Information about Asia and the Pacific Asia y el Pacífico
Journal Issue
Share
Article

Malaysia

Author(s):
International Monetary Fund
Published Date:
January 1994
Share
  • ShareShare
Information about Asia and the Pacific Asia y el Pacífico
Show Summary Details

I. Historical Perspective

Over the past three decades, the Malaysian economy has grown on average by 6 3/4 percent a year, with an annual per capita GDP growth of 4 percent. This performance places Malaysia squarely in the group of fast-growing Southeast Asian economies and, therefore, among the top performing economies in the world. Rapid growth has coincided with a major shift in the structure of the economy from one highly dependent on a small group of primary commodities to one where manufacturing is the largest sector. In addition, considerable diversification in both the range of primary commodities and manufactured products has occurred over this period. Growth has been supported by a rise in the investment rate from an average of 14 percent of GDP in the 1960s to 33 percent in 1990. This rise was facilitated by the growing openness of Malaysia’s economy, since much of the investment came from abroad and was concentrated in export-oriented activities.

At independence in 1957, 1/ Malaysia’s economy was heavily resource-dependent, with agriculture and mining accounting for about 38 percent and 6 percent of GDP, respectively, while manufacturing contributed less than 10 percent to total output. Furthermore, two commodities-rubber and tin--together accounted for over 70 percent of exports. Within agriculture, two distinct activities coexisted: export-oriented, foreign-owned plantation farming; and low-productivity, subsistence or smallholder farming which was largely associated with the ethnic Malay population.

In order to broaden the economic base, an import-substitution policy was adopted, supported by the introduction in 1958 of the Pioneer Industries Ordinance, which granted exemptions from corporate income tax for periods up to eight years to firms in approved industries. This legislation fostered the development and expansion of the food, rubber products, textiles, and car assembly industries, and contributed to an increase in manufacturing’s share in GDP to 14 percent by 1970. A decline in rubber prices and the emergence of synthetic alternatives provided the impetus for a diversification of the agricultural base. Attesting to this diversification, palm oil emerged as a major agricultural crop and a significant source of export revenue.

Reflecting the success of the industrialization strategy, real output grew by 6 1/2 percent a year during the 1960s. The emergence of new agricultural commodities was, however, insufficient to offset the reduction in rubber production. As a result, agriculture’s role in the economy declined over the decade. 2/ In addition, reflecting the bias toward import substitution policies during the 1960s, the share of imports in GDP declined from about 45 percent in the early 1960s to 37 percent by 1969.

In 1970, Malaysia embarked on a second stage in its development strategy with the introduction of the 20-year New Economic Policy (NEP). The main objectives of the NEP were poverty eradication and wealth redistribution. Economic growth through industrialization was viewed as essential to the success of the Plan since, given the distributional objectives of the NEP, only rapid growth could ensure that no group would be left worse off. In pursuit of the NEP objectives, the Government greatly increased its involvement in the industrial sector through direct participation in industrial projects and the regulation of private sector activity. During the 1970s, the number of public enterprises increased by 50 percent, financed by a large buildup in government-guaranteed foreign debt. The 1975 Industrial Coordination Act (ICA) established a system of licensing that enabled the Government to control what goods were produced, as well as the share of employment and equity ownership reserved for Malays. The regulatory environment associated with the ICA was met by a sharp drop in private investment, from 19 percent of GNP in 1974 to 13 3/4 percent in 1976.

In addition, under this second phase of Malaysia’s development, manufacturing became increasingly export oriented. This reflected, in part, the degree to which the size of the domestic market had constrained manufacturing production under the import-substitution policies of the 1960s. Under the Investment Incentives Act introduced in 1968, tax relief was offered to firms that exported more than 20 percent of their production, and export promotion expenses were eligible for a double tax deduction. In addition, free trade zones (FTZs) were established, which permitted firms to import their components free of duty and export their products exclusive of sales and excise taxes. As a result, foreign direct investment (FDI) expanded rapidly, reaching 19 percent of GDP in 1975, most of which was directed to the textile and apparel, and electrical and electronics industries established in the FTZs. During this period, nearly 15 percent of new manufacturing jobs were created in FTZs and, by 1980, 70 percent of manufactured exports were produced in these zones. However, tariff concessions granted to firms in the FTZs tended to increase the import content of the goods produced. In some industries, the propensity to import intermediate and capital goods exceeded 90 percent.

Reflecting the goal of export-led industrialization, manufacturing increased its share in GDP from 14 percent in 1970 to 20 percent in 1980 and exports grew from 46 percent of GDP to 58 percent over the same period. As a result, the share of agriculture declined from 32 percent of GDP to 23 percent of GDP during the 1970s. Growth in manufacturing, which averaged 12 percent a year during the 1970s induced a shift in employment from the rural sector and helped to reduce the rate of unemployment from 7 1/2 percent in 1970 to 5 1/4 percent in 1980. The discovery in the early 1970s of extensive petroleum deposits more than offset the effects on mining activity of the depletion of tin reserves. As a consequence, mining increased its share in GDP from 7 percent in 1970 to 10 percent in 1980. Petroleum developed into a major export commodity during the decade, rising from less than 5 percent of total export earnings in 1970 to nearly 20 percent of exports in 1980. Overall, output grew by 8 percent per annum during the 1970s.

The objective of rapid growth through export-driven industrialization was set back by the world recession of the early 1980s. Indeed, the global recession of 1981-82 had a severe, albeit delayed, effect on the Malaysian economy. Manufacturing, which was heavily concentrated into two export-oriented industries–electronics and textiles–was hard-hit by the decline in external demand. Relative to exports, debt service obligations–to which the surge in public enterprise spending and government-guaranteed debt under the NEP had contributed–increased significantly. Exacerbating the effects of weak external demand was a sharp deterioration in the terms of trade in 1985-86 (of about 24 percent)–owing largely to the drop in oil prices-and a collapse in private investment. As a result, output contracted by 1 percent in 1985–the only year since independence in which GDP declined-after rising by 6 3/4 percent per year during 1980-84.

In order to restore economic growth, the Government reoriented its policies and introduced a set of measures designed to promote private sector activity. The package, introduced between 1983 and 1986, included: (i) improvements in the investment climate by liberalizing equity and employment requirements and by introducing more generous corporate tax relief, particularly for export-oriented firms, and (ii) a reduction in the public sector’s role in industry through a cut in the share of development expenditure equivalent to 10 percent of GNP between 1983 and 1990, and the initiation of a privatization program.

Reflecting these measures, as well as an improvement in the external environment, the economy began a remarkable private investment-led recovery in 1987. Over the next few years, FDI inflows turned up sharply and the value of approved projects more than doubled between 1987 and 1988, accelerating further to reach a record level in 1991. Investment was particularly strong from Japan and the Asian newly industrialized economies (NIEs), which reflected, in part, the relocation of their production bases to lower cost countries. The net result was manufacturing growth that averaged IS percent per annum over the period 1986–90 and annual GDP growth of about 8.3 percent during the same period.

Encouraged by the economy’s performance under the liberal policies set in place during the second half of the 1980s, the Government introduced its ten-year National Development Policy (NDP) in 1991. The NDP emphasized growth through the promotion of private sector activity and human resource development. While the social objectives of poverty elimination and wealth redistribution were maintained, these were to be achieved through greater emphasis on education and equality of opportunity.

Rapid growth since 1987, which was concentrated largely in the export-oriented manufacturing sector, contributed to a sharp decline in the unemployment rate, from 8.2 percent in 1987 to 3.7 percent in 1992. As a result, shortages of both skilled and unskilled labor emerged. Increasingly tight labor market conditions contributed to rising labor costs, which threaten to erode Malaysia’s external competitiveness and to reduce the flow of foreign investment. While the economy has begun to shift away from (labor-intensive) assembly-type production and to implement labor-saving technologies in a number of sectors, thereby adding to potential output, demand pressures have intensified in recent years owing, in part, to a surge in short-term capital inflows.

II. Real Sector Developments

1. Aggregate demand, production, and prices

Real output growth strengthened to 8 1/2 percent in 1993 from 7 3/4 percent in the previous year. In contrast to 1992, however, growth in output was driven exclusively by domestic demand, with all components recording stronger growth in 1993 than in the previous year (Chart 1, Table 1, and Appendix Tables 7 and 8). Consumption spending grew by 7 3/4 percent in 1993, up from 2 3/4 percent in 1992. Fuelled by higher real wages and the positive wealth effect of higher equity prices, real private consumption rose by 7 1/2 percent in 1993, compared to 2 1/2 percent in 1992. Public consumption increased by 8 percent, reflecting higher spending for defense and essential services and supplies, and the payment of salary bonuses to public sector employees.

