State of Malaysian economy: to grow 4~5% in 2016, lead by domestic demand

PETALING JAYA: The Malaysian economy is expected to remain steady in 2016, with real GDP growth between 4% and 5% led by domestic demand, according to the Economic Report 2015/2016 drawn up by the Ministry of Finance (MoF).

Private sector expenditure will remain the main driver of growth with private consumption and investment expected to grow by 6.4% and 6.7%, respectively.

The government also remains committed to fiscal consolidation, with the fiscal deficit expected to further decline to 3.1% of gross domestic product (GDP) in 2016 (2015:3.2%) while the Federal Government debt level will remain manageable with the prudent limit of 55% of GDP.

Meanwhile government expenditure is forecast to expand, albeit at a moderate pace, in line with efforts to strengthen the fiscal position.

On the supply side growth is expected to be broad-based, with all the sectors registering positive growth, the MoF said.

Malaysia's external position is forecast to remain positive supported by better prospects for global growth and trade.

Against this backdrop, the nominal gross national income (GNI) per capita is expected to increase by 5.6% from RM36,397 in 2015 to RM38,438 in 2016.

With total investment surpassing savings, the savings-investment gap is expected to narrow between 0.5% and 1.5% of GNI.

The economy will continue to operate under conditions of full employment with the unemployment rate remaining below 4%.

Despite the weak ringgit, inflation is expected to remain benign attributed to low oil prices and the waning impact of GST.

For 2016, inflation is expected to range between 2% - 3%.

Slower GDP growth in 2016

THE Malaysian economy is expected to grow between 4% and 5% in 2016 as domestic demand is expected to offset the drag on the economy from a slowdown in growth in emerging markets, particularly China.

Lower commodity prices, depreciating currencies in emerging markets and volatility in financial markets will be hurdles to economic growth but that will be counterbalanced with activity by the private and public sectors..

“Strong economic fundamentals such as benign inflation and stable employment supported by accommodative monetary policy are expected to support growth,” says the report.

Private investment is expected to rise by 6.7% with higher investment by the manufacturing and services sectors.

Private consumption is expected to rise by 6.4%, aided by stable employment and favourable wage growth. In the public sector, public expenditure is expected to grow by 2.7%.

Public investment is forecast to grow by 2.3%. Public consumption is expected to increase by 3%.

The services sector is projected to grow by 5.4% and see its share of GDP increase to 54% with all subsectors posting growth.

The information and communication subsector is projected to grow by 9.6% and real estate and business services subsector by 7.1% aided by construction activity while the transport and storage subsector is projected to grow by 5% helped by the expansion in port and rail services, along with improved bus services.

Manufacturing is projected to grow by 4.3% aided by growth in advanced economies.

The agriculture sector is forecast to expand by 1.3% with improvement in the plantation sector and stronger growth in the food commodity subsector.

Production of crude palm oil is expected to grow by 1% to 20.1 million tonnes and rubber by 0.7% to 680,000 tonnes.

Malaysia is expected to register a smaller current account surplus with gross exports anticipated to increase by 1.4% led by manufactured exports.

Gross imports are expected to turn around and grow at a faster pace of 3% supported by higher public investment and capital spending in the manufacturing and services sectors.

Import duty exemption on 90 tariff lines in the manufacturing sector is expected to provide relief to about 900 companies.

Stable wage growth and employment prospects are expected to support demand for consumption goods and as import growth rise faster than exports, the trade surplus is projected to be lower at RM73.2bil of 5.9% of GDP compared with RM85.3bil in 2015.

For 2016, the transport and other services accounts are expected to remain in deficit following improved prospects for trade-related and investment activity. The surplus of the travel account is projected to grow to RM33.9bil from RM29.8bil driven by higher tourist arrivals.

Malaysia is expected to register a smaller current account surplus with gross exports anticipated to increase by 1.4% led by manufactured exports. Gross imports are expected to turn around and grow at a faster pace of 3% supported by higher public investment and capital spending in the manufacturing and services sectors.

Stable wage growth and employment prospects are expected to support demand for consumption goods and as import growth rise faster than exports, the trade surplus is projected to be lower at RM73.2bil of 5.9% of GDP compared with RM85.3bil in 2015.

The services account is expected to improve to RM11.4bil from a deficit of RM14.7bil in 2015.

With higher imports projected, the goods and services account is envisaged to post a lower surplus of RM63.7bil.

