THE STAR, SATURDAY 8 OCTOBER 2022 ECONOMIC OUTLOOK 2023

REBUILDOUR
The government will
be adopting a holistic
approach to improve

ECONOMY
economic recovery
and the rakyat’s
wellbeing post-
pandemic.

CONSTRUCTION
EXPORTS
OF SERVICES

PUBLIC PUBLIC
AGRICULTURE IMPORTS CONSUMPTION
OF SERVICES INVESTMENT

MINING

PRIVATE
IMPORTS CONSUMPTION
OF GOODS

EXPORTS OF GOODS

SERVICES

MANUFACTURING PRIVATE
INVESTMENT

* Includes change in stocks

Source: Finance Ministry
2 Economic Outlook 2023
Reports by JAGDEV SINGH SIDHU, BK SIDHU, HANIM ADNAN, GURMEET KAUR, DALJIT DHESI, YVONNE TAN, LEONG HUNG YEE, BHUPINDER SINGH, FONG MIN YUAN,
EUGENE MAHALINGAM, GANESHWARAN KANA, DANIEL KHOO, THOMAS HUONG, KIRENNESH NAIR, ELIM POON and KEITH HIEW
Positive GDP growth for 2023
MALAYSIA’S economy is expected to grow by
4% to 5% in 2023 after posting a growth rate
of between 6.5% and 7% this year.
“Despite a softening world economic
growth and trade activities, the economy is
projected to grow between 4% and 5% in
2023, supported by steady domestic demand,
a vibrant services sector, implementation of
new and ongoing high multiplier infrastruc-
ture projects and sustained exports.
“The government will continue to monitor
global developments as well as implement
appropriate policies and reform initiatives to
strengthen the economy and fiscal position to
withstand potential external shocks, improve
people’s livelihoods and enhance business resi-
lience,” said the Economic Outlook for 2023.
The global economy is projected to grow
by 2.9% in 2023, albeit moderately due to
slower-than-expected growth in both
advanced economies as well as emerging
markets and developing economies.
For Malaysia, the services sector is forecast
to grow by 5% in 2023, benefitting from the
sustained domestic demand in spite of mod-
erate global economic growth.
Growth will continue to be mainly driven by
wholesale and retail trade; real estate and busi-
ness services; information and communica-
tion; transportation and storage; and food and
beverages and accommodation subsectors.
The manufacturing sector is forecast to grow
by 3.9%, supported by expansion in all sub-
sectors. Output in export-oriented industries
is anticipated to increase despite a softening
global trade, with the electrical and electronic
segment continuing to drive the industries.
In addition, the output of the rubber-based
products segment is projected to rise, mainly
attributed to the increase in production of
Fiscal deficit at 5.5% to GDP
The Federal Government’s revenue collection
in 2023 is projected to be lower at RM272.6bil
or 15% of gross domestic product (GDP) due
to lower, anticipated non-tax revenue collec-
tion.
In the Fiscal Outlook 2023, it said the non-
tax revenue is expected at RM67bil, declining
23% from 2022 due to lower dividends from
government entities.
However, tax revenue remains the major
contributor and is anticipated to grow moder-
ately by 3.7% to RM205.6bil, in line with the
projected slower economic recovery.
In line with the targeted spending approach,
total expenditure in 2023 is projected to be
slightly lower at RM372.3bil or 20.5% of GDP,
mainly due to the expiry of the Covid-19 Fund.
The allocation for operating expenditure is
reduced to RM272.3bil, primarily due to
lower allocation for subsidies following the
expected moderation in commodity prices
and gradual move towards a targeted subsidy
approach.
Meanwhile, the development expenditure
allocation is projected to increase significant-
ly to RM95bil on account of higher allocation
for the 12th Malaysia Plan programmes and
projects such as construction of highways and
railways, medical facilities as well as educa-
tional institutions.
In addition, a sum of US$3bil (RM14bil) is
THE government is committed to improving
the credibility of the fiscal policy conduct and
framework through holistic reforms.
Proactive fiscal reforms are imperative for
long-term fiscal sustainability, given the sever-
ity of the pandemic’s adverse impacts on coun-
tries with fragile economic fundamentals.
These reforms include revenue enhance-
ment measures and subsidy rationalisation
programmes to ensure fiscal sustainability
and debt affordability. Overall, the govern-
ment is responsible for ensuring an effective
and efficient fiscal framework to enhance the
credibility of fiscal policy while maintaining
macroeconomic stability and safeguarding
the wellbeing of the rakyat.
Under the Medium-Term Fiscal Framework
(MTFF) 2023-2025, total revenue in the medi-
um-term is projected at RM854.3bil or 14.7%
tyres and tubes following buoyant global
demand for motor vehicles.
For 2023, the agriculture sector is forecast
to increase by 2.3%, attributed to an improve-
ment in labour supply within the sector. The
oil palm subsector is expected to expand on
account of higher output following an
increase in fresh fruit bunch production and
a better oil extraction rate.
The price of palm oil is forecast to average
at RM4,300 per tonne in 2023 compared with
RM5,000 per tonne in 2022 and higher than
the last 10-year average of RM2,685 per tonne,
as supply of global edible oils and fats is
anticipated to remain tight.
The mining sector is expected to expand by
1.1% on account of higher natural gas output
as the completion of new pipeline projects in
Sarawak, namely the Kasawari, Jerun and
Timi, is anticipated to boost production, espe-
cially during the second half of the year.
Brent crude oil price is expected to record a
lower average of US$90 (RM412) per barrel.
The construction sector is forecast to
expand by 4.7% in 2023 following a better
performance in all subsectors. The civil engi-
neering subsector is anticipated to rebound,
buoyed by implementation of new projects
provided for the redemption of 1Malaysia
Development Bhd bond.
Moreover, a sum of RM5bil is for outstand-
ing payments of the Covid-19 fund commit-
ments made in 2022.
Overall, the fiscal deficit is expected to
reduce to 5.5% of GDP in line with the govern-
ment’s commitment towards consolidating
the fiscal position for a more sustainable
public finance in the medium term.
Similarly, the primary deficit is estimated
to reduce to 2.9% of GDP.
Guided by the medium-term fiscal frame-
work (MTFF), the fiscal consolidation will be
accelerated once the inflationary pressure
dissipates and the economy fully recovers.
The MTFF 2023-2025 has been revised with
underlying assumptions of real GDP growth
averaging 6%, crude oil prices at US$90
(RM417) per barrel and stable crude oil pro-
duction of 530,000 barrels per day.
These assumptions offer conservative esti-
mates of revenue and prudent expenditure
allocation during the MTFF period.
Total revenue in the medium-term is pro-
jected at RM854.3bil or 14.7% of GDP, mainly
contributed by non-petroleum revenue which
is estimated at RM699.5bil or 12% of GDP.
Petroleum-related revenue is forecast at
RM154.8bil or 2.7% of GDP.
On the expenditure side, the total indica-
Reforms towards long-term fiscal sustainability
of gross domestic product (GDP), mainly con-
tributed to non-petroleum revenue which is
estimated at RM699.5bil or 12% of GDP.
Petroleum-related revenue is forecast at
RM154.8bil or 2.7% of GDP. The government
will continue to improve revenue collection
by enhancing revenue base, reducing leakag-
es and exploring new sources of revenue
guided by the Medium Term Revenue Strategy.
Meanwhile, on the expenditure side, the
total indicative ceiling for the three years is
estimated at RM1.1 trillion or 19.1% of GDP
with operating expenditure (OE) allocation
projected at RM842.8bil or 14.5% of GDP,
while development expenditure (DE) at
such as the Mass Rapid Transit Line 3 Circle
Line and acceleration of ongoing infrastruc-
ture projects which include the Rapid Transit
System (RTS) Link, East Coast Rail Link (ECRL)
and Light Rail Transit Line 3 (LRT3).
