.5|
|Real GDP growth (%)||5.8||6.5||4.7||-1.7||6.8||4.3||4.8|
|Expenditure on GDP (% real change)|
|Gross fixed investment||7.5||9.4||0.7||-5.6||10.1||5.6||6.1|
|Exports of goods & services||6.6||4.1||1.6||-10.4||11.2||6.6||8.2|
|Imports of goods & services||8.1||5.9||2.2||-12.3||15.5||6.8||9.2|
|Origin of GDP (% real change)|
|Population and income|
|GDP per head (US$ at PPP)||12,274||13,276||14,024b||13,731b||14,564||15,257||16,129|
|Fiscal indicators (% of GDP)|
|Public-sector debt interest payments||2.2||2.0||1.7||2.1||2.4||2.7||2.8|
|Public-sector primary balance||-1.2||-1.2||-3.1||-4.9||-3.1||-2.8||-1.9|
|Net public debt||42.2||41.5||41.4||53.3||52.9||54.7||55.7|
|Prices and financial indicators|
|Exchange rate M$:US$ (end-period)||3.53||3.31||3.46||3.42||3.14||3.02||3.00|
|Consumer prices (end-period; % change)||3.1||2.4||4.4||1.1||2.0||3.2||3.7|
|Producer prices (av; % change)||6.7||5.5||10.2||-7.3||5.1||4.4||5.7|
|Stock of money M1 (% change)||13.8||19.8||8.2||9.9||9.8||11.1||10.3|
|Stock of money M2 (% change)||16.6||11.0||13.3||9.5||8.6||10.5||14.2|
|Lending interest rate (end-period; %)||6.6||6.3||5.9||4.8||5.1||5.6||6.0|
|Current account (US$ m)|
|Goods: exports fob||160,916||176,220||199,733||157,655||189,496||213,008||228,996|
|Goods: imports fob||-123,474||-138,493||-148,472||-117,402||-146,231||-161,913||-181,026|
|Current transfers balance||-4,560||-4,668||-5,262||-5,580||-6,335||-7,031||-7,395|
|External debt (US$ m)|
|Debt service paid||7,630||10,436||8,772||11,506b||10,875||9,447||8,042|
|Debt service due||7,630||10,436||8,772||11,506b||10,875||9,447||8,042|
|International reserves (US$ m)|
|Total international reserves||82,426||101,313||91,528||96,713||100,051||107,895||119,416|
|a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts.|
|Source: IMF, International Financial Statistics.|
|4 Qtr||1 Qtr||2 Qtr||3 Qtr||4 Qtr||1 Qtr||2 Qtr||3 Qtr|
|Federal government finance (M$ m)|
|GDP at constant 2000 prices (M$ m)||131,611||121,660||127,256||134,717||137,463||133,890||138,520||141,895|
|GDP at constant 2000 prices (% change, year on year)||0.1||-6.2||-3.9||-1.2||4.4||10.1||8.9||5.3|
|Industrial production index (2000=100)||101.5||94.6||97.3||103.1||104.0||105.1||108.1||107.4|
|Industrial production index (% change, year on year)||-8.8||-14.6||-10.8||-7.0||2.4||11.1||11.1||4.2|
|Consumer prices (2005=100)||113.0||111.8||111.7||112.1||112.8||113.2||113.5||114.3|
|Consumer prices (% change, year on year)||5.9||3.7||1.3||-2.3||-0.2||1.3||1.6||1.9|
|Producer prices (2000=100)||118.2||113.3||113.6||114.6||118.3||120.5||120.7||n/a|
|Producer prices (% change, year on year)||0.9||-6.7||-11.1||-10.9||0.0||6.4||6.2||n/a|
|Exchange rate M$:US$ (av)||3.55||3.63||3.55||3.52||3.40||3.37||3.24||3.16|
|Exchange rate M$:US$ (end-period)||3.46||3.65||3.52||3.47||3.42||3.27||3.26||3.09|
|Deposit rate (av; %)||3.0||2.0||2.1||2.0||2.0||2.3||2.5||2.7|
|Lending rate (av; %)||5.9||5.2||5.0||4.9||4.8||5.0||5.1||5.2|
|Money market rate (av; %)||3.6||2.5||2.1||2.2||2.2||2.3||2.7||2.9|
|M1 (end-period; M$ bn)||182.8||179.7||185.6||191.4||200.9||201.2||209.0||213.4|
|M1 (% change, year on year)||8.2||3.5||5.5||6.6||9.9||12.0||12.6||11.5|
|M2 (end-period; M$ bn)||903.2||921.8||922.6||950.4||989.3||1,002.8||1,007.3||1,028.8|
|M2 (% change, year on year)||13.3||9.3||6.3||7.6||9.5||8.8||9.2||8.3|
|KLSE composite index (end-period; Apr 4th 1986=100)||876.8||872.6||1,075.2||1,202.1||1,272.8||1,320.6||1,314.0||1,463.5|
|KLSE composite index (% change, year on year)||-42.1||-38.9||-16.0||17.4||46.8||68.6||32.1||37.0|
|Electronic & electrical products index (2000=100)||93.0||71.3||77.6||89.4||94.6||97.0||101.2||97.8|
|Electronic & electrical products index (% change, year on year)||-22.5||-35.4||-31.0||-22.6||1.8||36.0||30.4||9.4|
|Mining index (2000=100)||98.6||96.0||93.3||95.2||95.2||96.7||93.8||92.9|
|Mining index (% change, year on year)||-4.6||-6.1||-3.2||-4.2||-3.4||0.7||0.6||-2.4|
|Foreign trade (M$ m)|
|Current-account balance (M$ m)||29,644||31,295||27,981||25,448||27,416||30,449||16,240||n/a|
|Reserves excl gold (end-period; US$ m)||91,149||87,434||91,154||94,810||95,432||94,003||93,336||99,205|
|Source: IMF, International Financial Statistics.|
|Exchange rate M$:US$ (av)|
|Exchange rate M$:US$ (end-period)|
|Real effective exchange rate (2000=100; CPI basis)|
|Money market rate (av; %)|
|Money supply M1 (end-period; % change, year on year)|
|Money supply M2 (end-period; % change, year on year)|
|Industrial production (% change, year on year)|
|KLSE composite index (end-period; Apr 4th 1986=100)|
|Consumer prices (av; % change, year on year)|
|Producer prices (av; % change, year on year)|
|Total exports fob (M$ m)|
|Total imports cif (M$ m)|
|Trade balance fob-cif (M$ m)|
|Foreign-exchange reserves excl gold (US$ m)|
|Sources: IMF, International Financial Statistics; Haver Analytics.|