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MACROECONOMICS
CASE STUDY REPORT ON
MACROECONOMIC POLICIES OF MALAYSIA
ACADEMIC YEAR 2022-23
FY BACHELOR OF COMMERCE (HONOURS) DIV - C

Roll No. Name SAP ID

C006 Arvind Kedia 74012200042

C007 Aryan Aggarwal 74012200258

C008 Aryan Somaiya 74012200277

C009 Avni Khandelwal 74012200947

C010 Ayush Agarwal 74012200423

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 Table of Content

SR. NO. TOPIC PAGE NO.

1 Abstract 4

2 Introduction 5

3 Pre covid 6

4 During covid 8

5 Post covid 12

6 Conclusion 15

7 References 17

8 Contributions 18

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 ABSTRACT

This report provides an overview of the macroeconomic policies used by Malaysia to address the
challenges posed by COVID-19. The report analyses Malaysia's economy in terms of growth
sector-wise, gross fiscal deficit/fiscal balance, public debt, inflation, trade balance, political
stability, employment, and poverty for the pre-COVID-19 period, the COVID-19 period, and the
recovery period from COVID-19. The report finds that Malaysia's economy contracted during
the COVID-19 period, with the services sector being severely affected by the movement control
order. To support the economy, the government implemented expansionary fiscal policy,
increasing government spending and providing stimulus packages. The report assesses the
effectiveness of Malaysia's macroeconomic policies in addressing the challenges posed by the
pandemic.

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 INTRODUCTION

The COVID-19 pandemic has had a significant impact on economies worldwide, and Malaysia is
no exception. The pandemic has led to a sharp decline in economic activity of the country. In
response to the pandemic, Malaysia has implemented a range of macroeconomic policies,
including fiscal and monetary policies, to mitigate the negative impact of the pandemic and
support economic recovery. This report aims to analyse the effectiveness of Malaysia's
macroeconomic policies in addressing the challenges posed by the pandemic.

The report will begin by providing an overview of Malaysia's economic conditions during the
pre-COVID-19 period, the COVID-19 period, and the recovery period from COVID-19.The
report will then analyse the macroeconomic policies used by Malaysia to tackle the challenges
posed by COVID-19, including the implementation of expansionary fiscal policies and monetary
policies. The report will assess the uniqueness of Malaysia's recovery pattern and analyse the
current economic situation in the country to determine the effectiveness of its macroeconomic
policies in addressing the challenges posed by the pandemic.

Overall, this report aims to provide a comprehensive analysis of Malaysia's macroeconomic

policies in response to the COVID-19 pandemic and to evaluate the effectiveness of these
policies in supporting economic recovery.

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 PRE COVID PERIOD (2019)

In 2019, Malaysia's economy experienced moderate growth, driven mainly by the services sector,
while the industry and agriculture sectors also contributed to the country's GDP. The country's
fiscal balance improved, with a lower gross fiscal deficit and a positive fiscal surplus, but public
debt remained relatively high. Inflation was low, and the country maintained a positive trade
balance, with a surplus driven by exports of electrical and electronics products, palm oil, and
liquefied natural gas. Political stability was generally good, although concerns over corruption
and political scandals impacted the government's credibility. Employment rates were relatively
high, but there were concerns over the quality of jobs in the informal sector. Poverty rates were
low, but income inequality remained a concern. Overall, Malaysia's economic condition in 2019
was stable, but there were areas of concern, particularly in public debt, job quality, and income
inequality, that required policy attention.

In 2019, Malaysia's economy was characterised by moderate growth, driven mainly by the
services sector. The country's gross domestic product (GDP) grew by 4.3%, which was a positive
trend for the economy. The services sector, which includes industries such as finance, tourism,
and retail, was the largest contributor to Malaysia's GDP, accounting for around 54% of the total
GDP. The industry sector, which includes manufacturing, construction, and mining, accounted
for around 27% of GDP. The agriculture sector, which includes activities such as farming,
fishing, and forestry, contributed around 8% of GDP.