In addition, the approved investment pro-
jects in the manufacturing sector are anticipat-
ed to come onstream and subsequently create
greater demand for industrial buildings.
The economy is expected to remain resilient,
with domestic demand continuing to drive
growth amid a softening global environment.
Private sector expenditure is forecast to grow
at 5.8% with the share to gross domestic prod-
uct (GDP) at 76.2%, while public sector expend-
iture is projected to expand by 2% with the
share to GDP at 17%. Hence, domestic demand
is envisaged to further expand by 5.1%.
Private consumption, which has been
robust despite global uncertainties, is antici-
pated to grow by 6.3%. The growth forecast
will be supported by continuous improve-
ment in the labour market as well as robust
economic and social activities particularly the
tourism-related activities.
The special financial assistance in January
2023 to civil servants and pensioners will
support household disposable income and
stimulate private spending.
Private investment is projected to register
a growth of 3.7% attributed to an increase
in capital spending in technology-intensive
manufacturing and services sectors, particu-
larly ICT-related machinery and equipment.
The continuation of large-scale transport-
related projects such as ECRL, LRT3 and RTS
Link will also provide impetus to public invest-
ment. These initiatives are expected to help
public investment increase by 2.1% in 2023.
Public consumption is also projected to expand
Federal government overall and primary balance
Fiscal balance
'08 '09 '10 '11 '12 '13
0
-1
-2
-1.7
-2.3
-3
-2.7
-3.0
-3.4
-4
-3.8
-4.3
-4.6
-5
-4.7
-4.7
-5.3
-6
-7
-6.7
-8
tive ceiling for the three years is estimated
at RM1.1 trillion or 19.1% of GDP with OE
allocation projected at RM842.8bil or 14.5% of
GDP, and DE at RM263.9bil or 4.5% of GDP.
Overall, the fiscal deficit is expected to con-
solidate at a gradual pace with the overall
balance averaging at 4.4% of GDP for the
MTFF period.
RM263.9bil or 4.5% of GDP.
Overall, the fiscal deficit is expected to con-
solidate at a gradual pace with the overall
balance averaging at 4.4% of GDP for the
MTFF period. The lower deficit will give flexi-
bility for the government to regain fiscal
room and provide counter-cyclical measures
for future crises.
The fiscal policy in 2023 will continue to be
agile, supporting the growth momentum
towards achieving the national development
agenda. The fiscal resources will be channelled
through a more targeted approach and allocat-
ed in priority areas, particularly to enhance
economic capacity and competitiveness.
THE STAR, SATURDAY 8 OCTOBER 2022
by 2% on account of higher spending on emol-
uments, mainly due to special additional annu-
al salary increment for civil servants.
The share of CE (Employee Compensation)
of GDP is projected to rise to 35.2% in 2023.
However, the share is still relatively lower
than comparable peers and advanced econo-
mies. Thus, in ensuring a more equitable
sharing of the growth benefit between emp-
loyees and capital owners, there is a need for
a paradigm shift from the low-wage labour
market structure towards a more decent
wage standard. Otherwise, insufficient wage
increase from the current level may deter the
attainment of the long-term CE target of 40%
of GDP in 2025 under the 12th Malaysia Plan.
In line with strong economic growth expec-
tation supported by continued efforts to pre-
vent revenue leakages and strategies to imple-
ment a wider tax base, income from indirect
tax and non-tax revenue on production and
imports is projected to expand by 7.5%.
Meanwhile, with the expiration of the Covid-
19 Fund assistance, subsidy expenditure is
expected to decrease significantly by 50.2%.
Thus, income from taxes less subsidies on
production and imports is expected to record
a larger increase in 2023.
Gross exports are expected to moderate by
2.2% across all sectors, supported by modest
external demand due to lacklustre growth
following global uncertainties arising from
prolonged geopolitical tensions, supply chain
disruptions and volatility in global commodi-
ty prices.
Gross imports are expected to increase mar-
ginally by 0.2% on account of high demand for
capital, intermediate and consumption goods
indicating sustained domestic demand and
improvement in investment activities.
Primary balance
'14 '15 '16 '17 '18 '19 '20 '21 '22 '23
-0.9
-1.0
-1.1
-1.2
-1.3
-1.6
-2.9
-2.9
-3.1
-3.2
-3.3
-3.4
-3.4
-3.7
-3.7
-3.9
-5.5
-5.8
-6.2
-6.4
graphics
Moving forward, the government is com-
mitted to improving the credibility of the fis-
cal policy conduct and framework through
holistic reforms. The experience of other
countries in reforming their fiscal framework
provides a valuable reference for the govern-
ment in adopting fiscal reform initiatives
based on international best practices.
The government’s budget remains expan-
sionary to provide sufficient fiscal support in
ensuring the rakyat’s well-being and under-
taking economic reforms while continuing
the fiscal consolidation plan.
The Federal Government’s revenue collec-
tion in 2023 is projected to be lower at
RM272.6bil or 15% of GDP due to anticipated
lower non-tax revenue collection.
The non-tax revenue is expected at RM67bil,
declining 23% from 2022 due to lower divi-
dends from government entities. But tax rev-
enue remains the major contributor and is
poised to grow by 3.7% to RM205.6bil, in line
with the projected slower economic recovery.
THE STAR, SATURDAY 8 OCTOBER 2022
THE Federal Government’s debt
level trajectory is forecast to remain
within the statutory debt limit in
the medium-term due to the scar-
ring effect of additional borrowing
during the Covid-19 pandemic
and the funding requirements for
the implementation of the 12th
Malaysia Plan.
“Therefore, the current debt limit
will be maintained to provide fiscal
space in executing the nation’s
development agenda, strengthen-
ing the economy and ensuring sus-
tainable recovery.
“Concurrently, the government is
also exploring the feasibility of a
single debt limit as one of the
fiscal rules,” said the Fiscal Outlook
2023 report.
According to the report, the gov-
ernment aims to gradually reduce
the Federal Government’s debt-to-
gross domestic product (GDP) ratio
Reducing debt and liabilities
THE government will continue to
take a proactive approach in moni-
toring its liabilities and risk expo-
sure in order to assess and improve
the level of indebtedness, while
ensuring prudent management of
its debts and liabilities.
Malaysia currently reports on
debt and liabilities exposure com-
prising the Federal Government’s
debt, committed guarantees,
1Malaysia Development Bhd
(1MDB) debt, commitment from
public-private partnerships (PPP),
public finance initiatives (PFIs) and
projects under PBLT Sdn Bhd.
As at end-June 2022, the govern-
ment’s total debt and liabilities
exposures was estimated at
RM1,420.4bil or 82.9% of gross
domestic product (GDP).
On government guarantees (GGs),
total outstanding GGs moderated
to RM307bil or 17.9% of GDP as
at end-June 2022 compared with
RM310.4bil or 21% of GDP as at
end-2021.
The slight reduction was attribut-
ed to the completion of financing
terms for several GG recipients
such as Pahang State Development
Corp and Johor Corp, as well as sig-
nificant repayment of outstanding
principal by Khazanah Nasional
Bhd.
However, there were new issu-
ances by DanaInfra Nasional Bhd
for public transportation projects,
as well as Federal Land Develop-
ment Authority restructuring and
Improving Malaysia’s fiscal risk management
FISCAL risk management has
emerged as an important aspect in
budgetary processes and fiscal esti-
mates.
Unexpected circumstances in
recent years, particularly the Covid-
19 pandemic and geopolitical ten-
sions, have shown that a country’s
public finances can be adversely
affected without proper risk identi-
fication and management.
Apart from these unforeseen
events, the government’s policies
may pose risks to its fiscal estimates
and forecasts.
Therefore, many countries have
imputed governance and transpar-
ency into their legal framework to
encompass fiscal decisions that may
impact any long- and medium-term
fiscal forecasts.