CHART 1MALAYSIA SELECTED MACROECONOMIC INDICATORS, 1986–93

Source: Data provided by the Malaysian authorities.

Table 1.Malaysia: Economic Trends, 1977-93
1977-801981-841985-881989199019911992Prel.

1993
 (Annual percentage change)
Real GDP7.96.83.59.29.78.77.88.5
Real domestic demand11.46.73.415.212.918.02.510.7
Consumer prices 1/5.05.71.12.83.14.44.73.6
Terms of trade7.7-0.6-5.1-0.9-1.4-0.55.72.0
 (Percent of GNP)
Gross national saving30.426.530.431.630.729.532.633.1
Private21.821.621.017.816.219.620.0
Public4.78.810.612.913.313.013.1
Gross domestic investment28.137.027.530.832.938.835.637.1
Private, fixed15.919.315.919.621.925.424.324.1
Public, fixed10.116.911.811.512.011.911.912.0
Change in stocks2.10.8-0.2-0.3-1.01.40.61.0
Current account balance2.3-10.52.90.7-2.2-9.3-3.0-4.0
Total external debt22.1 2/47.972.147.843.644.242.746.7
Federal government debt48.571.0103.593.0-85.580.169.260.7
Federal government fiscal balance-6.3-12.5-7.1-4.5-3.2-2.7-1.00.2
Consolidated public sector balance-5.3-3.4-2.2-0.7-0.6-0.7
Debt service 3/2.6 2/10.417.110.48.57.47.07.1
International reserves 4/6.44.16.24.34.13.75.57.5
Sources: Data provided by the Malaysian authorities; and staff estimates.

Period average.

1979-80.

In percent of exports of goods and services.

In months of imports of goods and services.

Sources: Data provided by the Malaysian authorities; and staff estimates.

Period average.

1979-80.

In percent of exports of goods and services.

In months of imports of goods and services.

Total investment expanded by 16 percent in 1993, up sharply from 2 percent in 1992. Private fixed investment increased by 10 percent in real terms, compared to 6 1/2 percent in 1992, reflecting a decline in real interest rates, the implementation of investment projects approved during the peak period 1990-91, and the announcement of a two-step reduction in the corporate tax rate beginning in 1994. Manufacturing continued to receive the largest share of private investment spending (26 percent), followed by the service and construction sectors, with 21 and 16 percent, respectively. Reflecting a greater emphasis on infrastructure upgrading, public investment increased by 12 1/4 percent in 1993, compared to 11 percent in 1992. Also contributing to the growth in investment was a buildup in inventories, following a decumulation in the previous year.

In line with the acceleration in private spending, real import demand grew by 14 percent in 1993, following a decline of 1 percent in 1992. Reflecting the strength of investment and output growth, imports of intermediate and capital goods increased more rapidly than imports of consumption goods. Real exports grew by 11 1/4 percent in 1993 (up from 5 percent in 1992), owing largely to the penetration of new markets for manufacturing goods in the Asia-Pacific region. Overall, therefore, while net exports were the primary source of growth in 1992, their contribution to growth in 1993 was negative.

On the supply side, the diversification of output continued in 1993, with the manufacturing, construction, and service sectors growing more rapidly than the economy as a whole (Appendix Table 9). Despite the rapid increase in manufacturing investment, capacity utilization (in manufacturing) rose to nearly 85 percent by end-1993, a historically high level. In addition, the manufacturing sector absorbed 24 percent of the labor force in 1993, up from 15 percent in 1986. Agriculture continued to expand in 1993, albeit at a moderate pace, while activity in the mining sector turned around to register a small decline (Appendix Table 10).

Manufacturing, which accounted for 29 percent of GDP in 1992, was the leading growth sector in 1993, expanding by 12 3/4 percent compared to 10 3/4 percent in the previous year (Appendix Table 11). Despite the sluggish economic performance of industrial countries, growth in export-oriented industries-electronics, wood products, textiles, and processed edible oils-rose to 14 1/4 percent from 11 1/4 percent in 1992. This development reflected, in part, the strengthening of demand in the United States’ computer market and the relocation of production facilities from Japan and Taiwan Province of China to Malaysia. Fuelled by the acceleration in domestic demand, domestic market-oriented manufacturing grew by 11 percent in 1993, compared to 9 1/4 percent in 1992. Within domestic-oriented manufacturing, the 58 percent growth rate recorded by the fabricated metals sector was particularly noteworthy.

The growth performance of the construction and service sectors, at 11 1/2 percent and 9 percent, respectively, in 1993, was largely unchanged from the previous year. Residential construction was boosted by the rise in real incomes and the wealth effect of higher equity prices. Additional impetus to construction activity was provided by several major ongoing infrastructure projects, including a new international airport and a light rail transit system. Service sector growth was dominated by the performance of the financial and business subsector, which expanded by 12 percent during 1993. A major factor was the surge in activity on the Kuala Lumpur Stock Exchange (KLSE).

Despite the acceleration in domestic demand, consumer price inflation moderated to 3 1/2 percent in 1993 from 4 3/4 percent in 1992 (Appendix Table 12), although it picked up at the end of the year. The moderation reflected a number of factors, including low world inflation and the steady value of the ringgit. In addition, the introduction in January 1993 of administrative measures–including the reduction or removal of import duties on more than 600 intermediate and final goods—also helped to limit increases in domestic prices, especially for food. 1/

Producer prices continued to increase more slowly than consumer prices in 1993. Reflecting growing wage pressure, local production costs were the main factor behind the 1 1/2 percent increase in the PPI (Appendix Table 13). However, in the first quarter of 1994, supply constraints and seasonal factors led to a sharp rise in the price of food at the producer level, which contributed to an acceleration in the 12-month PPI to 2 percent.

2. Investment and saving

The current account deficit widened to 4 percent of GNP in 1993, a one percentage point increase relative to the previous year. The deterioration in the external balance reflected an increase in investment equivalent to 1 1/2 percent of GNP, which more than offset the increase in national saving of about 1/2 percent of GNP (Appendix Table 14). The increase in the national saving was attributed to the rise in private saving to 20 percent of GNP, 1/2 percentage point higher than in 1992 (Chart 2).

CHART 2MALAYSIA INVESTMENT AND SAVING, 1986–93

Source: Data provided by the Malaysian authorities.

Gross fixed capital formation stabilized at just above 36 percent of GNP in 1993, with the private and public components remaining relatively constant at 24 and 12 percent, respectively. The relative stability of the private fixed investment ratio reflected three distinct forces. First, a diversion of foreign investment to lower cost countries in the region contributed to a reduction in FDI of 1 3/4 percent in nominal terms in 1993. Second, locally sourced investment rebounded strongly in 1993, following the introduction of the Domestic Investment Initiative which promotes investments by local businesses. This resurgence in locally sourced investment more than offset the decline in FDI. 2/ Third and finally, however, the deflator for fixed investment rose less rapidly than the GNP deflator in 1993. Other things equal, this relative price effect tended to reduce the share of private fixed capital formation in nominal GNP. 3/

3. Labor market

The continued expansion in economic activity led to a further tightening of labor market conditions in 1993. Employment growth of 3 1/2 percent contributed to a reduction in the unemployment rate, from 3 3/4 percent in 1992 to 3 percent, despite a 2 3/4 percent increase in the size of the labor force (Appendix Table 16). Employment growth was strongest in the manufacturing and construction sectors (8 1/2 percent), whereas the primary sector continued to shed its workforce. Manufacturing alone accounted for more than half of total new employment and, in 1992, surpassed agriculture as the leading employer.

Labor shortages were evident throughout the economy in 1993 but were most pronounced in the manufacturing and service sectors, where skilled labor was scarce, and in the plantation and construction sectors, where unskilled workers were in short supply. To increase the availability of skilled labor, the Government set up in January 1993 the Human Resource Development Fund (HRDF) to encourage greater private sector participation in skills training. The HRDF received a start-up capital of RM 49.8 million from the Government (payable in three equal annual installments beginning in 1993) and is financed by a 1 percent levy on wages, payable by companies with 50 or more employees. The importation of foreign workers to alleviate the shortage of unskilled labor, however, has been temporarily frozen since January 1994, pending resolution of the problem of illegal immigrants.