The primary account is expected to register net outflows of RM33.7bil in 2016 from RM33.2bil due to higher repatriation of profits, dividends and interests accuring to multinational corporations in Malaysia.

The secondary income account will still be in deficit amounting to RM18.7bil mainly due to sustained demand for foreign labour.

As inflows will be larger than outflows, due to the surplus in the goods and services account, the current account is forecast to be in a surplus of between 0.5% and 1.5% of gross national income.

State of the Malaysian economy



THE economy is expected to grow at a lower pace next year compared with 2015 as the government projects slower growth in the manufacturing, services and construction sectors.

The report said GDP was expected to expand between 4% and 5% in 2016 compared with the 4.4% to 5.5% growth estimated for the current year.

Domestic demand was expected to offset the drag on the economy from a slowdown in growth in emerging markets, particularly China.

Lower commodity prices, depreciating currencies in emerging markets and volatility in financial markets will be hurdles to economic growth.

However, these would be counterbalanced with activity by the private and public sectors, with private expenditure the main anchor while public expenditure will increase moderately.

To boost the economy, the Government has raised allocation for development spending by 6.1% to RM49.2bil, while operating expenditure will remain at RM215.2bil.

The increase in spending will be matched by higher revenue in 2016 forecast at RM225.6bil. The fiscal deficit in 2016 is projected at 3.1% of GDP.

Trade surplus is projected to be higher in 2015 at RM85.3bil, or 7.3% of GDP.

Debt level



The level of Government’s debt is projected to increase RM627.5bil, or 54% of GDP in 2015 from current RM582.8bil last year, or 52.7% of GDP. Household debts level remained high at 88.1% of GDP at end of August, up from 86.8% of GDP at the end of 2014.

Fiscal consolidation

The government will continue its fiscal consolidation in 2016 as it seeks to achieve a balanced budget by 2020 but it acknowledges there will be challenges from external sources.

It emphasises that while it ensures strong public finances, fiscal policy will continue to support economic growth and improve the people’s well being.

“With all the measures in place, the fiscal deficit is projected at RM38.8bil or 3.1% of GDP in 2016 (2015: 3.2%),” it said.

The fiscal deficit has come down from 6.7% in 2009 to 3.4% of GDP in 2014.

Revenue collection



The government expects revenue to increase by 1.4% to RM225.70bil due to higher tax revenue.

For instance, collection from oil-related revenue is expected to increase by 1.7% to RM265.2bil (2015: RM260.7bil).

Due to the implementation of the managed float fuel pricing system, subsidies, incentives and assistance will remain low at RM26.1bil (12.1%), reflecting a more targeted subsidy mechanism to reduce market distortions and leakages.

GST



The government projects to collect RM39bil from the Goods and Services Tax (GST) in 2016 – which is about 3.1% of the GDP as it seeks to achieve a balanced budget by 2020.

Since the GST was implemented in April, collection was RM27bil, higher than the earlier projection of RM21.7bil.

For 2016, GST’s collection will reflect a full 12-month of the tax implementation that had replaced the Sales and Services Tax (SST).

The higher collection will offset the contraction in oil-related revenue that has been the main revenue source for the Government.

Inflation, employment



Inflation rate is expected to increase from 1.9% in 2015 to between 2% and 3% in 2016.

However, the government expects the unemployment rate to decline from 3.1% in 2015 to 2.9% in 2016.

Strong economic fundamentals such as benign inflation and stable employment supported by accommodative monetary policy are expected to support growth.

Medium-term fiscal framework



The government also announced under the medium-term fiscal framework (MTFF) for 2016 to 2018, its revenue was estimated to be RM729.50bil.

The projection for the three years was based on the assumption that US light crude oil would be between US$48 and US$60 per barrel and oil production to be 600,000 barrels per day.

On Friday, US crude oil was trading below US$46, which is sharply lower than the near US$100 in July 2014.

The three-year framework expects non-oil revenue to be RM631.60bil and non-oil revenue RM97.9bil.

The government’s operating expenditure is expected to be RM685.7bil during the period and gross development expenditure RM153bil.

http://www.thestar.com.my/Business/Business-News/2015/10/23/The-very-rich-to-pay-more-income-tax/?style=biz

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Budget 2016: Malaysia not bankrupt ! PM said

Prime Minister Najib Abdul Razak is tabling Budget 2016 themed ‘Prospering the Rakyat’ in the Dewan Rakyat. Budget 2016 is the fir...