As an open and diversified econ-
omy, Malaysia is not completely
insulated from global and domestic
Effective strategies for debt management
to provide the country with fiscal
headroom in order to manage
potential crises in the future.
The lowering of the debt burden
can be realised through fiscal
reforms accompanied by improved
revenue collection post-crisis and
expenditure rationalisation.
The pace of economic momen-
tum remains positive and is expect-
ed to grow between 6.5% and 7% in
2022, which will expedite the debt
level trajectory towards a down-
ward path, it added.
Being a small and open economy,
Malaysia is not fully insulated from
current global developments, par-
ticularly high commodity and food
prices.
“Thus, the government provides
Outstanding loan guarantees
Loan guarantees (RM bil)
300
250
200
150
100
50
0 0
2017 2018
Source: Statistics Department
rehabilitation exercises.
On a segmental basis, infrastruc-
ture was the highest GG recipient
(56%), followed by services (26.7%),
investment holding (7.6%), utilities
(5.4%) and others (4.3%), in which
the 10 main outstanding GGs consti-
tuted more than 85% of total guar-
antees.
In terms of currency denomina-
tion, more than 90% of the GGs
was in ringgit while the remaining
developments that have affected its
fiscal outcomes over the last few
decades. Therefore, fiscal risks in
Malaysia mainly occur from either
macroeconomic risks or specific
risks.
Macroeconomic risk arises from
any changes in conditions which
could directly alter the economic
parameters such as gross domestic
product growth, commodity price
and inflation, assumed in the budg-
etary planning and fiscal forecast-
ing.
Specific risk is unique and affects
a particular component of the
fiscal structure that may contribute
to uncertainties in fiscal outcome.
Changes in policy direction and
demography, as well as events that
cause contingent liabilities to mate-
rialise and natural disasters are
some instances of specific risks.
The Covid-19 pandemic has
additional fiscal support to mitigate
the impact of the rising prices on
the rakyat.
“Consequently, the borrowing
requirements for the year are pro-
jected to be slightly higher than
budgeted as the additional revenue
collection is insufficient to absorb
the increase in expenditure,” the
report said.
It added that effective debt man-
agement strategies have been put
in place, among others to raise the
borrowings domestically, lengthen
the tenure of issuances and intro-
duce a new sustainability instru-
ment.
The tightening of monetary poli-
cy has not significantly impacted
the government’s borrowing costs
2019 2020
GGs were a mix of other currencies
including renminbi, yen and
the US dollar, thus minimising cur-
rency risk exposure to the govern-
ment.
Out of the total outstanding GG,
65% were committed guarantees.
As at end-June 2022, committed
guarantees increased slightly to
RM199.9bil from RM197.3bil in
end-2021.
The increase in committed guar-
impacted economic growth world-
wide, consequently exposing or
aggravating most governments’ fis-
cal vulnerability.
In Malaysia, continuous risk
identification and assessment are
being carried out to ensure proper
policy responses in mitigating the
impact.
Hence, the government has iden-
tified potential fiscal risks in the
coming years that may affect public
finances, such as inflation and high-
er subsidy expenditure, a slower
growth outlook and moderated
commodity price in 2023.
Malaysia’s fiscal risk manage-
ment framework has been in place
since the country’s independence
and has gradually evolved.
There was exponential improve-
ment in the country’s fiscal risk
management in the last few dec-
ades, contributed by the lessons
Economic Outlook 2023
as the overnight policy rate is still
below pre-pandemic level.
In 2022, the total gross borrow-
ings are projected to reach RM232bil
or 13.5% of GDP and financed
entirely from the domestic market.
Of the total proceeds, RM132.3bil
will be utilised for principal, while
the remaining RM99.5bil will be
used for deficit financing.
The availability of ample liquidi-
ty in the domestic market enabled
the government to raise its borrow-
ings and manage the cash flow
requirements via its ringgit-denom-
inated instruments.
The issuance of Malaysian Gov-
ernment Securities is expected to
record RM86.5bil or 37.3% of total
gross borrowings.
% GDP
24
17.9 20
16
12
8 financial allocation from the gov-
4 The PFI projects were initiated by
2021 2022¹
graphics
antees was attributed to new
financing issuances by existing enti-
ties such as DanaInfra, Prasarana
Malaysia Bhd and Malaysia Rail
Link Sdn Bhd for ongoing transpor-
tation projects.
Meanwhile, 1MDB’s outstanding
debt had reduced to RM25.9bil as at
end-June 2022 following the settle-
ment of 1MDB Energy Ltd’s debt
obligation in May this year.
The government’s initiatives to
learnt from numerous episodes of
crisis.
Currently, the fiscal risk frame-
work is divided into three main
components, namely legal frame-
work, administrative control and
monitoring committee.
Historically, Malaysia has a good
track record when it comes to miti-
gating risks and responding swiftly
to any economic shocks faced by the
country.
Though measures taken during
the crisis impacted the fiscal out-
come during the year, the govern-
ment will steadily pursue the fiscal
consolidation path towards streng-
thening public finances.
However, the need for a more
comprehensive fiscal risk manage-
ment is increasingly important, in
line with the changing dynamics of
the world.
Unexpected occurrences of
3
“The current
debt limit will be
maintained to
provide fiscal
space in executing
the nation’s
development
agenda.”
Fiscal Outlook 2023
recover 1MDB’s assets involving
extensive joint investigative works,
negotiations as well as initiation of
litigation processes.
As at end-June 2022, 1MDB’s out-
standing financial obligations were
estimated at RM31.6bil, comprising
debt principal of RM25.9bil and
projected interests or profits of
RM5.7bil.
Other financial liabilities of the
government include cash commit-
ment projections of PPP projects,
financial obligations of PFI projects
and financing by PBLT.
As at end-June 2022, there were
105 PPP projects which required
ernment with an estimated cash
commitment of RM98.4bil.
the government to expedite infra-
structure development projects.
The source of financing for PFIs
projects came from the Employees
Provident Fund and Retirement
Fund (Incorporated), while the gov-
ernment provided allocation for the
financing repayment.
Outstanding PFIs liabilities as at
end-June 2022 were estimated at
RM48.1bil.
PBLT has raised several sukuks
for financing infrastructure pro-
jects, which include the construc-
tion of police stations, training cen-
tres and living quarters.
The outstanding liabilities of
PBLT were estimated at RM3.2bil as
at end-June 2022.
events such as geopolitical crises,
spread of diseases and natural dis-
asters can distort the global trade
supply chain, hence affecting the
fiscal outcome of a country.
Furthermore, the world has seen
the economic crisis cycle shortened
year by year, limiting the time for
governments to consolidate their
fiscal position in embracing the
next cycle of crisis.
Therefore, effective management
of fiscal risks will enable the
government to plan for sufficient
fiscal space and prepare for any
shocks.
The introduction of the Fiscal
Responsibility Act will support the
government in enhancing fiscal
risk management, while also
improving Malaysia’s fiscal policy
formulation in accordance with
international standards and global
best practices.
4 Economic Outlook 2023
Rise in consolidated public sector’s current balance
THE consolidated public sector’s
(CPS) current balance is expected to
rise by 14.9% to RM110.4bil from
RM96.1bil in 2021.
The growth is led by higher non-
financial public corporations’ (NFPC)
current surplus, led by a significant
boost in revenue driven by higher
commodity prices.
The consolidated development
expenditure will rise by 39.4% to
RM174.4bil from RM125.2bil in
2021, in line with higher invest-
ments, particularly by the NFPCs.
Therefore, the overall deficit of
the CPS is estimated to rise to
RM92.9bil, thereby making up 5.4% of
gross domestic product (GDP) in 2022.
