Malaysia

Improved growth driven by exports and resilient private demand

Economic momentum accelerated in 202, after a sharp slowdown in 2023 due to a drop in export earnings against a backdrop of slowing world trade. The country is heavily dependent on exports (nearly 80% of GDP) and weak global demand in 2023 weighed heavily on the Malaysian economy. Global demand was weak for electronics, while energy prices plummeted after peaking following the outbreak of war in Ukraine as Malaysia is a net exporter of oil and gas. In 2024, the trend reversed and economic growth gathered pace, fueled by export growth on back of an upturn in the global electronics cycle, coupled with stronger private demand and resilient investment growth, both public and private.

The Malaysian economy is entering a phase of relative stability after several years of sharp fluctuations in growth. Growth should therefore be resilient in 2025, driven mainly by private consumption and continued recovery in exports that will support manufacturing activity. Private consumption should benefit from the restructuring of the Employee Provident Fund with the addition of a liquid account where funds can be easily withdrawn (this represents a long-term risk for future retirees), an investment programme conducive to job creation, and an increase of over 13% in civil servants' salaries scheduled for December 2024. However, one of the main risks is the potential withdrawal of the RON95 subsidy. If the subsidy is withdrawn too abruptly and not implemented gradually, inflation could rise and disrupt private consumption trends. The recovery in the global technology cycle should continue to support exports, but weak domestic demand in China – Malaysia's second-largest merchandise export market after Singapore – is weighing on prospects for a continued recovery. Other major downside risks come from a potential exacerbation of geopolitical tensions or renewed US-China trade restrictions. With almost 11.8 million visitors in the first half of 2024 (88% of the pre-Covid level in 2019), the recovery in tourism has strongly supported service exports. The government aims to surpass pre-Covid levels in 2024 with 27.3 million arrivals, which would be 4.6% more than pre-Covid levels. Tourist arrivals are expected to increase further in 2025 , the target being 31.4 million arrivals, i.e., 20.3% more than in 2019.

Bank Negara (BNM), like most of its regional peers, is compelled to shape its monetary policy around that of the FED to avoid excessive currency depreciation pressures. BNM strives to strike a balance between maintaining ringgit stability and setting policies that support growth. Consequently, the extent of Bank Negara's monetary policy tightening was modest and it began hiking rates later than other central banks in the region (Indonesia, Thailand and The Philippines). Moreover, the ringgit enjoys greater stability than its regional peers. Therefore, despite the FED's rate cut in September 2024, the BNM has limited room for easing as interest rates are not very high. The overnight policy rate (OPR) is 3%. Moreover, given the positive economic outlook for the coming year, no strong need exists to make high rate cuts to stimulate the economy. In addition, inflation is set to rise with the planned rationalisation of gasoline subsidies. Key interest rates are likely to remain unchanged or undergo only very slight rate cuts in 2025.

Deficit reduction in sight, but public debt remains high

Although the budget deficit is expected to narrow in 2024 and 2025, it is likely to remain wider than in pre-pandemic years, on top of which the pace of consolidation has also slowed. Despite the commitment to further fiscal consolidation, Malaysia's positive economic outlook and a stronger ringgit could allow for increased spending. The government intends to remove costly blanket subsidies and move to a targeted approach to mitigate the impact of rising prices on low-income groups. The subsidies likely to be adjusted are those on sugar, RON95 petrol and domestically produced white rice. To help households, salary increases for civil servants have been planned and the minimum wage could potentially rise. New taxes on soft drinks and high-value products are expected to be announced, but it is unlikely that a goods and services tax will be reintroduced.

The 2025 budget should include development spending on public transport, in particular with the construction of Mass Rapid Transit Line 3 (also known as “The Circle Line”) and the Pan-Borneo Highway connecting Sarawak and Sabah to Brunei. Similarly, the ICT sector is set to benefit from a substantial budget allocation, as the government has expressed its desire to further develop the semiconductor sector. The government intends to increase the production of high-value-added technological goods and will allocate significant funds to the training of engineers in the semiconductor sector and the teaching of AI-related subjects in universities. In addition, the tax incentive for increased exports in the service sector is likely to be extended to include advanced integrated circuit design services. Public debt remains high, but gradual fiscal consolidation points towards a decline as a share of GDP in the coming years. External debt is high (68.2% of GDP in 2023) but is manageable as 90% of it is denominated in local currency.