Malaysia's fiscal balance improved in 2019, with the gross fiscal deficit at 3.4% of GDP,
compared to 3.7% in the previous year. The country's fiscal balance was also positive, with a
surplus of 0.7% of GDP in 2019. However, Malaysia's public debt was relatively high, at 52.5%
of GDP, which exceeded the government's threshold of 50%. This suggests that Malaysia's fiscal
position may not be sustainable over the long term.

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Poverty in Malaysia was relatively low compared to other countries in the region, with a poverty
rate of 5.6% in 2019. However, income inequality remained a concern, with the top 20% of
households earning more than half of the country's total income. This suggests that while poverty
rates may be low, there may be significant income disparities that could have negative social and
economic effects over the long term.

Inflation in Malaysia was relatively low in 2019, with an average inflation rate of 0.7%. This was
due to low food and fuel prices, which helped to keep inflationary pressures under control. The
country's trade balance remained positive, with a surplus of US$23.3 billion in 2019, driven by
exports of electrical and electronics products, palm oil, and liquefied natural gas.

Malaysia's political stability was generally good in 2019, with the ruling coalition, Barisan
Nasional, maintaining control of the government. However, the government's credibility was
affected by concerns over corruption and political scandals. These issues could have negative
effects on investor confidence and economic growth in the long term.

Employment in Malaysia was relatively high, with an unemployment rate of 3.3% in 2019.
However, there were concerns over the quality of jobs, with a significant number of workers
employed in low-wage jobs in the informal sector. This suggests that while the country's
employment rate may be high, the quality of jobs may not be sufficient to support sustainable
economic growth.

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 DURING COVID PERIOD (2020-21)

The COVID-19 pandemic has had a profound impact on the global economy, and Malaysia has
not been immune to its effects. As one of the largest economies in Southeast Asia, Malaysia has
faced significant challenges in maintaining economic stability during the pandemic.

The first COVID-19 case in Malaysia was reported on January 25, 2020, and the country went
into lockdown on March 18, 2020, in an effort to contain the spread of the virus. The lockdown
had a significant impact on the Malaysian economy, which is heavily reliant on trade and
tourism.
One of the sectors that was hit the hardest was tourism. Malaysia is a popular tourist destination,
but with the borders closed and international travel restricted, the number of visitors plummeted.
The tourism industry contributes around 15% of Malaysia's GDP, and the decline in tourism had
a significant impact on the overall economy.
Another sector that was severely impacted was manufacturing. Malaysia is a major exporter of
electronic products and parts, but with supply chains disrupted and factories forced to close,
many manufacturers were unable to operate at full capacity. This, in turn, affected other sectors,
such as transport and logistics.

Here are some general trends and statistics for the year 2020-2021:
Malaysia, like many other countries, has adopted both monetary and fiscal policies to mitigate
the economic impact of the COVID-19 pandemic. These policies aim to support households,
businesses, and the overall economy during this challenging time.

Growth Sector-wise: The pandemic had a significant impact on Malaysia's economy, with all
three sectors experiencing a contraction in 2020.

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Agriculture: The agriculture sector's contribution to Malaysia's GDP declined from 8.3% in
2019 to 7.6% in 2020, as a result of reduced demand and supply chain disruptions. The palm oil
industry, which accounts for a significant portion of Malaysia's agricultural exports, was
particularly affected by the pandemic.

Industry: The industry sector's contribution to Malaysia's GDP declined from 37.4% in 2019 to
34.3% in 2020, as a result of reduced demand and supply chain disruptions. The manufacturing
sector, which is a significant contributor to Malaysia's industry, was particularly affected by the
pandemic.

Service: The service sector's contribution to Malaysia's GDP declined from 54.3% in 2019 to
52.5% in 2020, as a result of reduced demand and restrictions on travel and tourism. The tourism
industry, which is a significant contributor to Malaysia's service sector, was particularly affected
by the pandemic.

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Gross Fiscal Deficit / Fiscal Balance: Malaysia's fiscal deficit widened significantly in 2020, as
a result of the government's fiscal stimulus measures and reduced revenue. The fiscal deficit
increased from 3.4% of GDP in 2019 to 6.1% of GDP in 2020.