For the economy as a whole, average labor productivity, measured as real GDP per worker, increased by 5 percent during 1993, following a similar increase in the previous year. Agriculture continued to achieve the most rapid gains in productivity during the year (9 1/2 percent), followed by the service sector (5 percent). Labor productivity in manufacturing rose by 3 3/4 percent in 1993, following a small decline in the previous year. 2/

Reflecting the tightness in labor market conditions, real wage costs accelerated during 1993 (Chart 3). Although economy-wide wage data are not available, an indication of the rising cost of private-sector employment can be obtained from data on new collective agreements among unionized workers. 1/ Under private sector collective agreements concluded in 1993, nominal wages rose by 12 percent, 2/ up from 9 percent in the previous year. These increases, which exceeded improvements in (nominal) labor productivity, contributed to a sharp rise in unit labor costs and to an erosion of international competitiveness. As in 1992, wage increases were highest in manufacturing, followed by the service sector. Manufacturing wages increased by 15 percent on average, compared to 10 percent in 1992. In contrast, wage increases in other sectors were generally smaller than in the previous year. Within the manufacturing sector, wage increases displayed considerable variability, ranging from 0–34 percent depending on the subsector. Attesting to the acute shortage of skilled labor, more experienced and better trained workers tended to receive larger percentage wage increases.

CHART 3MALAYSIA LABOR MARKET DEVELOPMENTS, 1986–93

Source: Data provided by the Malaysian authorities.

1/ Wage increases are based on collective agreements concluded during the year.

III. Recent Fiscal Developments

1. Overview of budgetary trends

After expanding considerably during the recessions of 1980-82 and 1985-86, the public sector was scaled back during the period of the Fifth Malaysia Plan (1986-90). Government spending was reduced sharply with a reprioritization of development expenditure and cutbacks in spending on goods and services, subsidies, and personnel recruitment. In addition, tax reforms were introduced to promote the development of the private sector. As a result, the federal government’s overall deficit declined from over 10 percent of GNP in 1986 to 3 percent of GNP by 1990 (Chart 4, Table 2, and Appendix Table 17).

CHART 4MALAYSIA BUDGETARY TRENDS, 1985–93

(In percent of GNP)

Source: Data provided by the Malaysian authorities, and staff estimates.

Table 2.Malaysia: Summary of Federal Government Budgetary Developments, 1985-94(In percent of GNP)
 198519861987198819891990199119921993Proj.

1994
Total revenue and grants30.229.624.724.925.126.227.927.926.625.1
Tax revenue24.223.017.618.018.120.121.821.521.120.7
Nonpetroleum16.214.812.412.413.114.715.416.116.516.9
Petroleum8.08.25.35.65.0546.45.44.53.8
Nontax revenue6.16.67.06.97.06.06.46.45.64.4
Petroleum2.22.33.22.92.92.62.82.82.42.2
Other3.94.23.84.04.03.43.23.63.12.3
Total expenditure and net lending34.341.033.329.529.629.330.528.926.424.7
Current expenditure26.430.027.024.723.923.024.123.720.919.2
Development expenditure and lending7.911.06.34.85.76.46.45.25.55.5
Direct development expenditure3.85.24.13.95.87.85.65.25.14.9
Net lending4.15.92.20.9-0.1-1.40.8--0.40.6
Overall balance-4.1-11.4-8.6-4.6-4.5-3.2-2.7-1.00.20.4
Overall financing (net)4.111.48.64.64.53.22.71.0-0.2-0.4
External1.92.4-3.3-3.6-1.1-0.70.1-2.3-2.0
Domestic2.29.011.98.25.63.92.63.21.8
Memorandum item:
Consolidated public sector overall balance-2.8-10.3-5.6-2.4-3.4-2.2-0.7-0.6-0.7-0.4
Sources: Data provided by the Malaysian authorities; and staff estimates and projections.
Sources: Data provided by the Malaysian authorities; and staff estimates and projections.

The process of fiscal consolidation and restructuring has continued in the early 1990s and, in 1993, the overall balance of the federal government recorded a surplus, resulting in the federal government’s best financial performance in more than 30 years. The main fiscal developments in 1993 included a continuation of restraint in operating expenditure, further reprioritizing of development spending, and ongoing tax reforms aimed at increasing the efficiency of the tax system.

2. Expenditure trends: Reallocating to priority sectors

The reduction in total government spending, from 28 percent of GNP in 1992 to 26 percent of GNP in 1993, was accompanied by a reallocation of expenditure. Most of the spending cuts focused on current expenditure, while development expenditure was broadly maintained relative to GNP. However, within development spending, there was a reallocation toward more expenditure on infrastructure (particularly transportation) and social services (Chart 5). The shift in spending priorities was also evident on the functional side (Table 3 and Appendix Table 18). Expenditure on economic services and interest payments declined, while spending on education and health remained stable relative to GNP.

CHART 5MALAYSIA EXPENDITURE DEVELOPMENTS, 1988–93

Source: Data provided by the Malaysian authorities; and staff estimates.

1/ Based on national classification excluding security expenditures.

Table 3.Malaysia: Federal Government Functional Expenditure Shares, 1985-94(In percent of GNP)
 198519861987198819891990199119921993Proj.

1994
General services18.723.019.317.218.417.618.518.517.216.2
General public services5.16.05.14.54.94.04.24.54.23.5
General administration3.13.93.22.83.32.42.62.82.62.2
Internal security2.12.12.01.71.71.61.61.81.51.3
Defense3.43.52.82.62.92.73.53.23.13.0
Education6.07.26.35.85.86.05.75.75.45.3
Health1.61.81.51.41.51.61.61.71.51.3
Social security1.11.21.31.11.11.01.51.61.51.3
Housing and community amenities1.53.22.31.82.12.22.01.81.51.8
Of which:
Other community and social services0.91.21.00.91.11.31.01.10.91.0
Economic services8.59.76.66.46.98.15.85.74.95.5
Agriculture, forestry, and rural development2.92.92.32.22.12.11.91.71.51.5
Transport and communication2.94.32.01.92.22.22.12.52.22.5
Other2.72.52.32.32.63.81.81.51.21.5
Unallocable7.37.87.66.44.64.06.14.84.43.6
Of which:
Public debt interest7.07.87.77.27.06.25.75.24.54.1
Adjustment for accounts payable-0.20.4-0.2-0.5-0.3-0.50.1-0.2----
Total expenditure and net lending34.341.033.329.529.629.230.528.926.425.3
Sources: Data provided by the Malaysian authorities; and staff estimates and projections.
Sources: Data provided by the Malaysian authorities; and staff estimates and projections.

The decline in current expenditure, from 24 percent of GNP in 1992 to 21 percent in 1993, was reflected in all of the major categories (Appendix Table 19). Wages and salaries fell by 1 percentage point of GNP, although this owed a one-time payment arising from the introduction of the New Remuneration System in 1992, which involved an 8-10 percent increase in salary levels with a backdating of the wage increase to January 1989. Adjusting for this one-time payment, the underlying wage bill grew by 14 percent in 1993, owing to wage increases in line with the normal annual increment, the payment of a half-month cash bonus, and new recruitment to fill essential vacancies in health and education. 1/

As regards the other principal components of operating expenditure, subsidies and current transfers declined, owing to a reduction in federal government transfers to statutory bodies, in line with the policy to encourage these agencies to rely more on self-financing. Expenditure on goods and services declined relative to GNP, reflecting government policy to exert strict control on the overall growth of these expenditures. Interest payments also fell, reflecting the reduced level of government debt.

While overall development expenditure, which includes net lending, increased slightly to about 5 1/2 percent of GNP in 1993, direct development spending remained broadly stable relative to GNP. However, there was a significant shift in the allocation of direct spending across the main sectors. Expenditure on transportation was increased, reflecting higher allocations for the rehabilitation of the highway network, the development of the rail system, and the upgrading of airports. Spending on the education sector also increased. Expenditure on commerce and industry, in contrast, continued to decline, in line with the reduced presence of the Government in the economy and the privatization of public enterprises. Lending to state governments and public agencies stabilized in nominal terms in 1993 but, as repayments declined slightly, there was a small increase in net lending.