The CPS consists of general gov-
ernment units, namely federal, state
Federal Government Budget 2023
WHERE IT COMES FROM
Borrowings and use of
government assets
26.8%
RM372,340¹
million
Non-tax
revenue
18%
Indirect tax
14%
1
Consists of revenue and borrowings
2
Excludes contingency reserves
³ Covid-19 fund under the Temporary Measures for Government Financing
(Coronavirus Disease 2019(COVID-19)) Act 2020
Source: Finance Ministry
Strategic initiatives for Budget 2023
IN weathering the challenging global
environment while the country is in
the post-pandemic recovery phase,
the government will continue to
provide the relevant support for the
rakyat and businesses.
In this regard, Budget 2023’s
emphasis is on strengthening the
momentum of recovery, building
economic resilience and catalysing
comprehensive reforms.
A holistic approach will be adopt-
ed to strengthen the momentum of
recovery in improving the wellbeing
of the rakyat after the Covid-19 pan-
demic.
In view of the rising cost of living
and impact of crises, the govern-
ment will continue to mitigate the
risks faced by the lower income
groups in the event of an economic
crisis or natural calamity.
Hence, the social protection sys-
tem will be strengthened to broaden
coverage for the rakyat against vari-
ous vulnerabilities.
Towards inclusive and sustainable
growth, the government will under-
take development and provide pub-
lic services to reduce disparities
between regions and communities.
Budget 2023 will present strate-
gies and programmes that focus on
creating a better, safer and more
inclusive society.
and local governments, Federal
Statutory bodies and NFPCs. The CPS
gives an overview of the financial
performance of these units.
General government revenues are
projected to grow by 17.9% to
RM339.1bil in 2022, led by higher
Federal Government (FG) revenue
collection supported by higher com-
modity prices and improved eco-
nomic activities, including financial
services.
The government’s operating exp-
enditure (OE) is expected to rise by
20% to RM327.3bil, mainly because
of higher FG’s OE. The current sur-
plus will be RM11.8bil compared to
RM16.9bil a year earlier.
The consolidated revenue collec-
tion of state governments in 2022
WHERE IT GOES
Development
expenditure Security 1.3%
administration
2.9%
Income tax
Social
38.5%
6.8%
Economic
14.5%
Others
6.5%
Subsidies and
social assistance
Other 11.3%
direct tax
2.6% Grant and transfer Retirement charges
to state governments
2.2%
In this respect, the government
aspires to ensure that the rakyat have
access to employment and business
opportunities to raise their income.
Priority will continue to be given
towards investments that generate
quality employment and business
opportunities, in addition to contrib-
uting towards a more resilient, com-
petitive and future-proof industry in
line with the Fourth Industrial
Revolution and digitalisation agenda.
Measures will be introduced to
encourage more people to join the
labour market, especially women
and the younger generation, through
employment and entrepreneurship
programmes.
Strategies to expedite automation
and high value-added production
activities in industries will also be
enhanced to stimulate higher
demand for skilled workers.
In addition, the government will
promote the adoption of technology
by farmers and entrepreneurs to
increase agricultural productivity.
At the same time, the community,
especially youth, will be encouraged
to participate in urban farming and
modern agriculture.
Given the importance of improv-
ing the quality of life, the govern-
ment aspires to meet the housing
needs of the rakyat by facilitating
will rise by 9% to RM31.2bil versus
RM28.7bil in 2021. Of this, 78.1% is
from state generated revenue and
the balance comprises transfers and
grants from the FG.
The largest share of the consoli-
dated state-generated revenue are
from Sarawak, Sabah, Selangor,
Terengganu and Johor, making up
80.7% or RM19.7bil.
The report said non-tax revenue
is projected at RM13bil or 41.6% of
the consolidated revenue. The main
components are petroleum royalties
at RM4.5bil, investment income at
RM2.8bil and land premiums at
RM2.2bil.
Non-revenue receipts are expect-
ed at RM8.5bil, which are mainly
grants from FG at RM6.8bil.
General
Covid-19 fund³
1.3%
Emoluments
24.4%
Debt
RM372,340² service
million charges
12.4%
Supplies
and services
8.6%
7.8%
Operating expenditure
graphics
financing facilities, including for the
informal sector.
Budget 2023 also aims to improve
access to quality healthcare nation-
wide, including a focus on preven-
tion and health screenings.
The government will also strength-
en investments in security and edu-
cation besides extending the access
of basic infrastructure nationwide.
Towards achieving inclusivity
across the country, focus will be
given to measures to upgrade and
expand education and healthcare
facilities, as well as transportation
and communication connectivity.
Malaysia’s economy expanded by
6.9% in the first half of 2022. With a
favourable growth momentum in
the domestic economy and steady
expansion in the external sector as
well as continued improvement of
the labour market conditions, the
economy is anticipated to expand
between 6.5% to 7% in 2022.
In 2023, the economy is expected
to grow moderately between 4% and
5%, backed by strong fundamentals
and diversified economic structure,
coupled with ongoing policy support
to cushion the impact of rising cost
of living and mitigate the downside
risks stemming from prolonged geo-
political uncertainties and tighten-
ing global financial conditions.
The consolidated state govern-
ment’s OE is projected to increase by
5% to RM15bil mainly due to higher
transfers and fixed charges, as well
as suppliers and services outlays.
The consolidated state govern-
ment’s financial position is expected
to record a current surplus of
RM16.3bil or 52% of total consolidat-
ed state revenue.
NFPCs continue to adopt new
norms and have demonstrated reli-
ance and readiness to thrive in a
challenging economic recovery envi-
ronment.
Several economic subsectors such
as oil and gas, logistics, healthcare
including information and commu-
nication technology benefited from
current global uncertainties.
Eyeing an expansionary fiscal policy New growth
THE Malaysian government has
proposed an expansionary fiscal
policy with Budget 2023 having a
total allocation of RM373.3bil as
compared to RM385.3bil in 2022.
This was done with the aim of
balancing the interest of the rakyat
with sustaining economic growth
under the assumption of a more
challenging year ahead, due to
weaker global economic prospects
amid political tensions and fiscal
limitations.
The RM373.3bil budget accounts
for 20.5% of gross domestic product
(GDP), while 73.1% of the amount
or RM272.3bil (RM284.7bil in 2022)
has been allocated for operational
expenditure (OE) and RM95bil
(RM71.8bil) or 25.5% for develop-
ment expenditure (DE).
Putrajaya has also allocated
RM5bil under the new budget for
outstanding payments of Covid-19
Tackling wage issues
beyond the pandemic
THE common assumption that
increasing wages could lead to mar-
ket distortion and reversely affect
economic performance seems to be
an “unpronounced curse” to the
Malaysian economy.
These assumptions are strongly
held by the majority of employers
due to the lack of evidence-based
facts and scientific evaluation.
This article provides exposure of
the attainable benefits to employers,
employees and the economy as a
whole when wage rates are raised
higher than the current level.
The need to increase wages post
the Covid-19 pandemic has become
a common issue in most countries,
including Malaysia.
From a worker’s perspective, an
increase in wage is necessary to
compensate for the higher prices of
goods and services.
Generally, employers claim that
wage increases could inflate prices,
leading to market distortions that
could pose a threat to the economy.
But cross-country studies show
that an increment in wages will gen-
erate more income to businesses.
THE STAR, SATURDAY 8 OCTOBER 2022
NFPCs’ revenue is expected to
record a higher growth of 32.8% to
RM517bil versus RM389.4bil last
year. This makes up 30.2% of GDP
and mainly contributed by the O&G
sub-sector, led by global oil price
surges.
NFPCs’ total expenditure for 2022
will rise to RM516.6bil or 30.2% of
GDP.
Of this, current expenditure reve-
nue increased to RM415.7bil and
capital expenditure to RM100.9bil.
This is in line with the resumption of
economic activities.
The consolidated financial posi-
tion of the NFPCs is expected to
record a substantial current surplus
of RM101.4bil in 2022 versus
RM80.8bil a year earlier.
