major macro economic indicators
|GDP growth (%)||5.0||4.2||5.9||5.0|
|Inflation (yearly average, %)||2.1||2.1||3.8||2.3|
|Budget balance (% GDP)||-2.8||-3.0||-2.9||-3.6|
|Current account balance (% GDP)||3.0||2.4||3.0||3.0|
|Public debt (% GDP)||57.9||56.2||54.2||53.6|
- Diversified exports
- Dynamic services sector
- Good infrastructure, high R&D
- Investment supported by expansion of local financial market and broader access to FDIs
- Exchange rate flexibility
- High per capita income
- Reliance on external demand
- Budget income highly dependent on performances in the gas and oil sector
- Very high private debt levels
- Erosion of price competitiveness due to high labour costs
- Persistent regional disparities
- Ethnic and religious disputes
Growth expected to remain quite strong
Particularly strong in 2017, growth will remain robust in 29018. Activity will continue to be driven by internal demand, and also by good export performance (75% of GDP). Exports should continue to benefit from the recovery in hydrocarbon prices, which represents 20% of total exports. However, the energy sector (natural gas and oil) might suffer from the suspension of Chinese pipeline projects (funded by the Export-Import Bank of China) amid corruption concerns. The country also exports high added-value manufactured products, such as semi-conductors and other electronic products (39% of exports), for which there is strong global demand. Investment in this sector will likely be sustained by the good outlook for these products, especially as the country benefits from growing integration in the regional value chain thanks to its ongoing membership in the Association of Southeast Asian Nations (ASEAN). Conversely, public projects could suffer from the promised new government review and potential renegotiation of large infrastructure projects awarded to foreign investors. The sectors associated with tourism are expected to continue to expand, but will further suffer from the lasting impact of the Malaysia Airlines disasters in 2014 and 2015, as well as from a less favourable security environment than those of local rivals like Thailand and Vietnam.
Despite high levels of household debt (84% of GDP at the end of 2017), private consumption is set to continue to be the main contributor to growth. The recent appreciation of the ringgit helped reduce the cost of imported goods and contain inflation, while the unemployment rate is still at its lowest. The new government removed the Goods and Services Tax (GST) after being elected, which will help to keep prices low and boost consumption. Households are set to benefit from tax cuts, as well as higher civil service wages. Meanwhile, a still accommodative monetary stance – with no further rise in interest rate to be expected in 2018 from the central bank after the 25th January’s basis-point rise to 3.25% – and higher public spending will also support growth. The negative implications of Malaysia’s integration into the regional electronics value chain is that the country's economy remains vulnerable to slowing demand from China, its main trading partner, especially in the context of the escalating trade war with the United States.
New measures to widen the fiscal deficit but satisfactory external accounts
In the short-term, the new government objective is to consolidate public debt, essentially made up ofsukuk(Islamic bonds), as well as of traditional bonds. To this end, it is currently reviewing infrastructure projects implemented by the previous administration. However, those efforts might be insufficient to balance campaign promises, possibly leading to an increase in 2018’s fiscal deficit. The removal of the controversial 6% GST will indeed not be compensated by the reinstatement of the Services and Sales Tax, previously abolished in 2015. This loss in revenue, in addition to an increase in expenditures with the reimplementation of oil subsidies in a context of rising international prices, could hamper fiscal health in the long-term.
The current account surplus is expected to remain stable in 2018. The trade surplus should be sustained by the increase in oil prices and the lower dynamic in intermediate goods imports. Relatively lower investments, as well as lower exports in the electronics sector towards China, will reduce demand for intermediate goods, which will offset the rise in consumption goods imports. The income balance will continue to show a deficit because of profit repatriation by foreign companies. Likewise, the transfer deficit is expected to endure because of remittances by foreign workers to their country of origin. The services deficit is expected to fall slightly in connection with the increasing number of tourists.
External debt is currently relatively high (67% of GDP), mostly denominated in foreign exchange and over 40% short-term owed. However, high levels of foreign exchange reserves (almost seven months of imports) will help limit the associated risk, and enable the country to respond to any capital flight associated with a rapid tightening of US monetary policy. Meanwhile, the banking sector remains sufficiently capitalised and liquid, even if high household debt remains a risk.
An unexpected victory of the opposition
Against all expectations, the 10th May general elections brought to power the centre-left opposition coalition Pakatan Harapan (PH). The coalition defeated the ruling Barisan Nasional (BN), led by Prime Minister Najib Razak, and won 113 seats out of 222, enough to form a government. Amid corruption allegations against Mr Razak regarding his management of the state-backed investment fund 1Malaysia Development Berhad (MYR 1 billion – approximately USD 365,320 – of the fund’s assets were placed into the Prime Minister’s personal account). PH leader Mohammad Mahithir has put an end to the six decades of power of the BN party.