3. Revenue developments and budgetary financing

a. Revenue trends: Tax reform and improvements in administration

In line with the objectives of the Sixth Malaysia Plan (1991-95), a series of reforms have been implemented in recent years with a view to increasing the efficiency of the revenue system. Tax rates and tariffs have been lowered in order to improve the climate for private sector activity and lower cost pressures in the economy. The corporate tax rate was reduced from 40 percent in 1988 to 35 percent in 1989, 34 percent in 1993, and 32 percent in 1994, with a further reduction to 30 percent already announced to take effect from January 1, 1995. Personal income tax rates have been cut from a range of 4-35 percent in 1991 to 2-34 percent in 1993. The development tax, which was 5 percent in 1989, has been gradually reduced and was eliminated in 1993. In addition, export duties have been either reduced or eliminated, stamp duties have been reduced, the estate duty has been eliminated, and import duties were reduced or eliminated on about 600 items in the 1993 budget and a further 500 items in the 1994 budget.

While direct tax rates have been lowered, revenue collections have been maintained by the extension of the coverage of the services tax, improvements in tax administration, and an increase in tariffs on alcohol and tobacco products. With respect to tax administration, in addition to the measures introduced in 1991 and 1992, 1/ several additional measures were implemented in 1993 and 1994 that have improved performance and increased collections from corporate and personal income taxes despite the reductions in tax rates: (i) a series of lectures, exhibitions, and dialogue sessions were held as part of a taxpayer education program and resulted in an increase in voluntary compliance; (ii) collection regulations were tightened to reduce payment of tax obligations by extended installment; (iii) direct banking of daily tax collections was initiated; and (iv) the functions of the Inland Revenue Department were decentralized and regional offices were opened.

In 1993, revenue collections declined relative to GNP, owing mainly to a drop in petroleum-related revenue, a reduction in nontax revenue, and tax concessions granted in the budget (Table 4 and Appendix Table 20). The impact of these factors, however, was partly offset by the continued strong performance of corporate and individual tax collections. 1/ At the same time, administrative measures introduced by the Inland Revenue Department raised tax collections, and service taxes increased considerably, owing to a further broadening of the tax base to include telecommunications and other services.

Table 4.Malaysia: Components of Revenue, 1985–94(In percent of GNP)
 198519861987198819891990199119921993Proj.

1994
Tax revenue24.223.017.618.018.120.121.821.521.120.7
Taxes on net income and profits12.212.48.28.37.58.710.010.39.910.2
Taxes on property0.10.20.10.10.10.10.10.20.10.1
Taxes on goods and services5.25.24.74.85.45.76.06.06.35.8
Taxes on international trade6.14.84.34.44.64.95.04.33.83.6
Import duties3.53.12.62.83.03.13.33.12.92.8
Export duties2.61.71.71.61.61.81.61.20.90.8
Others0.50.40.30.40.50.70.70.80.91.0
Nontax revenue5.86.46.96.86.96.06.06.45.64.4
Capital revenue0.20.20.10.10.1----------
Total revenue30.229.624.724.925.126.227.927.926.625.1
Sources: Data provided by the Malaysian authorities; and staff estimates and projections.
Sources: Data provided by the Malaysian authorities; and staff estimates and projections.

b. Budgetary financing

Public sector deficits in Malaysia have typically been financed by external borrowing and from domestic nonbank sources like the Employees Provident Fund (EPF) (Appendix Table 21); relatively little recourse has been made to bank financing. The consolidation of the fiscal position in recent years has enabled the Government to make significant reductions in total outstanding government debt relative to GNP (Appendix Table 22). Moreover, since 1988, domestic sources of financing have been sufficient for the Government to make substantial prepayments on its external debt.

In 1993, the Government continued to make substantial net repayments and prepayments of external debt financed primarily by a drawdown of government cash balances in the central bank and other cash assets. Because of the low borrowing need of the Government, the issuance of government securities was limited during the year and, in contrast with previous years, Government Investment Certificates (GIC) were the major instrument of domestic borrowing. In addition, there was one issue of Malaysian Government Securities (MGS).

4. Consolidated public sector

The public sector is made up of the public enterprises and the general government which, in turn, consists of the federal government, statutory bodies, and 13 state and 80 local governments. In recent years, the evolution of the consolidated public sector position has largely reflected changes in the federal government’s overall balance (Chart 6 and Appendix Table 23). However, during 1992–93, improvements in the federal government’s financial position were offset by a deterioration in the position of the public enterprises, owing to a substantial increase in development expenditure.

CHART 6MALAYSIA CONSOLIDATED PUBLIC SECTOR DEFICIT, 1985–93 1/

(In percent of GNP)

Source: Data provided by the Malaysian authorities; and staff estimates.

1/ After adjusting for inter-fovernmental transfers.

2/ Consists of statutory bodies, and state and local governments.

a. General government

The overall balance of the general government, after adjusting for intergovernmental transfers, improved from a deficit of 3 percent of GNP in 1989 to a small surplus in 1993, closely reflecting the position of the federal government. The position of the rest of the general government, not including the federal government, has been roughly unchanged–local governments have remained broadly in balance, while state governments and statutory bodies have had small deficits (Appendix Tables 2428).

b. Public enterprises

The public enterprise sector has undergone considerable reform in recent years, focusing on operational improvements in those enterprises remaining in the public sector and a moratorium on the creation of new public enterprises. 1/ This has led to a reduction in the number of loss-making enterprises and an increase in the overall operating surplus of the public enterprises, the bulk of which has been accounted for by several of the major enterprises, including the petroleum company (PETRONAS), Telekom Malaysia Berhad (TMB), Tenaga Nasional Berhad (TNB), and Malaysian Airlines (MAS). However, the increase in the operating surplus of the public enterprise sector has been more than matched by increases in development expenditure.

In 1993, development expenditure of nonfinancial public enterprises (NFPEs) increased sharply, particularly for infrastructure and public utilities, with the bulk of investment accounted for by several partially privatized public enterprises (MAS, PETRONAS, TMB, and TNB). As a result, the public enterprise sector recorded a small overall deficit for the first time since 1986 (Appendix Table 29).

c. Privatization

The Government’s privatization policy was initiated in 1983 and, to facilitate and accelerate its implementation, the Privatization Master Plan (PMP) was introduced in 1991. Within the PMP is a Privatization Action Plan, a two-year rolling plan under which individual projects and enterprises are identified for privatization. Several methods of privatization have been used: (i) the sale of equity or assets in government companies; (ii) a lease of the use of the assets for a specified period; (iii) management contracts; and (iv) build-operate and build-operate-transfer arrangements for new investment (primarily infrastructure) projects.

As of April 1994, 107 projects had been “privatized.” Of these projects, 56 involved the sale of equity or assets in government enterprises and 22 projects involved the transfer of new investment projects to the private sector through build-operate or build-operate-transfer arrangements. The remaining projects primarily involved leases or management contracts. Major public enterprises that have either been completely privatized or have had the Government’s equity stake reduced to a minority share are the Cement Industries of Malaysia, Edaran Otomobil Nasional, and Sports Toto Malaysia. Equity sales have also taken place in MAS, TMB, and TNB, although the Government still maintains a majority shareholding in these companies. In 1993, the Government divested its shares in two companies. In addition, 22 existing and new projects were privatized. During the first four months of 1994, three more new projects were privatized and equity sales in two enterprises were held.

IV. Monetary and Financial Sector Developments

1. Overview

While significant fiscal restructuring and consolidation have contributed to moderating demand pressure in recent years, monetary policy has also played an important role. The primary monetary policy tools used by Bank Negara have been direct borrowing from the banking system, changes in the Statutory Reserve Requirement (SRR), and the transfer of government and EPF deposits to the central bank. These instruments have been supplemented by sales of MGS and, since early 1993, Bank Negara bills.

During 1992-93, surging capital inflows complicated the conduct of monetary policy. Despite a sharp increase in Bank Negara’s liquidity operations in an effort to offset the expansionary impact of the inflows on the monetary base, monetary conditions eased and reserve money grew rapidly (Chart 7, Table 5, and Appendix Table 30). Moreover, the increased absorption of liquidity imposed a heavy cost on Bank Negara, contributing to the large reserve losses suffered in 1992-93.

CHART 7MALAYSIA MONETARY DEVELOPMENTS, 1989–94

Source: Data provided by the Malaysian authorities.

1/ Includes net claims on financial institutions, issues of Bank Negura bills, and the recycling of the deposits of the Employees Provident Fund.