Budget 2016: Malaysia not bankrupt ! PM said

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Prime Minister Najib Abdul Razak is tabling Budget 2016 themed ‘Prospering the Rakyat’ in the Dewan Rakyat.

Budget 2016 is the first budget under the 11th Malaysian Plan but it is also the toughest the prime minister has had to work on.

This is amid falling revenue due to the drop in commodity prices, on top of the need to keep the country's deficit in check.

In his speech, the prime minister said Malaysia is not a failed state or bankrupt and stressed that the fundamentals are still strong.

The house erupted when Najib took a jibe at the opposition, saying that the opposition, which at first opposed the goods and services tax (GST), has now included it in their alternative budget.

Budget allocations:

- 2016 Budget allocates a total of RM267.2 billion, an increase from a revised allocation of RM260.7 billion for 2015. The initial allocation for 2015 was RM273.9 billion.

- For 2016, federal government revenue collection is projected at RM225.7 billion, up RM3.2 billion from 2015.

Taxes:



- Income tax increased from 25 percent to 26 percent for people earning between RM600,000 and RM1 million. Increased to 28 percent for those earning above RM1 million.

- Goods and services tax to increase government revenue by RM39 billion, versus RM27 billion in the first eight months of 2015. Some basic goods to be zero-rated, including over-the-counter drugs, baby milk, nuts-based food, noodles.

- Price of oil expected to remain low in 2016, so collection from oil-related resources expected to be around RM31.7 billion.

- Prepaid phone users will get GST rebate, which will be credited to their accounts. From Jan 1 next year.

- For medicine, it would be increased from 4,215 kinds of medicine to 8,630 kinds of (zero-rated GST) medicine.

- If Malaysia has no GST, national deficit will be 4.8 percent. With GST, deficit expected to be 3.1 percent for 2016.

- If Malaysia stuck to the sales service tax (SST), collection would only be RM18 billion. Whereas GST has netted RM39 billion.

- National revenue would reduce by RM21 billion if there was no GST.

- GST flat rate: all controlled medicine, including 95 brands of over-the-counter medicine used for diseases such as cancer, high blood pressure and heart diseases.

- More Small-time farmers can register under flat-rate GST scheme and increase two percent income - threshold for those who can apply decreased from RM100,000 to RM50,000.

- Exemptions from GST for all items that are being re-imported after being temporarily exported for promotion, research or display.

- For oil and gas industries, GST exemptions given to re-import of equipment exported temporarily for rent. For teaching material and equipment, for skills and vocational training. Tax relief:

- Parents with disabled children get RM6,000 tax relief and another RM14,000 if their child furthers their studies.

- Tax exemption of RM8,000 instead of RM6,000 for children above 18 in an education institution both local or overseas.

- Children supporting parents, even if not living together, will receive a tax relief of RM1,500 for both parents, if the parents are above 60.

- Tax exemption of RM4,000 instead of RM3,000 for those with a spouse with no income.

- Middle class families with a household income between RM3,860 and RM8,320 will get RM2,000 tax relief for every child under 18.

BR1M:

- BR1M to be continued. Based on response, Najib says the people are thankful for the help. BR1M allocations to be increased, with one new category.

- For those earning below RM1,000, BR1M increased to RM1,050

- Those earning below RM3,000, BR1M increased from RM900 to RM1,000

- Those earning RM3001-RM4,000, BR1M increased from RM750 to RM800

- Single people aged 21 and above earning not more than RM2,000, BR1M increased from RM350 to RM400

Minimum wage:

- Minimum wage to increase from RM900 to RM1000 a month for Peninsular Malaysia, except for domestic workers.

Expenditure:

- RM50 million to improve prison security measures

- RM13.1 billion to improve safety and national security.

- RM4.6 billion for vaccine, consumables, medicine in public hospitals.

- RM30.1 billion is allocated to the economic sector.

- RM13.1 billion is earmarked for education and training, health, housing and the well-being of the people.

- RM5.2 billion is allocated to the security sector.

Development:

- 2,000 affordable homes for the military, starting 2016.

- RM180 million to set up the National Disaster Management Agency.

- The government has allocated RM52 million for 328 1Malaysia clinics. Apart from this, 33 new 1Malaysia clinics will be opened.

- Five new hospitals will be constructed in Pasir Gudang, Kemaman, Pendang, Maran and Cyberjaya. Kajang Hospital to be redeveloped.

- RM150 million will be allocated to improve 11,000 homes belonging to the poor in rural areas.