Prime Minister Mahithir has announced a renewed fight against corruption in the country, the first visible effect of which has been the corruption charges against Mr Razak at the beginning of July. Mr Mahithir also stated that he intended to hand over power within two years to the de facto PH leader Anwar Ibrahim, who was in custody until he obtained a royal pardon. Nevertheless, the ruling coalition will face a challenge in managing the diverging interests of its constituent parties, especially regarding the country’s ethnic diversity. Despite its call for a “new Malaysia” reflecting the country’s ethnic diversity, the PH coalition is unlikely to dismantle affirmative action policies that favour ethnic Malays over other minorities (most notably the Chinese, prominent in the business community).rang Asli, Dayak, etc.). However, suspicions regarding the Prime Minister and his cabinet, alleged to have misappropriated a share of the assets in the country’s sovereign fund (MD 1 billion) and placed them in their personal bank accounts, could be exploited by the opposition during the electoral campaign.
Last update : July 2018
Bank transfers, cash, and cheques are all popular means of payment in Malaysia. The country’s banking network is well developed and allows for payments to be made through various online channels. Letters of Credit are also commonly used in Malaysia.
As of the beginning of 2017, it is the Central Bank’s requirement that 75% of payments in foreign currencies are converted into the Malaysian ringgit automatically upon receipt. Payments for transactions within Malaysia are required to be made in the local currency.
Amicable efforts in settling disputes and or debts are very common in Malaysia. This involves notifying and contacting buyers by way of letters, telephone and, where permissible, by visiting the buyer’s business premises. Negotiations often ensue before a final settlement can be reached. If there is no response from the buyer, a site visit and online searches are conducted to ascertain the operating status and legal status of the buyer. If the buyer continues to ignore and or neglect to settle the matter amicably, the supplier may begin legal proceedings to recover payments for goods sold and delivered. However, due diligence should be done to ensure that the buyer has sufficient assets to satisfy the debt before proceedings are initiated.
Malaysian court system
The hierarchy of courts in Malaysia starts with the Magistrates’ Court at the first level, followed by the Sessions Court, High Court, Court of Appeal and the Federal Court of Malaysia. The High Court, Court of Appeal and the Federal Court are superior courts, while the Magistrates’ Court and the Sessions Courts are subordinate courts. There are also various other courts outside of this hierarchy, e.g. Employment Admiralty, Shariah or Muslim matters.
Malaysian legal system
The Malaysian legal system is based upon the English common law system, which Malaysia inherited by virtue of a long history of colonization by the British. Central to the Malaysian legal system is a written constitution based upon the Westminster model. The jurisdiction and powers of courts under the Malaysian hierarchy of courts are contained principally in the Courts of Judicature Act 1964 (Act 91) for the superior courts and in the Subordinate Courts Act 1948 (Act 92) for the subordinate courts.
Claims in Magistrates’ court are limited up to MYR 100,000, whilst a Sessions Court may hear any civil matters where the amount in dispute does not exceed MYR 1,000,000. Where the amount claimed does not exceed MYR 5,000, a claim should be filed with the small claims division of the Magistrates’ Court. However, legal representation is not permitted. The High Court has the jurisdiction to try all civil matters and monetary claims exceeding MYR 1 million.
An unpaid debt normally has a six-year statute of limitation period, from the day the cause of action arose (e.g. a breach of contract). The creditor commences a writ action and serves the writ on the debtor within six months from the issue of the writ. When defendants are served with a writ, they have fourteen days after service of the writ (or 21 days if the writ was served outside of Malaysian jurisdiction) to file a Memorandum of Appearance with the court to indicate their intention to appear in court and defend the suit.
Before a writ can be issued, it must be endorsed with a statement of claim, or with a general endorsement consisting of a concise statement of the nature of the claim made and the requisite relief or remedy. When the writ only has a general endorsement, the statement of claim must be served before the expiration of fourteen days after the defendant enters an appearance.
When the defendant has entered appearance, he is required to file and serve his defence on the plaintiff fourteen days after the time limit for entering an appearance, or after service of the statement of claim, whichever is later. A defendant may make a counterclaim in the same action brought by the plaintiff. A plaintiff must serve on the defendant his reply and defence to a counterclaim, if any, within fourteen days after the defence (and counterclaim) has been served on him.
Proceedings may be resolved and/or otherwise summarily terminated and/or determined and/or disposed of at an early stage before the trial of the action
Failure to enter an appearance may result in a plaintiff proceeding to enter a judgment-in-default against a defendant. Ordinarily, when a defendant has filed an appearance and also a statement of defence subsequent to other procedures of filing of documents in support, the matter would be set for trial. If the defendant has entered an appearance and filed a defence, but it is clear that the defendant has no real defence to the claim, the plaintiff may apply to court for summary judgment against the defendant. To avoid summary judgment being entered, the defendant has to show that the dispute concerns a triable issue or that there is some other reason for trial.
Enforcement of a court decision
Writ of Seizure and Sale (WSS)
A WSS may be enforced against both movable and immovable property as well as against securities. When the property to be seized consists of immovable property or any registered interest, the seizure shall be made by an order prohibiting the judgment debtor from transferring, charging or leasing the property.