Table 5.Malaysia: Banking Survey, 1990-94 1/
MarchJuneSept.Dec.MarchJuneSept.Dec.March
19901991199219931994
(In billions of ringgit: end of period)
Foreign assets (net)26.625.228.828.730.233.938.841.541.455.566.8
Net domestic assets100.8119.7123.5130.3135.0137.1136.4142.2152.3154.5159.3
Domestic credit132.6157.2166.1163.1167.4172.7175.0178.9181.9193.7195.9
Claims on government (net)12.110.311.96.86.88.58.47.07.09.39.3
Claims on private sector120.5146.9154.2156.3160.6164.2166.6171.9174.9184.4186.6
Other items-31.8-37.5-42.7-32.8-32.4-35.6-38.6-36.7-29.6-39.2-36.6
Total liquidity (M3)127.4144.9152.3159.0165.2171.0175.2183.7193.7210.0226.1
Memorandum items:
Narrow money (M1)27.030.831.531.733.035.536.838.740.948.149.8
Broad money (M2)90.9104.3108.5113.9119.4123.9127.0132.7138.8152.4168.0
(Twelve-month rate of change)
Foreign assets (net)14.3-5.25.24.519.134.534.744.637.163.772.2
Domestic credit20.618.619.413.710.39.95.39.78.712.211.9
Claims on government (net)-4.6-14.5-6.1-38.4-37.2-18.0-30.02.92.99.410.7
Claims on private sector23.921.922.018.013.911.88.110.08.912.312.0
M319.613.714.518.718.618.015.115.517.322.829.1
M116.813.913.613.112.915.416.922.123.935.535.3
M213.614.713.619.120.518.817.116.516.223.032.3
(Change in percent of M3 at beginning of period)
Foreign assets (net)3.1-1.11.10.93.56.06.68.06.812.616.0
Domestic credit21.319.320.314.611.210.75.89.98.812.311.9
Government (net)-0.5-1.4-0.6-3.2-2.9-1.3-2.40.10.10.50.5
Private sector21.820.720.917.814.112.08.29.88.711.811.4
Source: Data provided by the Malaysian authorities.

Consolidation of the accounts of the monetary authorities, commercial banks, finance companies, merchant banks, and discount houses.

Source: Data provided by the Malaysian authorities.

Consolidation of the accounts of the monetary authorities, commercial banks, finance companies, merchant banks, and discount houses.

2. Monetary policy and developments

Despite large-scale liquidity operations undertaken by Bank Negara throughout 1993, liquidity conditions eased gradually during the course of the year (Appendix Table 32). The operations, which included direct short-term borrowing from the money market, the sale of Bank Negara bills, the issuance of long-term saving bonds, and the transfer of government and EPF deposits to the central bank, absorbed RM 38 billion of liquidity (Appendix Tables 33 and 34). However, these operations were insufficient to fully offset the impact of a continuation of the surge in capital inflows. The inflows, which included a sharp increase in short-term external borrowing by commercial banks and other financial institutions (Appendix Tables 35 and 36), were related to the significant interest rate differential in favor of Malaysia, a pickup in international interest in Malaysia’s stock market, and market expectations of an appreciation of the ringgit. As a consequence, interest rates eased over the course of the year, with the three-month interbank rate declining from 8 percent at end-1992 to 6 1/2 percent at end-1993.

Liquidity conditions continued to ease in the first half of 1994, although the instruments employed by Bank Negara to counter the effects of the capital inflows varied considerably over the period. In response to a pickup in inflows at end-1993 and early 1994, Bank Negara imposed a set of measures to stem the inflow of short-term capital. These measures, implemented in stages during the period mid-January to mid-February, included: subjecting banking institutions to a ceiling on their nontrade- or noninvestment-related external liabilities; prohibiting residents from selling short-term monetary instruments to nonresidents; and requiring commercial banks to place with Bank Negara the ringgit funds of foreign banking institutions held in noninterest-bearing accounts. 1/ In addition, the eligible liabilities base was broadened to include inflows from abroad and the SRR was raised three times by a cumulative 3 percentage points to 11 1/2 percent in order to siphon off liquidity. Although the measures appeared to have succeeded in halting the short-term inflows, the substantial buildup of liquidity on account of the intervention operation at the start of the year gradually wound its way through the banking system. 2/ As a result, interest rates continued to decline during the first five months of 1994, and the three-month interbank rate fell to 4.5 percent by May before stabilizing at that level. Beginning in mid-February, the ringgit appreciated and, by mid-May, was broadly at the same level against the dollar as prevailed prior to the depreciation.

The rates of growth of the monetary aggregates reflected the strength of the capital inflows. However, the inflows, which initially were in the form of bank deposits, did not have a significant impact on lending. Instead, there was a substantial buildup of excess reserves of the banking system with the central bank and, as a result, velocity declined sharply. For 1993 as a whole, the growth rates for Ml and M3 were 35 1/2 percent and 23 percent, respectively, compared with 15 1/2 percent and 18 percent, respectively, in 1992. By March 1994, the 12-month growth rate of M3 had risen to 29 percent, while the growth of Ml remained above 35 percent. As regards the credit aggregates, domestic credit expansion to the private sector, which had moderated to 12 percent at the end of 1992, slowed further to 8 percent in the first quarter of 1993, before picking up as economic activity accelerated. By end-1993, credit growth was just under 12 percent but declined slightly to about 11 1/2 percent by March 1994.

3. Financial intermediation and the capital market

The banking system in Malaysia consists of commercial banks, merchant banks, finance companies, and other financial institutions, including the National Savings Bank, pension and provident funds, insurance companies, and specialized credit agencies. There are presently 37 commercial banks, 21 of which are domestically owned and 16 are foreign. The commercial banks account for about 85 percent of the total assets of the banking system. The main developments in the financial system in 1993 and early 1994 included an easing of lending and deposit interest rates, a surge in equity prices on the KLSE in 1993 followed by a market correction in early 1994, and continued development of the capital market.

a. Interest rates and lending

Since the late 1970s, the authorities have gradually liberalized the process by which commercial banks are allowed to set lending rates. At present, each bank or finance company may set its own base lending rate (BLR) based on its cost of funds, including the cost of holding statutory reserves and of meeting the liquid asset requirement. Subject to the margins surrounding the BLR, and excluding interest rates on certain priority sector lending which are subject to guidelines, financial institutions are free to determine their own lending rates.

Reflecting the easing of liquidity conditions during 1993 and early 1994, the BLRs of financial institutions declined gradually (Appendix Table 37). The average BLR among the commercial banks fell from 9 1/2 percent at the end of 1992 to 8 1/2 percent at end-1993 and 7 1/2 percent by March 1994. At the same time, commercial banks’ average lending rate declined from 10 1/4 percent at end-1992 to 9 3/4 percent by end-1993 and 9 1/4 percent in March 1994. Interest rates on fixed deposits have closely followed the trend in lending rates, declining from almost 8 percent for most maturities at end-1992, to 6 1/4 percent by end-1993 and 5 3/4 percent by March 1994.

The pattern of lending by the commercial banks was broadly unchanged in 1993 (Appendix Table 38). As in recent years, the manufacturing sector was the largest recipient of loans, accounting for almost one fourth of total lending. Lending to the financing, insurance, and business services sector rose by 25 percent, and the share of this sector in total lending increased to almost 15 percent. Individual housing loans and lending to the transport and communications sector also rose sharply. The share of the agricultural and mining sectors in total lending, however, continued to moderate in 1993, in line with the declining importance of these sectors in the economy.

b. Stock market developments

Malaysia’s stock market has grown rapidly in recent years and, in terms of market capitalization, it ranks among the 15 largest markets in the world (Charts 8 and 9, and Appendix Table 39). 1/ In 1993, the market experienced sustained increases in equity prices and the KLSE composite index doubled during the course of the year. Optimism in the stock market was broad based, supported by strengthening activity and the easing of inflation and interest rates during the course of the year. In addition, a sharp increase in participation by international investors served to boost equity prices to unprecedented highs, with net inflows for the purchase of stocks and shares estimated to have tripled to RM 23 billion in 1993.

CHART 8MALAYSIA STOCK MARKET DEVELOPMENTS, 1990–94

Source: IFC, Emerging Markets Database.

CHART 9MALAYSIA COMPARATIVE STOCK MARKET INDICATORS, 1990–93

Source: IFC, Emerging Markets Database.