Public Debt: Malaysia's public debt increased in 2020, as a result of the government's fiscal
stimulus measures and reduced revenue. Public debt increased from RM830.8 billion ($197
billion) or 52.5% of GDP in 2019 to RM 983.0 billion ($233 billion) or 58.0% of GDP in 2020.

Inflation: Malaysia's inflation rate declined in 2020, as a result of reduced demand and lower oil
prices. The inflation rate declined from 0.7% in 2019 to -1.2% in 2020.

Trade Balance: Malaysia's trade surplus declined in 2020, as a result of reduced exports and
lower oil prices. Malaysia's total trade declined by 4.8% in 2020, with exports declining by 1.4%
and imports declining by 8.4%.

Political Stability: Malaysia experienced a period of political instability in 2020, with the
collapse of the previous government and the formation of a new government. However, the
government's response to the pandemic was generally seen as effective and decisive, which
helped to maintain political stability.

Employment: The pandemic had a significant impact on employment in Malaysia, with the
unemployment rate increasing from 3.3% in 2019 to 4.5% in 2020. The government
implemented several measures to support employment, including wage subsidies, training
programs, and job placement services.

Poverty: The pandemic also had a significant impact on poverty in Malaysia, with an estimated
1.7 million people pushed into poverty in 2020. The government implemented several measures
to support low-income households, including cash transfers, food aid, and utility bill discounts.

The government took several steps to mitigate the impact of the pandemic on the economy. One
of the most significant measures was the Economic Stimulus Package, which was announced on
March 27, 2020. The package was worth RM 250 billion (approximately USD 60 billion) and
included measures such as cash handouts, wage subsidies, and loan moratoriums.

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The government also announced the Prihatin Rakyat Economic Stimulus Package in April 2020,
which provided additional support to small and medium-sized enterprises (SMEs) and
low-income households. In June 2020, the Penjana Economic Recovery Plan was introduced,
which included measures such as tax incentives and grants to help businesses adapt.

Despite these measures, the Malaysian economy contracted by 5.6% in 2020, the worst
performance in over two decades. The contraction was due to a combination of factors, including
the decline in exports, weak consumer spending, and the impact of the pandemic on businesses.

Monetary Policy

The Central Bank of Malaysia, Bank Negara Malaysia (BNM), has implemented a range of
monetary policy measures to ensure sufficient liquidity and support financial stability during the
pandemic.

1. Interest Rate Reductions: The BNM has reduced its policy interest rate multiple times
since the outbreak of COVID-19. The interest rate was first cut in January 2020, then
twice in March 2020, and subsequently in May and July of 2020. The current policy
interest rate is at a record low of 1.75%.
2. Liquidity Support: The BNM has introduced several measures to provide liquidity
support to banks and the financial system. For example, it has reduced the statutory
reserve requirement (SRR) ratio for banks, increased the size and frequency of its
overnight policy rate (OPR) operations, and introduced a fund to support small and
medium-sized enterprises (SMEs).
3. Currency Swap Agreements: The BNM has entered into several currency swap
agreements with other central banks to provide additional liquidity support in foreign
currency.

Fiscal Policy

The Malaysian government has also implemented various fiscal policies to support the economy
during the pandemic. These policies include:

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1. Economic Stimulus Packages: The Malaysian government has announced several
economic stimulus packages since the outbreak of COVID-19. The packages aim to
support households, businesses, and the economy as a whole. The first stimulus package,
announced in February 2020, was worth MYR20 billion (approximately USD4.7 billion).
Subsequent packages were announced in March, April, June, and September 2020, and in
January 2021. The total value of these packages is approximately MYR340 billion
(approximately USD81.7 billion).
2. Wage Subsidies: The government has implemented a wage subsidy program to help
businesses retain their employees. Under this program, the government subsidizes a
portion of the salaries of employees earning less than MYR4,000 (approximately
USD960) per month.
3. Tax Measures: The government has implemented several tax measures to support
businesses, including deferment of tax payments and reduction of corporate income tax
rates.
4. Social Welfare Programs: The government has increased social welfare spending to
support households affected by the pandemic. For example, it has increased the amount
of financial assistance provided to low-income households and expanded the coverage of
the Bantuan Prihatin Nasional (BPN) program, which provides cash assistance to
households.