Fund (RM28.8bil in 2022) commit-
ments made in 2022.
With OE rising some 400% in the
past two decades, the government is
embarking on a Public Expenditure
Review and targeted subsidy initia-
tives to consolidate its fiscal position
to ensure fiscal sustainability in the
long term.
The slightly lower OE year-on-
year under Budget 2023 is premised
on expectations of reduced alloca-
tion for subsidies and social assis-
tance, projected to total RM42bil as
commodity prices moderate, coiled
with the gradual implementation of
a targeted subsidy mechanism.
Subsidies and social assistance
amounted to RM80bil last year with
45% of the amount spent on fuel
subsidies. This took government
spending on subsidies and social
assistance programmes to RM485bil
from 2000 to 2021.
An economy functions as a sys-
tem of interaction between expendi-
ture and income flows.
Households provide labour input
to the economic sector and receive
wages in return.
The more wages earned, the high-
er consumption of goods and servic-
es, hence generating additional prof-
its for the business sector.
For example, a simulation of 3%
to 5% increment to the current
wages of the semi- and low-skilled
workers results in higher gross
domestic product growth and labour
productivity.
Meanwhile, labour is an impor-
tant input in the production process.
An increase in labour input will
increase production and vice versa.
In the event that labour shortages
do occur, higher wages tend to
attract more women outside of the
labour force into the labour market.
Also, adopting technology in the
production process is a way to
increase output by optimising the
use of production inputs such as
labour and energy.
Increasing wages for labour-
WITH climate change possibly
impacting various areas of the econ-
omy and overall wellbeing, the gov-
ernment will be keeping its foot on
the pedal with initiatives designed to
minimise any negative effects on
the country while looking to gener-
ate growth, said Bank Negara in its
Economic Outlook 2023 report.
The central bank noted that the
possible far-reaching effects of cli-
mate change can be seen in innu-
merable areas, including food, water
security, disaster mitigation, as well
as in the tourism and agriculture
industries.
“As a net food importer, Malaysia
is considered as having some level of
over-dependence on food and agri-
cultural imports. As seen during
Covid-19 and the Russia-Ukraine
conflict, other countries could poten-
tially reduce their exports, which
would result in supply shocks and
The OE, however, remains elevat-
ed due to higher allocation for emol-
uments, retirement charges, debt
service charges (DSC) and grants to
statutory bodies.
Emoluments for civil servants
remain the highest spending from
OE at 33% or totalling RM90.8bil due
to provision of special annual salary
increment and adsorption of con-
tract officer to permanent positions,
particularly in the education (18,100
teachers) and health sectors (5,700
medical officers).
Retirement charges are estimated
to rise by 1.4% to RM29.1bil or 10.7%
of OE under Budget 2023 with 75.3%
or RM21.9bil of the amount going to
pension payments for about 958,700
pensioners mainly.
The Finance Ministry’s Fiscal
Outlook report 2023 forecasts that
pension liabilities will expand going
forward as the country becomes an
Age structure (%) and dependency ratio, 1970-2022
Age structure (%)
100
80
86.2
60 52.1
44.9
40
20
5.9 3.1
0 0
1970 1980 1991
Aged 0 to 14 years
Aged 15 to 64 years
Source: Statistics Department
intensive industries will increase
the adaptation of the use of technol-
ogy. Technological adoption is found
to complement the demand for
skilled workers that help to increase
wages.
Thus, firms must be willing to
share their wealth by increasing
wages that are commensurate with
higher skills.
On another matter, the shadow
economy and the shadow labour
market are closely connected.
Any labour activities taking place
Reducing climate change risks
increased prices.
“A decrease in domestic agricul-
tural productivity as well as import
disruptions will jeopardise the coun-
try’s food security and export earn-
ings,” it said.
Some of the obvious effects of cli-
mate change, it added, include floods
and droughts occurring at varying
frequencies, bringing about social
and economic repercussions, and
leading to losses for the country.
The report said: “For example, in
2007, the floods in Kota Tinggi caused
about RM2.4bil of economic, infra-
structure and agricultural losses.
“The 2014 floods that hit the
nation cost the government
RM1.5bil, while the floods in
December 2021 cost around RM2bil
ageing nation.
Some RM46.1bil of the OE is allo-
cated for DSC in tandem with higher
financing needs for DE and the
Covid-19 Fund. About 98.4% of the
money will go to coupon payments
on domestic debt and the remaining
amount on offshore loans.
The DSC ratio-to-revenue is esti-
mated at 16.9%, slightly above the
15% threshold in accordance with
international best practices.
The RM95bil DE under Budget
2023 aims to support economic
growth and see allocations chan-
nelled to programmes and projects
with high socio-economic impacts.
Of that, 56.9% of the amount has
been allocated for the economic sec-
tor with 26.5% to go for social
expenditure under the new budget.
Some RM16.5bil or 17.3% of DE
will be channelled to the transport
subsector for the construction of
2000 2010 2020
Aged 65 years and over Old age dependency ratio
Young age dependency ratio
as part of the shadow economy are
considered to be involved in the
shadow labour market or informal
labour market.
People may be excluded from the
formal labour market due to lack of
opportunities, or they may choose to
exit the formal sector voluntarily
because of monetary and non-mon-
etary benefits of informality.
If wages in the formal sector can
be increased, this will encourage
people to shift out of the shadow
economy and into the formal sector.
for immediate disbursements, with
an additional RM15bil committed to
flood mitigation efforts until 2030.”
Among the initiatives enacted to
better prepare the country in deal-
ing with the potential threats of cli-
mate change are the National Policy
on Climate Change and the Long-
Term Low Emission Development
Strategies through the 12th Malaysia
Plan – which is guided by principles
of sustainability – aiming to attain
“net-zero” greenhouse gas (GHG)
emissions by 2050.
This year also saw the launch of
the National Energy Policy 2021-
2040, which aims to increase the
engagement of renewable energy
sources such as wind and solar,
which produces almost no GHG,
projects like the Trans Borneo
Highway, Sarawak Sabah Link Road
Phase 2, Pengalat-Papar bypass road
in Sabah and upgrading of the Pasir
Gudang Highway in Johor.
Some US$3bil (RM13.9bil) of the
DE will be used to redeem a
1Malaysia Development Bhd matur-
ing bond in March next year, accord-
ing to the government report.
In view of the need to maintain a
sustainable fiscal position, the Fiscal
Outlook report said the government
will review its current expenditure
practices including subsidy prog-
rammes, pension reform, public-
private partnership spending and
financial commitments, as well as
grants to statutory bodies.
It will also look to improve public
spending efficiency and effective-
ness to reduce leakages and offer
better transparency in financial
reporting.
Dependency ratio
69.5
100
80
60
33.4 40
23.2
20
10.5
7.3
2021 2022
graphics
Meanwhile, productivity growth
is the primary determinant of an
economy’s long-term growth and
higher wages.
If an employer is willing to share
the wealth by raising wages, employ-
ees will consistently exert extra
efforts in response to higher wages,
in line with the so-called “efficiency
wage” theory.
Workers may therefore be more
motivated to work with higher pay,
subsequently contributing to higher
productivity.
Economic Outlook 2023
added the report, and that would
work toward a cleaner and more
resilient economy.
While hydropower is currently
Malaysia’s highest renewable ener-
gy contributor, this source could be
affected by depleting river sources.
Therefore, the effect of weather
patterns must be taken into account
when planning the construction of
power plants for the use of hydro-
power.
Besides that, Bursa Malaysia’s
implementation of the Voluntary
Carbon Market by the end of 2022
will utilise the Verra standards to
certify carbon credits traded on the
platform.