A Judgment Creditor may garnish monies a Judgment Debtor is supposed to receive from a third party. If the garnishee does not attend court, then the order is made absolute. If the garnishee does attend, the court can either decide the matter summarily or fix the matter for trial.
Judgment Debtor Summons
The objective of this summons is to give the judgment debtor an opportunity to pay the judgment debt in instalments to commensurate his means. Debtors themselves can apply for such a procedure. Alternatively, under Order 14 the defendant can admit the plaintiff’s claim and propose to pay by instalments, which the court can subsequently order if the plaintiff accepts the proposal.
If the total judgment of debt exceeds MYR 30,000, bankruptcy proceedings can be triggered if the judgment debtor has not complied with the judgment or order made against him. Once a debtor has been adjudged bankrupt, other creditors are also entitled to file the Proof of Debt form and Proxy in order to be entitled to share in any distribution from the estate of the bankrupt. The distribution of the estate is according to the priority of the creditors' claim
Writ of Possession
Once the application is granted, the order commands the sheriff to enter the property of the debtor and take possession of all immovable property The writ may also include provisions for enforcing the payment of money – usually rental arrears and legal cost – and for that purpose, the writ will command seizure and sale of any movable property of the defendant to satisfy the party of the monetary judgment
Writ of Distress
The relationship of landlord and tenant must exist, both when the rent becomes due and when the distress is levied and the rent must be in arrears. Warrants of distress need not be served on the tenant. The writ of distress is addressed to the bailiff for execution and the entire process is carried out ex parte. The element of surprise is expected because if the order is made known, the execution might not be fruitful.
Writ of Delivery
This writ is used for the recovery of movable property or its assessed value where a judgment or order for the delivery of any movable property or payment of their assessed value to the judgment creditor has not been complied with. Writs of delivery may include provisions for enforcing the payment of any money adjudged or ordered to be paid by the judgment.
Enforcement of Foreign Judgments/ Reciprocal Enforcement of Judgments (Order 67 Rules of Court 2012)
The Reciprocal Enforcement of Judgments Act 1958 (REJA 1958) applies to judgements given in the superior courts of reciprocating countries specified in the first schedule to the Act (section 3). REJA 1958 applies to foreign judgments or order given or made in any civil or criminal proceedings for payment of a sum of money in respect of compensation or damages to the injured party and in the case of Commonwealth countries or territories, includes an arbitration award (section 2). A judgment is deemed final and conclusive even if there is an appeal pending against or if it is subject to appeal.
The fact of registration does not transform the judgment into a Malaysian judgment so that the court may sit to inquire into its regularity or validity for certainty or the want of it. If the judgment debtor wishes to impeach the judgment for uncertainty or irregularity or non-conformity with the rules of court, he should proceed to do so in the original court.
When the judgment debtor has no assets in Malaysia, leaving the judgment creditor unable to enforce his judgment in Malaysia, the creditor may be able to enforce it in a country where the debtor does have assets. He might do so by beginning new proceedings or, if possible, by registering his Malaysian judgment in the foreign country (on the basis of reciprocity of enforcement between the two countries).
Any decision rendered by a foreign country must be recognized as a domestic judgment in order to become enforceable through an exequatur procedure. Malaysia has reciprocal Recognition and Enforcement Agreements with some countries, including Hong Kong, India, and New Zealand.
There are several insolvency and restructuring procedures available. Under the Companies Act, the available insolvency proceedings include:
- Compulsory and voluntary winding-up of companies
- Appointment of receivers and managers
- Restructuring mechanisms
In a compulsory winding-up, the court can wind up a company on a number of grounds under the Companies Act. The most common of these is the company’s inability to pay its debts. The creditor initiates this process by filing a winding-up petition with the court. If an order is made, the court will appoint a liquidator to oversee the liquidation process.
A voluntary winding-up can be either a members’ or creditors’ winding-up. In a members’ winding-up, the shareholders can voluntary wind up their own company if their company is solvent. Shareholders appoint a liquidator, at which point the directors’ powers cease and any transfer of shares or any alteration in the statutes of members will be void. If the liquidator discovers that the company is insolvent, he must convert the members’ voluntary winding-up into a creditors’ winding-up.
Appointment of receivers and managers
Court-appointed receivers will either manage the company’s operations as normal, or take custody and possession of the assets of the company. Alternatively, receivers appointed by debenture holders based on the terms of the debenture agreement (privately-appointed receivers), may take possession of the company’s assets subject to the floating charge that has since crystallized in the debenture.
There are three restructuring mechanisms:
- Scheme of arrangement: A company can enter into a scheme of arrangement with the approval of 75% of the creditors in value and a simple majority. After creditors approve the scheme, the court must sanction it before it can be implemented. Debtors can apply for an order restraining all proceedings against it while it develops its scheme.
- Special administration: it involves the appointment of a special administrator. The appointment must serve the public interest.
- Conservatorship: The Malaysia Deposit Insurance Corporation takes control of a non-viable financial institution or acquires and takes control of non-performing loans that are outstanding between the financial institution, borrowers and security providers.