In January 1994, after price/earnings ratios had risen to an historically high level, the KLSE experienced a sharp correction. Share prices, turnover volumes, and market capitalization fell from their peak levels on January 5. Share prices were further weakened as interest rates abroad rose and investors adjusted their portfolios in favor of nonringgit assets. After continuing to decline in the first quarter of 1994, the composite index stabilized and recovered slightly during the second quarter. By end-July, the composite index was about 20 percent below its level at end-1993.

The stock market has become an important source for raising funds to finance private investment in recent years (Appendix Table 40). In 1993, issues of shares and debt securities by the private sector amounted to RM 3.2 billion (8 1/2 percent of private fixed investment). While this represented a significant decline from 1992, the decrease was due mainly to the absence of new issues by privatized companies, which contributed heavily to the new issues in 1992. and the general easing of liquidity conditions in the financial system.

c. Development of the financial system

As the financial market has grown in sophistication and complexity, measures in recent years have been directed toward enhancing the market’s efficiency in allocating scarce resources and ensuring the introduction of and compliance with appropriate prudential regulations. In 1993. several measures were implemented to promote the development of the capital market. These included the launching of operations of the Securities Commission, a single regulatory agency to oversee the entire capital market; the implementation of the Futures Industry Act. providing a legal framework for trading in financial futures and options; the introduction of new guidelines and minimum standards governing the disclosure of information by stockbroking and securities firms; the liberalization of the activities of unit trust funds, according greater flexibility in the management of these funds; and the launching of the Interest-Free Banking Scheme, increasing access to Islamic banking facilities. In addition, reforms to strengthen the KLSE were implemented, including the issuance of guidelines on independent audits for all listed companies and the implementation of a central depository of information.

V. External Developments

1. Overview

Over the last two decades, the Malaysian economy has become increasingly open, with the ratio of exports and imports to GNP having risen from 44 percent and 37 percent in 1970, respectively, to 75 percent ami 70 percent in 1993, respectively (Chart 10). As the economy has industrialized, the share of manufactured products in total exports has increased steadily from 12 percent in 1970 to 74 percent in 1993. Within the manufacturing sector, exports of electrical machinery and components have grown most rapidly, accounting for well over one half of manufacturing exports in recent years. Textiles and clothing have also been an important source of export earnings, although their share in manufacturing exports has declined from 10 percent in 1987 to 6 percent in 1993.

CHART 10MALAYSIA EXTERNAL DEVELOPMENTS, 1985–93

Sources: Data provided by the Malaysian authorities.

The growth of the manufacturing sector, especially in recent years, has been financed to a large extent by inflows of FDI. Over the period 1988-93, investment inflows amounted to $17.5 billion, averaging 6 percent of GNP and accounting for almost one tenth of FDI flows to developing countries (Chart 11). These inflows have financed the import of investment goods and have more than offset the deficit in Malaysia’s external current account that emerged during the investment boom of the late 1980s and early 1990s. During 1992-93, however, short-term capital inflows have gained in prominence.

CHART 11MALAYSIA NET PRIVATE CAPITAL FLOWS, 1989–93

Sources: Data provided by the Malaysian authorities.

In 1993, the pickup in domestic demand pressures was reflected in a strong recovery in imports which, despite continued strong performance of manufacturing exports, resulted in a slight deterioration of the external current account position (Table 6). As regards the capital account, a decline in FDI inflows was more than offset by the continuation of the surge in short-term flows. As a result, the overall balance of payments surplus rose sharply and external reserves increased further.

Table 6.Malaysia: Balance of Payments, 1989-93(In billions of U.S. dollars)
1989199019911992Prel.

1993
Trade balance4.42.60.53.43.4
Exports, f.o.b.24.628.633.539.645.9
Imports, f.o.b.-20.3-26.0-33.0-36.2-42.5
Services balance-4.2-3.6-4.7-5.1-5.9
Of which:
Freight and insurance-1.1-1.4-1.8-1.7-1.9
Travel-0.30.20.20.30.3
Investment income-2.2-1.9-2.4-2.9-3.2
Transfers (net)0.10.1--0.10.1
Current account0.3-0.9-4.2-1.6-2.5
Capital account1.31.85.68.19.6
Long-term capital (net)0.81.33.83.44.7
Official (net)-0.9-1.0-0.2-1.10.4
Federal government-0.4-0.3---1.2-1.2
Other-0.5-0.8-0.30.11.6
Private (net)1.72.34.04.54.3
Borrowing (net)----------
Direct investment (net)1.72.34.04.54.3
Short-term (net)0.60.51.94.74.9
Domestic financial sector 1/0.40.81.33.64.2
Other0.2-0.30.61.10.6
Errors and omissions-0.31.1-0.30.53.1
Overall balance 2/1.32.01.26.910.2
Monetary movements 2/-1.3-2.0-1.2-6.9-10.2
Change in gross reserves-1.3-2.0-1.2-6.9-10.2
Change in liabilities----------
Current account/GNP (percent)0.7-2.2-9.3-3.0-4.0
Reserves/months of imports4.34.13.75.57.5
Source: Data provided by the Malaysian authorities.

Excludes operations of the central bank.

Includes valuation adjustments.

Source: Data provided by the Malaysian authorities.

Excludes operations of the central bank.

Includes valuation adjustments.

2. Currnet Account

After narrowing sharply to 3 percent of GNP in 1992, mainly on account of a moderation in import growth emanating from weak domestic demand conditions, the external current account deficit widened to 4 percent of GNP in 1993, as imports accelerated in line with the recovery in domestic demand. Export volumes, which had slowed considerably in 1992 owing to weak economic conditions in major trading partners, picked up in 1993 (Appendix Table 41). The strong export performance reflected mainly the relocation to and expansion of multinational corporations’ production facilities in Malaysia; an increase in market shares of Malaysian products in the rapidly growing regional economies; and the pickup in growth in the United States toward the end of the year.

Exports of manufactured goods rose by 24 percent in 1993, in line with the trend in recent years, and the share of manufactured goods in total exports expanded further to 74 percent (Appendix Table 42). Within the manufacturing categories, exports of electronics and electrical products, and wood, metal, and petroleum products recorded the most rapid increases. However, exports of food, beverages and tobacco, and textiles and footwear moderated, reflecting a shift toward higher value-added production and away from labor-intensive activities. The electronics and electrical products sector, which accounted for 61 percent of manufacturing exports in 1993, has undergone a significant structural transformation over the past decade. In 1984, electronic components contributed 73 percent of the sector’s exports, while consumer and industrial electronics comprised only 6 percent and 5 percent, respectively. By 1993, however, the share of electronic components had declined to 34 percent, while the shares of consumer and industrial electronics had risen to 23 percent and 25 percent, respectively.

In contrast with the performance of manufacturing exports, exports of commodities declined by 3 percent in 1993, with the shares of agricultural goods and minerals in total exports declining to 15 percent and 9 percent, respectively (Appendix Table 43). This owed not only to a reduction in export volumes for many commodities, but also to a decline in export unit values of tin, petroleum, and liquified natural gas. Export receipts from rubber and tin fell by 10 percent and 33 percent, respectively, while exports of palm oil rose by 6 percent. Timber exports were virtually unchanged from their 1992 level, with a significant decline in sawn logs exports offset by an increase in exports of sawn timber.

The acceleration of domestic demand in 1993 was reflected in the recovery of import growth to 15 percent (Appendix Table 44). The strongest growth occurred in imports of intermediate goods, which rose by 18 percent in volume terms, compared with a decline of 8 percent in 1992. The volume of consumption goods imports also accelerated to 13 percent, from 7 percent in 1992, reflecting the pickup in consumer spending. Despite a recovery in investment spending, however, the volume of investment goods imports continued to decelerate to 10 percent, mainly on account of the behavior of lumpy imports and because of lower imports of ships, boats, and railway locomotives.

The direction of Malaysia’s trade continued to change somewhat in 1993 (Appendix Table 45). The share of exports destined for ASEAN countries fell by almost 2 percentage points, while the share of exports to the United States rose by almost 2 percentage points. The importance of export markets in Hong Kong and Taiwan Province of China increased and exports to China rose by 58 percent. In contrast, the share of Malaysia’s exports accounted for by Japan and the European Union declined slightly. On the import side, the importance of Japan and the United States as trading partners rose, while imports from the ASEAN economies and the European Union declined.

The services account deficit, after improving to 9 percent of GNP in 1992, widened to 9 1/2 percent of GNP in 1993 (Appendix Table 46). Freight and insurance payments rose by 12 percent, reflecting the stronger import activity, and accounted for one third of the deterioration in the services account. In addition, investment income payments, particularly the repatriation of profits and dividends to foreign direct investors, rose significantly, while net interest receipts declined, reflecting the interest differential in favor of Malaysia.