The central bank said these efforts
will be backed by strong initiatives
areas to enhance
competitiveness
Malaysia’s position in the world competitiveness ranking
10
10
15
20
25
30
35
‘05
‘06
‘07
‘08
‘09
‘10
‘11
‘12
‘13
MALAYSIA needs to develop new
growth areas as its comparative
advantage in order to accelerate its
transformation into a high-income
nation.
In the Economic Outlook 2023
report, the Finance Ministry said it is
important to identify the growth
areas that will increase Malaysia’s
competitiveness and provide a con-
ducive investment ecosystem
through the formulation of facilita-
tive policies.
“To support the ecosystem, the
National Investment Aspirations is
expected to attract quality invest-
ments through the provision of
incentives, modernised industries
and the creation of high-paying jobs,”
it said.
Looking ahead, the ministry said
emphasis will be placed on restoring
Malaysia’s economic growth,
addressing socio-economic challeng-
es, ensuring balanced regional devel-
opment and enhancing competitive-
ness.
It noted that the Covid-19 pandemic
has exposed structural vulnerabili-
ties, highlighting the need for Mal-
aysia to “reform and rebuild” in order
to position the economy on a stronger
and more sustainable footing.
The ministry also cautioned that
Malaysia is at risk of losing out
competitiveness in comparison to
high-income economies such as
Hong Kong and South Korea.
Post-2014, Malaysia’s position in
the World Competitiveness Yearbook
of the Institute for Management
Development has largely been on a
5
from the financial sector, as the
number of approved Sustainable
and Responsible Investment (SRI)
funds has grown from two when it
was first launched in 2018, to 56
funds as of June 2022.
In Islamic finance, Malaysia has
pioneered the green sukuk and the
social impact sukuk through the
Securities Commission’s SRI Sukuk
framework, the report said.
The issuance of the sovereign
dollar-denominated Sustainability
Sukuk in April 2021 was successful
and the proceeds of these sukuks
will be used for sustainability prog-
rammes and projects, as listed in the
Government of Malaysia SDG Sukuk
Framework.
Meanwhile, the Green Technology
Financing Scheme was introduced
in 2010 to encourage local compa-
nies and entrepreneurs to join green
technology-based projects.
12
25
32
Declining phase
‘14
‘15
‘16
‘17
‘18
‘19
‘20
‘21
‘22
graphics
downtrend. From the 12th ranking in
2014, Malaysia fell to the 25th spot in
2021 and 32nd spot in 2022.
A key factor to drive Malaysia’s
competitiveness, said the Finance
Ministry, is a solid productivity foun-
dation. This can be accomplished by
venturing into knowledge-intensive
and high value-added economic
activities that generate high-paying
jobs.
“More importantly, the govern-
ment has recognised the significance
of effective talent development, rapid
digital technology adoption and qual-
ity regulations as the key to accelerat-
ing higher productivity,” it said.
Among the efforts taken by the
government so far to strengthen
national productivity are boosting
public-private collaboration, enhanc-
ing innovation and accelerating the
shift to digital technology.
The ministry also said the govern-
ment needs robust policy tools to
monitor the progress of inclusivity
and sustainability in the economy.
One such tool is the Multi-Dimen-
sional Poverty Index (MPI) devel-
oped in 2016. It is used to measure
the non-monetary aspects of poverty
such as access to education, health-
care, digital connectivity and other
standard of living dimensions.
“Being a robust policy tool, the MPI
could help the effort to achieve inclu-
sive development and can be main-
streamed to ensure shared prosperi-
ty among the rakyat, including
addressing bumiputra participation
in the economy,” said the Economic
Outlook 2023 report.
6 Economic Outlook 2023
Handling spillover effects of war
ALTHOUGH Malaysia saw a limited
direct impact from the Russia-
Ukraine conflict, it experienced
spillover effects, particularly steep
price increases for food and fuel.
On a global scale, the growth of
the global economy is projected to
decline by 3.2% and 2.9% in 2022
and 2023 respectively.
This was on the back of increases
in raw material prices, freight charg-
es, labour costs, food items, fuel and
transportation due to the conflict.
Russia is the world’s largest glob-
al exporter of wheat, natural gas,
palladium, nickel and fertilisers. It
also has significant contributions in
global coal and crude oil exports.
Strengthening the country’s construction sector
TRANSFORMING the construction
sector will involve the adoption of
automation, digitalisation and envi-
ronmental and social governance
policies, as well as the creation of
relevant skills and expertise.
This shift will ensure businesses
competitiveness and sustainability
in the long run.
Technologies such as building
information modelling, industrial-
ised building system, the Internet of
Things and big data analytics will
drive better control of the construc-
tion process.
The enhancement of digital con-
struction was enshrined in Malay-
sia’s Construction 4.0 Strategic Plan
(2021-2025).
The five-year plan comprises 12
emerging technologies and is expect-
ed to boost the sector in line with the
Fourth Industrial Revolution.
This plan has outlined a frame-
work to improve the capabilities of
the sector through four enablers,
namely people, integrated technolo-
gies, economy and governance.
Hence, construction projects are
expected to be implemented effi-
ciently through value optimisation
and waste minimisation.
The construction sector’s linkages
Economic recovery to
boost trade performance
MALAYSIA’S trade performance is
poised to benefit from the global
post-pandemic economic recovery
amid uncertainties such as persis-
tent supply chain disruptions.
Malaysia, being an open econo-
my, has shown resilience in its trade
performance throughout the pan-
demic thanks to the government’s
measures and policy responses.
Visibly, the country’s trade per-
formance in the first half of 2022
has continued its uptrend owing to
strong external demand.
The growth was also driven by
Malaysia’s transition to the endemic
phase and reopening of internation-
al borders, which have eased supply
chain flows and human mobility.
The country’s trade performance
has been coping well, registering 24
consecutive years of trade surplus
since 1998.
As a matter of fact, in 2021, the
country’s total trade was exception-
al, posting the highest year-on-year
growth of 24.9% since 1994, sur-
passing the RM2 trillion mark for
the first time in history.
Malaysia also recorded all-time
high values for its exports and
Meanwhile, Ukraine is the world’s
biggest exporter of seed oil and the
fourth largest for corn, in addition
to producing up to 50% of global
neon gas critical for chip making.
Hence, the conflict brought about
global supply chain disruptions that
led to the rise in commodity prices.
For Malaysia, chicken prices went
up due to the hike in chicken feed
prices as it is made from corn, soy-
beans and palm oil. In producing
animal feed including poultry, corn
and wheat are the main ingredients.
This in turn led to a rise in the
inflation rate for households. The
price of a standard processed chick-
en increased by 17.19%, from
Performance of Malaysia’s construction
sector, 1981-2020
(Percentage average growth and share to gross domestic
product at constant prices)
7.2%
4.3%
4.1%
3.5%
1981-1990 1991-2000
Sources: Statistics Department and Finance Ministry
to other economic sectors are vital.
For example, bricks (manufactur-
ing sector) are used to construct a
commercial lot (construction sec-
tor), which will then be used as a
restaurant (services sector).
imports for the year, driven by
robust external demand and higher
commodity prices.
Evidently, the structure of Malay-
sia’s trade has been evolving over
the past decades, from agriculture
and mining-based to strong manu-
facturing-led sectors.
The country aims to be a leading
exporter, particularly in electrical
and electronic (E&E) products. Since
2000, it has been a major exporter of
other key non-E&E products, includ-
ing petroleum products, chemicals
and chemical products, as well as
manufacturers of metal.
The manufacturing sector con-
tributes the highest share with over
80% of the country’s overall exports.
But the country continuously
explores new sources of growth
including advanced E&E, aero-
space, biomass, pharmaceuticals,
digital economy and the chemicals
and chemical product industry.
All these new sources of growth
are expected to add value to up-
stream and downstream activities to
further diversify Malaysia’s exports
and productive imports that will
boost overall trade performance.
RM8.55 per kilo in June 2021 to
RM10.02 per kilo in June 2022.