The current account should remain in surplus, thanks notably to the positive outlook for goods exports and a narrower services deficit amid rebounding in tourism. However, although international reserves are rising thanks to the recurrent current account surplus and foreign investment, their ratio to imports and short-term external debt coverage is falling, while reserves cover only four months of imports and 95% of the country's total short-term external debt.

Relative political stability

In office just over a year after the former Prime Minister's resignation, Ismail Sabri Yaakob and his cabinet, which governed by a slim majority, lost power in the 15th general elections (GE15) held in May 2023. The elections resulted in a divided political landscape, embedded in ethnic differences, with none of the three main coalitions – Pakatan Harapan (PH), Perikatan Nasional (PN) and Barisan Nasional (BN) – managing to achieve a simple majority. Because of the Malay vote split (mainly between BN and PN), PH (with more than 80% of non-Malay voters) found itself in a strong position and was able to win the most seats. Thanks to the King's intervention, PH (81 of 222 parliamentary seats) and BN (30) agreed to form a coalition government, and Anwar Ibrahim, leader of PH and long-time opposition leader, was appointed tenth Prime Minister. The Malaysian government led by Anwar Ibrahim is relatively stable compared with the Covid period, but the government is nonetheless in a fragile position. Since the November 2022 general election, Anwar has succeeded in consolidating his position through strategic alliances, building a broad coalition and consolidating his political power. However, the alliance in which the current government finds itself could mean that different interests (particularly those of the Malay) must be balanced. Furthermore, Anwar's compromises to achieve stability have limited his capacity to bring about the reforms he proposed during his campaign, causing him to lose popularity.

In the face of escalating tensions between the US and China, Malaysia seems determined to maintain its relations with both countries. This is despite the dispute with Beijing over the South China Sea, as China is a major trading partner and source of investment. Against a backdrop of heightened geopolitical tensions, several Malaysian companies in the semiconductor industry have been affected by secondary sanctions imposed by the US (freezing of US assets held by the targeted entities and prohibiting any entity under US jurisdiction from doing business with them) due to their alleged links with Russia's military suppliers.

At the same time, Malaysia's relations with the EU have cooled since the latter introduced a deforestation regulation in April 2023. The law, which aims to prevent the sale in the EU of products that contribute to deforestation, is seen by Malaysian authorities as unfair and discriminatory. Originally scheduled to enter into force on 30 December, 2024, the European Commission has proposed postponing the measure, but this has yet to be approved by EU ministers and the European Parliament. If implemented, the law may affect exports of palm oil, the country's main agricultural commodity. That said, Malaysia remains China's sole supplier of palm oil and marking 50 years of diplomatic ties, both economies have agreed to renew a five-year economic and trade cooperation pact relating to palm oil and agricultural commodities.

Payment

Bank transfers, cash, and cheques are all popular means of payment in Malaysia. The well-developed banking network allows for online payments. Letters of Credit are also commonly?used. As of 2017, the Central Bank requires that 75% of payments in foreign currencies are converted into the Malaysian ringgit (MYR) automatically upon receipt. Payments for transactions within Malaysia are required to be made in ringgit.

Debt Collection

Amicable phase

It is common for disputes and or debt to be settled amiably after negotiations. 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.

Legal proceedings

The Malaysian legal system is based upon the English common law 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.

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. 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 14 days after service of the writ (or 21 days if the writ was served outside Malaysia) 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 14 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 14 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 14 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.

FAST-TRACK PROCEEDINGS

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. 

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Enforcement of a Legal Decision

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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.

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GARNISHEE PROCEEDINGS

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.

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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.

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BANKRUPTCY PROCEEDINGS

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.

FOREIGN JUDGEMENTS

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.

Insolvency Proceedings

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.

Last updated: October 2024