In summary, Malaysia has implemented both monetary and fiscal policies to mitigate the
economic impact of the COVID-19 pandemic. The monetary policies implemented by
BNM aim to ensure sufficient liquidity and support financial stability, while the fiscal
policies implemented by the government aim to support households and businesses.
These policies have helped to mitigate the impact of the pandemic on the Malaysian
economy, but the ongoing nature of the pandemic means that policymakers will need to
continue to monitor the situation and adjust policies as needed

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 RECOVERY FROM COVID (2019-2022)

In 2022, Malaysia's economy showed signs of recovery, with GDP growth reaching 5.5% in the
first quarter of the year. The government continued to implement fiscal and monetary policies to
support the recovery, including targeted assistance for small and medium-sized enterprises and
infrastructure spending.

Uniqueness of recovery pattern:

Malaysia's recovery from the pandemic has been slower than some other countries in the region,
such as China and Vietnam, due to its reliance on the tourism industry and the impact of supply
chain disruptions. However, the government's targeted measures to support the economy and the
gradual reopening of international borders have helped to support the recovery.

In conclusion, Malaysia has faced significant challenges as a result of the COVID-19 pandemic,
with all sectors of the economy affected. However, the government's swift and decisive response,
which included both fiscal and monetary policies, has helped to mitigate the impact of the
pandemic on the economy and society. As Malaysia continues to recover from the pandemic, it
will be important for the government to continue to implement targeted measures to support the
most affected sectors and households.

In addition, Malaysia's recovery from the pandemic has highlighted the importance of
diversifying the economy and reducing its reliance on certain sectors, such as tourism. The
government has recognized this and has implemented policies aimed at promoting the growth of
new industries, such as digital technology and renewable energy.

One of the key lessons learned from the pandemic is the importance of preparedness for future
crises. The Malaysian government has already taken steps to strengthen its healthcare system and
invest in research and development for new treatments and vaccines. It is also important for
Malaysia to continue to promote international cooperation in responding to global health crises.

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Overall, Malaysia's response to the COVID-19 pandemic can serve as a model for other
countries, particularly in its emphasis on the importance of both fiscal and monetary policies in
mitigating the impact of the pandemic. As Malaysia continues to recover and rebuild, it will be
important for the government to prioritise inclusive and sustainable growth, with policies that
support all sectors of the economy and society.

It is difficult to predict the exact future of Malaysia after the COVID-19 pandemic, as it depends
on a variety of factors such as government policies, global economic conditions, and the pace of
recovery. However, here are some general trends and statistics to consider:

Growth sector-wise: Malaysia is a diversified economy, with the agriculture, industry, and
service sectors all playing important roles. In recent years, the service sector has been the largest
contributor to the country's GDP, followed by industry and agriculture. However, the pandemic
has affected each sector differently, and it remains to be seen how they will recover. The
government has announced various stimulus measures to support these sectors, including cash
handouts, tax exemptions, and loan guarantees.

Gross fiscal deficit/fiscal balance: Malaysia's fiscal deficit widened significantly in 2020 due to
the pandemic and associated government spending. The government implemented various
stimulus measures to support businesses and households, including cash handouts, wage
subsidies, and loan moratoriums. This led to a larger deficit of 6.2% of GDP in 2020, compared
to 3.4% in 2019. The government aims to reduce the deficit to 5.4% in 2021, and to achieve a
balanced budget by 2025.

Public debt: Malaysia's public debt has been rising in recent years, and the pandemic has further
exacerbated this trend. As of the end of 2020, the country's debt-to-GDP ratio stood at around
58%, up from 52.7% in 2019. The government has announced plans to gradually reduce the debt
ratio, but this will likely be a long-term challenge.

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Inflation: Inflation in Malaysia has remained relatively low in recent years, averaging around
1-2% per year. However, the pandemic has caused some disruptions to supply chains and
inflationary pressures, particularly in food and commodity prices. The government has
implemented various measures to mitigate these effects, including price controls and subsidies

Trade balance: Malaysia has traditionally been a net exporter, with exports of goods and services
accounting for a significant share of GDP. However, the pandemic has caused disruptions to
global trade and demand, leading to a decline in exports. The government has implemented
various measures to support exporters, including export incentives and trade promotion
programs.