Moreover, the price of a chicken egg
ranges from 40 sen to 45 sen.
In a bid to counter inflation, a
new ceiling retail price for standard
process chicken was set by the gov-
ernment at RM9.40 per kilo.
The new ceiling price for chicken
eggs was set at 45 sen (grade A), 43
sen (grade B) and 41 sen (grade C)
effective July 1, 2022.
Other than the poultry price hike,
fuel prices also went up. There was
a surge in global crude oil and coal
prices due to disruptions in Russian
oil and gas supply.
The price of Brent crude oil per
Growth
Share to gross
domestic product
5.3%
4.3%
3.5% 3.3%
2001-2010 2011-2020
graphics
In line with Vision 2020 and the
Sixth Malaysia Plan, the robust sec-
tor saw an average annual 7.2%
growth and an annual average share
of 3.9% of gross domestic product
contribution from 1991 to 2000.
Malaysia’s trade performance, 2017-H1 2022
RM trillion
1.5
Gross exports
Gross imports
1.2
0.9
0.5
0.3
0.0
2017 2018
Sources: Statistics Department and Malaysia External Trade Development Corp
Covid-19 has, undoubtedly, impli-
cated trade and overall economy on
an unprecedented scale.
But Malaysia’s trade had been
trending down even before that due
to the US and China trade war that
escalated starting July 2018, with
the US imposing high tariffs and
trade barriers on China.
After moderating at 6.3% in 2018,
Malaysia’s total trade subsequently
contracted by 2.1% in 2019.
The adverse impact of the trade
war on Malaysia’s trade perfor-
mance is mainly because both China
and the US have always been among
Malaysia’s major trading partners.
barrel increased by 18.24%, from
US$91.31 (RM422.77) in early
February this year to US$107.97
(RM499.90) at the end of July.
As a result, RON97 petrol saw a
37.8% increase, from RM3.12 per
litre in early February this year to
RM4.30 per litre at the end of August.
However, the subsidised fuel
price is maintained at RM2.05 per
litre for RON95 petrol and RM2.15
per litre for diesel.
Overall, the consumer price index
increased by 2.8% in the first seven
months of 2022, compared with the
same period in 2021 by 2.3%.
The category of food and non-
alcoholic beverages recorded rise of
While the contribution is rela-
tively small, it provides a valuable
multiplier effect to the aggregate
economy.
To address the impact of the Covid-
19 pandemic, various stimulus pack-
ages were introduced to revive
domestic investment activities, main-
ly in the construction sector.
Under these packages, new allo-
cations were provided for projects
such as improving roads and
upgrading and repairing dilapidat-
ed schools, which were over and
above the continued implementa-
tion of projects under the existing
2020 annual budget.
Ongoing mega projects such as
the Mass Rapid Transit Putrajaya
Line and Light Rail Transit Line 3
were also given priority due to high
multiplier effects.
Thus, the sector’s growth saw a
small contraction of 5% in 2021,
compared to a major 19% decline in
2020.
The sector has also played a major
role in accumulating the nation’s
capital stock such as buildings,
roads, railways, ports and airports.
Moreover, a sustainable construc-
tion sector can ensure both social
prosperity and economic stability.
Trade balance
Total trade
2019 2020
Almost 50% of Malaysia’s exports
are incorporated into China’s final
products, which China subsequent-
ly exports to the US.
Notwithstanding the trade war
effects, Malaysia stood to benefit in
the short term, arising from trade
diversion when the US and China
substituted their demand for imports
from each other to other emerging
markets, including Malaysia.
Also, multinational corporations
(MNCs) opted to relocate their opera-
tions to circumvent the high tariffs,
with some MNCs choosing Malaysia.
This led to an increase in manu-
facturing investments and generat-
THE STAR, SATURDAY 8 OCTOBER 2022
4.8% including the price of meat at
9.1%; milk, cheese and eggs at 7%;
and vegetables at 6%. This remains
the main catalyst for the rise in the
inflation rate, with the average at
2% from 2021 to July 2022.
To control the rise in the price of
goods more effectively, the govern-
ment established the Pasukan Khas
Jihad Tangani Inflasi (Special Jihad
Task Force Against Inflation).
Bank Negara’s Monetary Policy
Committee also implemented three
25 basis point hikes in the overnight
policy rate (OPR) in May, July and
September this year to control infla-
tion caused by the depreciation of
the ringgit. The OPR is now at 2.5%.
As can be seen in the develop-
ment of Putrajaya, it has had
significant spillover effects on the
economy including creating new
settlements, increasing household
income, rising property value, pro-
viding jobs and boosting the tour-
ism industry.
Challenges include the rising cost
of building materials, which greatly
affect firms’ cash flow and their
long-term sustainability.
Also, changes to projects’ time-
lines due to the shortened duration
of construction activities and the
lengthy process for approvals by
related authorities have affected
project operations.
Also, high reliance on foreign
workers may have an adverse
impact on productivity and quality
levels since most of the foreign
workers are unskilled.
Malaysia’s construction business
models and operations are mainly
reliant on manual labour and low
technology adoption.
The importance of boosting the
sector’s development and growth
will not only contribute to the econ-
omy, but also gear industrial play-
ers to become major global compet-
itors.
RM trillion
2.5
2.0
1.5
1.0
0.0
2021 H1 2022
graphics
ed trade and investment spillovers
into the country.
Meanwhile, as a result of strict
movement control orders since
mid-March 2020, Malaysia’s total
trade contracted by 3.3% in 2020,
with exports and imports declining
by 1.1% and 5.8%, respectively.
Malaysia’s trade performance was
severely affected and in April 2020,
it recorded its first trade deficit of
RM4.5bil since November 1997.
But the silver lining from the pan-
demic was advantageous to some of
Malaysia’s exports, notably the E&E
and rubber sectors, which benefit-
ted from surging demands.
THE STAR, SATURDAY 8 OCTOBER 2022
Mitigating the rising cost of food
THE government has taken addi-
tional measures to mitigate the
increase in food prices, given that it
is the largest weighted category in
the consumer price index and has
an outsized impact on lower income
groups.
According to the Economic Out-
look 2023 report, the rising price of
food is the main contributing factor
to Malaysia’s higher inflation, from
2.2% in March 2022 to 4.7% in
August 2022.
“The food inflation resulted from
higher prices of agricultural inputs
and supply chain disruption due to
the ongoing Russia-Ukraine conflict.
“In addition, the food inflation is
also caused by the strengthening of
other basket of currencies, particu-
larly the US dollar,” it said.
AS an ageing nation, a country will
normally experience an increase
in life expectancy due to better
healthcare services and living
standards, as well as a decline in
the fertility rate.
The patterns of declining fertility
rate and expansion in life expec-
tancy have started to become more
obvious in Malaysia.
In 2020, Malaysia’s fertility rate
declined to 1.7% compared to 2.1%
in 2010.
The total population aged 65
years and over is higher at 6.8% of
32.4 million total population, com-
pared to 5% of 27.5 million during
the same period.
Based on the Housing and
Population Census 2020, Malaysia
was not categorised as an ageing
nation then.
However, the Statistics Depart-
ment projected that 7.3% of the
total population would reach the
age of 65 and over by 2022.
The ageing population in
Malaysia is growing at a faster rate
than initially expected in 2030.
It is also anticipated that by 2050,
Malaysia’s population aged above
65 will be more than 15%, qualify-
ing Malaysia as an aged nation.
Population ageing is a demo-
graphic trend that will significantly
influence various public policies.
As the proportion of the old age
population becomes larger, the
public expenditure will be higher
to cover the expected increase in
spending on healthcare, pension
Responsibly enhancing higher life expectancies
POPULATION ageing is a world-
wide phenomenon commonly
faced by developed nations with
high standards of living.
However, in the recent decade,
this phenomenon is becoming
more prevalent in many develop-
ing countries.