- A total of 5,000 Rumah Pr1ma housing units and PPA1M to be built in 10 locations near LRT and Monorail stations, whereas 800 units of affordable homes by GLCs near MRT stations in the city centre.

- 20,000 houses for Felda, with the maximum price reduced to RM70,000 compared to RM90,000.

- The government will build 22,300 flats and 9,800 terrace houses under the Rakyat Housing Scheme.

- 100,000 houses, priced between RM90,000 and RM300,000 for civil servants will be ready by 2018.

- 10,000 Mesra Rakyat houses to be built, with RM20,000 subsidy for each unit. The government has allocated RM200 million for this.

- New boats and facilities for 1Malaysia clinics in rural areas.

- RM864 million to procure offshore patrol vessel and patrol boats.

- RM70 million interest-free loans for longhouse building in Sabah and Sarawak. Limit of RM50,000 loan for each longhouse unit.

- RM360 million will be used to improve National Service and RM160 million allocated for NGOs.

- The Pan-Borneo Sarawak Highway that is set to be completed in 2021 will be toll-free. It is 1,090km-long and costs RM16.1 billion.

- RM900 million allocated for 'Project Traffic Dispersal' at Jalan Tun Razak, to be executed immediately with the strategic cooperation of public-private sectors.

- RM42 million to build Mukah Airport in Sarawak and upgrade Kuantan and Kota Bharu airports.

- Develop Malaysian Vision Valley, 108,000 hectares from Nilai to Port Dickson, with forecast investments starting with RM5 billion in 2016.

- Execute Cyber City Centre in Cyberjaya with development valued at nearly RM11 billion over a five-year period

- Develop Bandar Lapangan Terbang or Aeropolis KLIA in 1,300 acres of land and expected to attract as much as RM7 billion investments.

- Investments estimated at RM18 billion for 2016 for RAPID Complex Project in Pengerang, Johor.

- The government will pump RM515 million for efforts to improve electricity supply in Sabah.

- RM67 million allocated for bus operation routes outside the city.

- The government will fork out RM60 million for social amenity projects and flood prevention efforts.

- RM1.2 billion will be allocated to improve Internet speed from 5mbps to 20mbps.

- The government will continue negotiations regarding high speed rail with Singapore.

- RM28 billion for new MRT projects, which would benefit two million residents

- RM730 million for the development of chemical industry, electronic and electrical machinery, aviation, medical equipment and services.

- For Felda settlements, RM200 million will be used improve roads in these areas.

- The government will fork out RM1.4 billion to improve rural roads nationwide. Aid:

- Aid for students slashed from RM540 million to RM350 million. In the past, RM100 aid was for all primary and secondary students. However, it has now been limited for students whose household income is less than RM3,000.

- A total of 1.2 million students will receive the 1Malaysia book voucher worth RM250.

- RM300 a month aid for poor senior citizens.

- RM662 million has been set aside to help children from poor families - aid of RM100-RM450 a month.

- RM2 billion allocated for aiding the disabled, senior citizens and poor families. RM350/month for working disabled persons, RM200 for those who are unemployed. RM300 a month for those who are bed-bound.

- Skim Khairat Kematian - RM1,000 to be continued

- RM100 aid for households with income below RM3,000. Expected to benefit 3.5 million students.

Others:

- To enable more workers to benefit from Socso, there will be compulsory savings of up to RM4,000 instead of RM3,000.

- RM200 million for first home deposit funding scheme.

- RM40 million to do infrastructure and easy loan programmes for Chinese residents of new areas to pay land premiums and house restorations.

- RM50 million by SME Bank to help small Indian entrepreneurs.

- RM100 million for Indian socio-economic development programmes.

- Tekun to provide RM100 million loan for Indian entrepreneurs.

- RM90 million allocated as micro-credit loans for small traders and Chinese businessmen.

- RM300 million allocated to improve the welfare and development of the Orang Asli community.

- Government aims for 30 percent women involvement in decision-making levels in public and private sectors.

- All economy class flights will be exempted from GST for rural routes.

- Malaysia has agreed to the Trans-Pacific Partnership Agreement (TPPA) in principle, while it has inked 13 Free Trade Agreements (FTA).

- For farming, RM5.3 billion will be used for the purpose of modernisation.

- The tourism sector is expected to contribute RM103 billion. To make it more convenient for tourists, e-Visa for seven countries will be made available in mid-2016.

- The poverty rate has been reduced to 0.6 percent in 2014 from 3.8 percent in 2009. In fact, extreme poverty has almost been wiped out.

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