Political stability: Malaysia has experienced some political instability in recent years, with
changes in government and a polarised political landscape. However, the current government has
a comfortable majority in parliament and has implemented various measures to support the
economy during the pandemic. Nevertheless, political stability remains a key factor for investors
and businesses.

Employment: The pandemic has caused significant disruptions to the labour market in Malaysia,
with unemployment rising and many businesses facing financial difficulties. The government has
implemented various measures to support employment, including wage subsidies and job
creation programs. However, the recovery of the labour market will depend on the pace of
economic recovery.

Poverty: Malaysia has made significant progress in reducing poverty in recent years, with the
poverty rate declining from 0.6% in 2016 to 0.4% in 2019. However, the pandemic has caused
some setbacks, particularly for vulnerable groups such as informal workers and low-income
households. The government has implemented various measures to support these groups,
including cash handouts and food assistance programs. However, poverty reduction remains a
long-term challenge for the country.

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Monetary Policy

The Central Bank of Malaysia, Bank Negara Malaysia (BNM), has continued to implement a
range of monetary policy measures to ensure sufficient liquidity and support financial stability
during the post-COVID-19 period.

1. Interest Rate Reductions: The BNM has continued to maintain its policy interest rate at a
record low of 1.75% since the outbreak of COVID-19. This has helped to support
borrowing and lending activities, as well as promote economic growth.
2. Liquidity Support: The BNM has continued to provide liquidity support to banks and the
financial system. For example, it has maintained a reduced statutory reserve requirement
(SRR) ratio for banks, and has also provided targeted liquidity assistance to support
businesses affected by the pandemic.
3. Currency Swap Agreements: The BNM has also continued to maintain currency swap
agreements with other central banks to provide additional liquidity support in foreign
currency.
4. Digital Payment Initiatives: The BNM has launched several digital payment initiatives to
promote cashless transactions and facilitate financial inclusion. For example, it has
launched the My QR digital payment system, which allows businesses to receive
payments via QR codes.

Fiscal Policy

The Malaysian government has also continued to implement various fiscal policies to support the
economy during the post-COVID-19 period. These policies include:

1. Economic Stimulus Packages: The Malaysian government has announced several

economic stimulus packages since the outbreak of COVID-19. These packages aim to
support households, businesses, and the economy as a whole. The most recent package,
announced in May 2021, was worth MYR40 billion (approximately USD9.6 billion). The
total value of these packages is approximately MYR530 billion (approximately
USD127.7 billion).

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 2. Employment Support: The government has continued to provide wage subsidies to
support businesses and help them retain their employees. It has also launched several
initiatives to support employment and skills development, including the PENJANA
Kerjaya program and the Hiring Incentive program.
3. Tax Measures: The government has continued to implement tax measures to support
businesses, including deferment of tax payments and reduction of corporate income tax
rates. It has also announced several measures to support the digital economy, such as the
Digital Investment Allowance and the Digital Service Tax.
4. Social Welfare Programs: The government has continued to increase social welfare
spending to support households affected by the pandemic. For example, it has expanded
the coverage of the Bantuan Prihatin Rakyat (BPR) program, which provides cash
assistance to low-income households.

In summary, Malaysia has continued to adopt both monetary and fiscal policies during the
post-COVID-19 period of 2020-2022 to support its economy. The monetary policies
implemented by BNM aim to ensure sufficient liquidity and support financial stability, while the
fiscal policies implemented by the government aim to support households and businesses. These
policies have helped to mitigate the impact of the pandemic on the Malaysian economy and
facilitate a strong recovery. However, the ongoing nature of the pandemic means

In summary, Malaysia has continued to adopt both monetary and fiscal policies during the
post-COVID-19 period of 2020-2022 to support its economy. The monetary policies
implemented by BNM aim to ensure sufficient liquidity and support financial stability, while the
fiscal policies implemented by the government aim to support households and businesses. These
policies have helped to mitigate the impact of the pandemic on the Malaysian economy and
facilitate a strong recovery. However, the ongoing nature of the pandemic means

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 CONCLUSION

As of April 2023, Malaysia's economy is showing signs of recovery from the COVID-19
pandemic, but it is still facing challenges. The country's GDP is expected to grow by 4.2% in
2022 and 4.5% in 2023, after contracting by 5.6% in 2020 and growing by a modest 4.4% in
2021.