3. Capital flows and international reserves

The balance of payments in 1993 were dominated by developments in capital flows, particularly short-term inflows. Buoyed by continued inflows of short-term capital and a sharp rise in errors and omissions, which the authorities view as partly reflecting unrecorded inflows of funds destined for the stock market, the overall balance of payments surplus surged to $10 billion (17 percent of GNP), compared with $7 billion (13 percent of GNP) in 1992. As a result, official reserves rose to the equivalent of 7 1/2 months of imports of goods and services (Appendix Table 47).

Net short-term inflows, after rising to $4.7 billion in 1992, increased further to $4.9 billion in 1993. Moreover, net errors and omissions rose to $3 billion. Key factors underlying the surge included the wide interest rate differential in favor of Malaysia; increased interest by international investors in Malaysia’s stock market; and expectations in the market that the ringgit would appreciate.

Inflows of FDI, though continuing at a high level of $4.3 billion, declined relative to GNP to 7 percent from 8 percent of GNP in 1992 and 9 percent of GNP in 1991. This decline may be attributed to both external and domestic factors. On the external side, outward investment from Japan and the Asian NIEs fell, owing to the economic slowdown in Japan and because the relocation of labor-intensive industries of investor countries was either nearing completion or was increasingly directed to lower-wage countries in the region. On the domestic front, growing labor shortages and rising wages acted to erode the competitiveness of the more labor-intensive industries.

4. External debt and debt service

The Government has pursued a cautious external borrowing policy and, in recent years, has engaged in early repayments of external debt. Consequently, the ratio of external debt to GNP, which was already low in comparison with other developing countries, has declined, with the decrease in public external debt more than offsetting a moderate rise in private long- and short-term borrowing (Appendix Table 48).

In 1993, external debt rose somewhat relative to GNP as a result of increased private sector borrowing, both long- and short-term, to exploit the wide interest rate differential in favor of Malaysia. Although the Government’s policy to prepay external obligations was maintained, increased external borrowing by public enterprises kept the public external debt ratio unchanged.

5. Exchange rate developments

The exchange value of the ringgit is determined by a managed float. Bank Negara monitors exchange rate developments against several baskets of currencies and intervenes in the interbank foreign exchange market to influence the value of the ringgit. Commercial banks are the only financial institutions licensed to deal in foreign exchange and are free to set their own rates and margins between buying and selling rates.

After appreciating by 9 percent against the dollar and 10 percent in nominal effective terms during the first half of 1992, the ringgit was broadly stable until mid-December 1993 (Chart 12). Between mid-December 1993 and mid-February 1994, the ringgit depreciated by 8 percent against the dollar and 9 percent in nominal effective terms, initially as a result of intervention by Bank Negara to deter currency speculators and later in response to the imposition of controls on short-term capital inflows. Since mid-February, however, the ringgit has appreciated steadily, stabilizing at broadly the same level against the dollar that had prevailed prior to the depreciation episode.

CHART 12MALAYSIA EXCHANGE RATE INDICES, 1986–94

(1980 = 100)

Source: IMF, International Financial Statistics, and Information Notice System.

6. Trade policies

Malaysia has traditionally maintained an open trade and exchange system. While there have been no major changes in the exchange system in recent years, efforts to further liberalize the trade system are continuing. 1/ Following a reduction in import duties on 600 items in the 1993 budget, duties on a further 500 items were reduced or abolished altogether in the 1994 budget. As a result, the ratio of import duty receipts to the value of imports declined from 4 3/4 percent in 1989 to 4 1/4 percent in 1992 and 4 percent in 1993.

Under the ASEAN Free Trade Agreement (AFTA), which aims to encourage the complementary use of resources in the region by lowering tariff barriers, Malaysia has offered 3,266 tariff lines for duty reductions in the 1994 package. Some of these reductions took place in 1993 and the remainder will be undertaken in 1994. In addition, more than 4,000 tariff lines already carry tariff rates of less than 1/2 percent, thereby conforming to Malaysia’s commitment under the AFTA tariff reduction schedule. 2/

Under the recent Uruguay Round agreement, Malaysia has offered to reduce and bind tariffs on 5,900 tariff lines in the industrial sector and 1,297 tariff lines in the agricultural sector. The bindings, covering 79 percent of imports, will increase the proportion of bound tariff lines to 65 percent, compared with 1 percent presently. As a result of the tariff reductions, the trade-weighted average tariff rate for industrial items will decline from 10 1/4 percent to 9 percent. For the agricultural sector, tariffs on all items will be lowered by an average of 28 percent and all nontariff barriers will be converted to tariffs. In order to conform with the Uruguay Round agreement on trade-related investment measures, local content requirements for investment approval and the provisioning of investment incentives will be phased out.

APPENDIX
Table 7.Malaysia: Expenditure on Gross Domestic Product in 1978 Prices, 1989-93
1989199019911992Prel.

1993
(In millions of ringgit)
Domestic demand67,54776,23889,97892,250102,104
Consumption46,53051,24157,26858,86163,400
Private35,61639,72844,33145,40148,874
Public10,91411,51312,93713,46014,526
Investment21,01724,99732,71033,38938,704
Private13,38216,70521,33922,74925,012
Public7,8309,16710,01311,12812,501
Change in stocks-195-8751,3584881,192
Net exports4,8583,217-3,646821-1,154
Exports53,90363,25072,93876,60885,205
Imports49,04560,03376,58475,78786,359
Gross domestic product72,40579,45586,33293,071100,950
Net factor payments from abroad-4,085-3,425-4,100-4,881-5,091
Gross national product68,32076,03082,23288,19095,859
(Annual percentage change)
Domestic demand15.212.918.02.510.7
Consumption12.610.111.82.87.7
Private14.211.511.62.47.6
Public7.55.512.44.07.9
Investment21.418.930.92.115.9
Private30.524.827.76.69.9
Public34.317.19.211.112.3
Change in stocks 1/-2.1-0.92.8-2.11.8
Net exports 1/-4.2-2.3-8.65.2-2.1
Exports18.117.315.35.011.2
Imports29.122.427.6-1.013.9
Gross domestic product9.29.78.77.88.5
Net factor payments from abroad10.4-16.219.719.04.3
Gross national product9.111.38.27.28.7
Source: Data provided by the Malaysian authorities.

Contribution to GDP growth.

Source: Data provided by the Malaysian authorities.

Contribution to GDP growth.

Table 8.Malaysia: Expenditure on Gross Domestic Product in Current Prices, 1989-93
1989199019911992Prel.

1993
(In millions of ringgit)
Domestic demand97,437113,530137,199145,234164,295
Consumption67,65877,09389,32095,350105,714
Private52,88960,90370,92976,04684,850
Public14,76916,19018,39119,30420,864
Investment29,77936,43747,87949,88458,581
Private18,96624,20731,43234,04438,010
Public11,09713,28314,74916,65318,997
Change in stocks-284-1,0531,698-8131,574
Net exports5,0972,298-7,6402,5501,578
Exports75,03088,740105,468115,231132,545
Imports69,93386,442113,108112,681130,967
Gross domestic product102,534115,828129,559147,784165,873
Net factor payments from abroad-5,903-5,064-6,011-7,517-8,113
Gross national product96,631110,764123,548140,267157,760
(Annual percentage change)
Domestic demand19.616.520.85.913.1
Consumption16.913.915.96.810.9
Private17.915.216.57.211.6
Public13.69.613.65.08.1
Investment26.322.431.44.217.4
Private35.727.629.88.311.6
Public39.719.711.012.914.1
Change in stocks 1/-2.1-0.72.4-1.91.6
Net exports 1/-4.8-2.7-8.67.9-0.7
Exports22.518.318.99.315.0
Imports34.923.630.8-0.416.2
Gross domestic product12.813.011.914.112.2
Net factor payments from abroad16.1-14.218.725.17.9
Gross national product12.714.611.513.512.5
Source: Data provided by the Malaysian authorities.

Contribution to GDP growth.

Source: Data provided by the Malaysian authorities.

Contribution to GDP growth.

Table 9.Malaysia: Gross Domestic Product by Sector of Origin in 1978 Prices, 1989-93
1989199019911992Prel.