The United Nations defines an
ageing population as a community
composed of people aged 65 and
over. A country becomes an ageing
nation when the ageing population
reaches 7% of its total population.
Japan is one of the countries that
has long become a super-aged
nation, with 28.7% of its total popu-
lation being above the age of 65.
Other examples of super-aged
nations include Italy with 23%,
followed by Finland (21.9%),
Portugal (21.8%) and Germany
(21.4%).
Although population ageing is
normally measured at the national
level, the measurement by state
has provided some useful insights
in Malaysia.
In response, the government
implemented short-term measures
to reduce the impact of food infla-
tion including price controls, addi-
tional subsidies and cash assistance.
The report noted that the project-
ed consumption subsidies, which
include subsidies for RON95, diesel,
LPG, cooking oil, flour, electricity,
chicken and eggs, have increased
from RM5.2bil allocated under
Budget 2022 to reach RM52bil.
To rein in the price of chicken,
from July 1, 2022, the government
set a new ceiling price for chicken
in Peninsular Malaysia at RM9.40
per kilo, and 45, 43 and 41 sen for
eggs depending on their respective
grades, which is expected to
increase subsidy payments to poul-
try farmers by RM370mil in 2022.
Embracing an ageing population
Life expectancy and fertility rate in Malaysia 2010-2020
Life expectancy
76
2.2 2.2
75 2.1
74.4
74.3
74.1
74
73
72
71
70
2010 2011 2012
Source: Statistics Department
and long-term care.
In addition, a larger old-age pop-
ulation will cause labour shortages
and create potential risk of old-age
income security.
In coping with the challenges
arising from population ageing, the
government, businesses and socie-
ty at large should be prepared to
adapt to the changing needs and
structural demographics in the
economy.
This is to ensure that no one is
left behind while improving the
In 2020, Perak, Kedah, Perlis and
Sarawak were considered ageing
states, with the percentage of peo-
ple aged 65 and over being more
than 7%.
If the current trend continues to
persist, the number of ageing states
will gradually increase in the com-
ing years since eight other states –
Selangor, Negeri Sembilan, Kuala
Lumpur, Pulau Pinang, Kelantan,
Melaka, Pahang and Johor – have
recorded more than 6% of elderly
people.
The changing age structure in
the population of a country would
present an range of major econom-
ic and social challenges to the gov-
ernment.
The rising old age dependency
ratio (OADR) would impact nega-
tively on future economic growth,
savings, consumption, taxation and
pensions.
As older people age further, the
government is required to under-
take certain social adjustments
such as assistance for senior citi-
Transport costs, which contribute
to the inflationary price of goods
and services, were also addressed
as the government have retained
the pump prices of RON95 and die-
sel since March 2021 via subsidies.
“Consequently, inflation in
Malaysia was recorded at 4.7% in
August 2022, which is lower than
in selected advanced and regional
countries such as the UK (9.9%),
the US (8.3%), Thailand (7.9%),
Singapore (7.5%) and the Philippines
(6.3%),” said the report.
Social assistance measures imple-
mented by the government includ-
ed the RM8bil Bantuan Keluarga
Malaysia and additional cash assis-
tance of RM630mil beginning June
27, 2022, to cushion the increase in
basic food prices.
74.6
74.5 74.5 74.4
74.4
2.1
2.0 2.0
1.9
1.9
2013 2014 2015 2016 2017
wellbeing of all Malaysians, par-
ticularly senior citizens, in line
with the Shared Prosperity
Vision 2030 and the Sustainable
Development Goals.
Malaysia has experienced a
rapid demographic change for the
past 50 years. The young-age (zero
to 14 years) shows a declining
trend while the working-age (15 to
64 years) and old-age (65 years and
over) indicate the opposite.
Generally, the increase in the
working-age population positively
“The government is expected to
allocate more resources, mainly
towards pensions, health- and
shelter-related programmes.”
zens, which may involve additional
financial allocation.
Longer life expectancy is
attributed to the effective role of
the government in providing
various facilities and basic needs
for the people.
With a longer life expectancy,
healthy older citizens continue
to contribute to society through
paid or unpaid jobs such as care
work.
However, the ageing population
are also at higher risk of falling
into poverty and resorting to
the various social protection
Economic Outlook 2023
Accordingly, the government
would have provided subsidies and
social assistance of an estimated
RM80bil in 2022, which would be
the largest in Malaysia’s history,
said the report.
But the Economic Outlook 2023
report also noted that increased
subsidies came at an expense to
allocations to the country’s produc-
tive capacity such as in developing
public infrastructure, especially in
the health and education sectors.
For longer-term sustainability,
the report said the government was
cognisant of undertaking reforms
to strengthen food security.
“Efforts to increase productivity
will be undertaken to ensure pro-
ducers have the ability and compet-
itiveness to produce their products
Fertility rate
2.3
75.1 2.2
74.6 74.8
2.1
2.0
1.9
1.8
1.8 1.8
1.7
1.7
1.6
1.5
2018 2019 2020
graphics
implies potential employment
supply in the country.
However, a contrasting trend
between the young and old-age
population suggests that the size of
the working-age population will
shrink in the long run.
Moreover, further aggravated by
the falling birth rates, the country
could face difficulties in providing
adequate workforce for the labour
market, thus impacting the econo-
my.
The increasing dependency of
programmes provided by the
government.
Therefore, ensuring access to
social safety nets such as provident
funds, healthcare, long-term care
and other social support is crucial
in an ageing society to protect the
lives and livelihood of the older
population.
The government has the respon-
sibility to ensure that the economy
generates revenue sustainably,
allocate resources efficiently and
distribute income effectively.
As the working-age group is
dwindling and the old-age group
7
in the local market while helping to
stabilise supply to meet the higher
future demand.
“In this regard, the government
will support the agrofood business
in enhancing its productivity
through the adoption of Fourth
Industrial Revolution technologies
such as precision farming drones
and smart algorithms,” it said.
It added that the government will
continue to improve the food-relat-
ed supply chain to promote food
price stability.
Concurrently, it will mitigate the
impact of global developments on
the cost of living via enhanced
upskilling and reskilling prog-
rammes to ensure a stable standard
of living, especially for lower income
groups.
the young-age and old-age popula-
tion on the working age group is
also a concern for Malaysia.
The age dependency ratio is
often used to measure the financial
pressure of the actively working
population of a community.
For the purpose of the analysis
pertaining to an ageing nation, the
old age dependency ratio (OADR)
measures the number of old age
per 100 persons of the working
age.
A ratio of 10.5 in 2022, higher
than 7.5 in 2010, signifies a greater
dependency on the working age
group.
The reducing workforce compo-
sition will increase the burden of
the working age in supporting the
needs of the young and elderly
groups.
Cognisant of Malaysia becoming
an ageing nation, the government
will continue to enhance the eco-
system for senior citizens.
Society and family also need to
play a role in ensuring that the
welfare of senior citizens is not
neglected.
Under the 12th Malaysia Plan,
the government will build more
care centres for the elderly, as well
as enhance cities to become more
senior citizen-friendly in the
future.
is expanding, the government is
also expected to allocate more
resources mainly towards
pensions, health- and shelter-
related programmes.
Thus, it is undeniable that an
ageing population will have impli-
cations on the government’s spend-
ing, especially to support various
social programmes and other relat-
ed facilities.
Developed countries such as
Norway and Japan have good fund-
ing arrangements in place, particu-
larly through existing pension and
provident funds to cope with the
high projected OADR.
Emulating the good practices
in these developed countries,
Malaysia also provides funding for
pensioners.
In 2021, the Federal Government
spent a total of RM28bil for pen-
sion expenditure involving about
887,000 public pensioners, of
which RM7.9bil or 28.3% repre-
sented payments for those aged 65
and over.
8 THE STAR, SATURDAY 8 OCTOBER 2022