Agriculture remains an important sector in Malaysia, but its contribution to the economy has
been declining in recent years. The main crops in Malaysia are palm oil, rubber, and cocoa.
Malaysia is the world's second-largest producer of palm oil after Indonesia. The government is
implementing various initiatives to promote sustainable agriculture practices and increase the
sector's productivity.

The industry sector is the largest contributor to Malaysia's GDP, accounting for 36.9% in 2020.
The main industries in Malaysia are electronics, petroleum, and chemicals. Malaysia is the
world's seventh-largest exporter of semiconductor devices and is home to major global
electronics manufacturers. However, the industry sector was severely impacted by the
COVID-19 pandemic, and the government is implementing various measures to support the
recovery of the sector.

The service sector is the second-largest contributor to Malaysia's GDP, accounting for 55.1% in
2020. The main service industries in Malaysia are finance, tourism, and healthcare. The tourism
industry, which is a significant contributor to Malaysia's service sector, was severely impacted by
the COVID-19 pandemic, and the government is implementing measures to support its recovery.
Malaysia's healthcare industry is growing rapidly, driven by an ageing population and increasing
demand for healthcare services.

Malaysia's fiscal deficit remains a concern, as it widened significantly in 2020 due to the
government's fiscal stimulus measures and reduced revenue. The fiscal deficit increased from

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3.4% of GDP in 2019 to 6.7% of GDP in 2020. However, the government is implementing
measures to reduce the deficit, including rationalising subsidies and increasing revenue through
various measures.

Malaysia's public debt is high, standing at 59.6% of GDP in 2020, and the government is
implementing measures to reduce it. Inflation is expected to remain moderate, with an average
rate of 2.3% in 2022-2023. Unemployment has been on the rise since the COVID-19 pandemic,
standing at 4.3% in 2021, but it is expected to decrease gradually as the economy recovers.
Poverty remains a concern, with a poverty rate of 5.4% in 2020, and the government is
implementing various initiatives to reduce poverty and promote inclusive growth.

The International Monetary Fund (IMF) has forecasted that the Malaysian economy will grow by
6% in 2021, driven by a rebound in exports and increased government spending. The
government has also announced plans to invest in infrastructure projects, such as the East Coast
Rail Link and the Pan Borneo Highway, which are expected to create jobs and stimulate
economic growth.

In conclusion, the COVID-19 pandemic has had a significant impact on the Malaysian economy,
particularly on the tourism and manufacturing sectors. However, the government's stimulus
measures and the rollout of vaccines have helped to mitigate some of the damage, and there are
signs of recovery in the economy. As the world continues to grapple with the pandemic, it is
important for Malaysia to remain vigilant and continue to implement measures that will support
economic growth and stability.

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 REFERENCES

● https://www.imf.org/en/Publications/WEO
● https://www.imf.org/en/Publications/FM
● https://www.bnm.gov.my/rates-statistics
● https://www.worldscientific.com/doi/10.1142/9789811228476_0004
● https://www.sciencedirect.com/science/article/pii/S0964569121001228
● https://www.worldbank.org/en/country/malaysia/publication/malaysia-economic-monitor-
june-2019-re-energizing-the-public-service
● https://www.treasury.gov.my/
● https://penjana.treasury.gov.my/en/
● https://pemerkasaan.treasury.gov.my/en/
● https://www.bnm.gov.my/-/monetary-policy-statement
● https://www.reuters.com/world/asia-pacific/malaysia-unveils-96-bln-covid-19-relief-pack
age-2021-05-31/
● https://www.treasury.gov.my/en/covid-19/tax-measures

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 CONTRIBUTIONS

Arvind Kedia (C006) : Abstract, Introduction and formatting

Aryan Aggarwal (C007) : During covid
Aryan Somaiya (C008) : Conclusion and formatting
Avni Khandelwal (C009) : Post covid
Ayush Agarwal (C010) : Pre covid, monetary and fiscal policy.

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