1993
(In millions of ringgit)
Gross domestic product72,40579,45586,33293,071100,950
Primary sector22,15122,55922,74723,52024,026
Agriculture14,76814,79914,79515,43216,042
Mining and quarrying7,3837,7607,9528,0887,984
Secondary sector20,82424,17527,55730,47434,343
Manufacturing18,44421,34024,30726,85930,310
Construction2,3802,8353,2503,6154,033
Tertiary sector29,43032,72136,02839,07742,581
Transport, storage, and communications4,8395,4836,0586,5797,174
Wholesale and retail trade7,6878,82510,09011,16512,332
Finance, insurance, real estate, and business services 1/6,7707,7598,7339,60710,765
Government services8,1858,5798,9649,4669,944
Other services 2/1,9492,0752,1832,2602,366
(Annual percentage change)
Gross domestic product9.29.78.77.88.5
Primary sector6.81.80.83.42.2
Agriculture6.00.20.04.33.9
Mining and quarrying8.55.12.51.7-1.3
Secondary sector13.916.114.010.612.7
Manufacturing14.215.713.910.512.8
Construction11.619.114.611.211.5
Tertiary sector7.911.210.18.59.0
Transport, storage, and communications9.713.310.58.69.0
Wholesale and retail trade10.014.814.310.710.4
Finance, insurance, real estate, and business services 1/11.214.612.610.012.0
Government services4.74.84.55.65.0
Other services 2/-1.46.55.23.54.7
Source: Data provided by the Malaysian authorities.

Includes ownership of dwellings.

Includes utilities, domestic services to households, and import duties less imputed bank charges.

Source: Data provided by the Malaysian authorities.

Includes ownership of dwellings.

Includes utilities, domestic services to households, and import duties less imputed bank charges.

Table 10.Malaysia: Production of Major Primary Products, 1989-93
1989199019911992Prel.

1993
(In thousands of metric tons)
Output
Rubber1,4151,2911,2531,2171,074
Palm oil6,0566,0956,1416,3737,403
Palm kernel oil750827782812966
Cocoa250247230220200
Paddy1,6881,8411,9572,0701,917
Tin (concentrate)3228211410
Tin metal5249434640
Bauxite35539837633167
Iron ore192344375320223
Copper10110298112100
(In thousands of barrels per day)
Crude oil589601649659648
(In thousands of cubic meters)
Saw logs39,70940,14740,16943,51237,135
Sawn timber8,3908,6968,8759,4829,200
(In thousands of hectares)
Area under cultivation
Rubber1,8551,8361,8221,8011,781
Palm oil1,9461,9842,0942,1972,281
Paddy621658738670663
(In kilogram per hectare)
Yields
Rubber1,0841,1001,0119881,000
Palm oil3,6023,5623,5453,4303,777
Paddy2,6442,7292,7343,1452,893
Source: Data provided by the Malaysian authorities.
Source: Data provided by the Malaysian authorities.
Table 11.Malaysia: Industrial Production Index, 1989-93(1988 = 100)
Annual Percentage Change
19901991199219931990199119921993
Total125.5139.5151.5165.912.211.28.69.5
Mining113.1118.9122.1123.05.25.12.70.8
Electricity127.3144.1164.2184.413.813.213.912.2
Manufacturing132.1150.4166.5187.415.713.910.712.8
Food121.0116.5123.7134.75.6-3.76.28.9
Beverages125.4127.7133.7118.714.51.84.7-11.2
Tobacco108.9110.1104.597.67.21.1-5.1-6.7
Textiles133.7141.6164.4214.711.35.916.130.6
Wearing apparel120.4120.8126.4127.64.40.34.60.9
Petroleum refineries118.5126.0130.6141.513.86.33.78.3
Industrial chemicals106.3122.9126.3133.41.915.62.85.6
Other chemical137.5152.0173.8189.711.010.514.39.1
Wood products133.4140.4160.4187.014.35.214.220.1
Rubber products113.9126.6141.1166.58.711.211.518.0
Nonmetallic minerals153.1183.3202.0214.321.019.710.26.1
Iron and steel136.6154.9184.2207.514.213.418.912.7
Nonferrous metal115.2114.1132.9139.08.2-1.016.54.6
Fabricated metal115.4137.0196.3309.318.618.743.357.6
Electrical machinery and electronics157.8203.3226.7262.333.628.811.515.7
Transport equipment183.7215.0201.7208.732.517.0-6.23.5
Source: Data provided by the Malaysian authorities.
Source: Data provided by the Malaysian authorities.
Table 12.Malaysia: Consumer Price Index, 1989-94 1/(1990= 100)
Q1Q2Q3Q4Q1
Weights198919901991199219931994
Total100.097.0100.0104.4109.3111.9112.9113.5114.5117.0
Food33.795.9100.0104.8111.7112.1113.7114.7116.5120.4
Beverages and tobacco4.396.7100.0107.8117.1134.3134.3134.5134.6140.8
Clothing and footwear4.098.2100.0106.2109.4109.9110.0110.2109.4109.2
Gross rent, fuel and power20.299.5100.0130.0106.8109.3110.3111.0111.5112.0
Furniture and household equipment5.898.2100.0104.4107.2107.5108.1109.3109.7110.1
Medical care and health expenses1.897.4100.0105.3109.0112.6114.4115.4115.8116.7
Transport and communications18.695.2100.0104.2108.8114.2114.6114.8116.1119.3
Recreation, education, and cultural services5.299.1100.0102.6105.6106.2106.0105.9106.3106.5
Miscellaneous6.497.1100.0103.6105.9107.4108.1109.5109.8111.3
Source: Data provided by the Malaysian authorities.

New weights apply since December 1990.

Source: Data provided by the Malaysian authorities.

New weights apply since December 1990.

Table 13.Malaysia: Producer Price Index, 1989-94(1978 = 100)
01020304Q1
Weights198919901991199219931994
Food16.8163.8174.8195.8203.5206.7209.2208.0205.1218.0
Beverages and tobacco2.7182.7184.3197.1208.5225.5229.6237.0237.0237.5
Crude materials20.8134.7123.6123.0124.5126.5127.4126.5124.6131.4
Mineral fuels11.3139.5163.5168.6160.7159.7159.6156.1152.5151.7
Animal and vegetable oils5.988.567.277.889.093.589.283.282.194.4
Chemicals4.4142.8143.1146.1144.6143.6143.4143.8145.1144.6
Manufactured goods, n.e.i.14.9132.0128.5128.9128.2128.0129.1130.2130.2129.9
Machinery and transport equipment17.8131.9132.9134.7135.9140.3141.0140.4140.4140.8
Miscellaneous goods4.1146.0148.4153.4156.2156.6156.9157.1157.3159.9
Communication and transport1.4164.0190.8191.0172.9177.7176.7171.7170.6170.8
Total100.0139.0140.2145.9147.5149.9150.6149.6148.4152.7
Domestic production71.8138.1138.4144.9147.6150.5151.3150.1148.2154.3
Imports28.2142.4144.9148.9147.1148.2148.7148.6148.7148.5
Source: Data provided by the Malaysian authorities.
Source: Data provided by the Malaysian authorities.
Table 14.Malaysia: Composition of Investment and Saving, 1989-93(In billions of ringgit)
1989199019911992Prel.

1993
Gross domestic investment29.836.447.949.958.6
Private sector
Gross fixed capital formation19.024.231.434.038.1
Oil and gas1.92.83.43.54.4
Other17.121.428.030.533.7
Change in stocks-0.3-1.11.7-0.81.5
Public sector
Gross fixed capital formation11.113.314.716.719.0
Federal government3.24.24.34.75.8
State governments1.82.72.63.03.3
Public enterprises4.74.66.26.87.7
Statutory bodies1.21.51.31.71.7
Local governments0.20.30.40.40.5
Gross national saving30.534.036.445.752.2
Private sector20.319.720.027.531.6
Public séctor10.214.316.418.220.6
Source: Data provided by the Malaysian authorities.
Source: Data provided by the Malaysian authorities.
Table 15.Malaysia: Total Proposed Capital Investment in Approved Manufacturing Projects, by Type of Ownership, 1989-93 1/(In millions of ringgit)
19891990199119921993
Foreign ownership5,9446,8178,15911,6233,713
Joint ownership5,31019,87818,71514,4816,520
Malaysian majority2,84613,0458,5199,2904,377
Foreign majority2,2456,4309,5265,1252,084
Equal ownership2194036706659
Malaysian ownership9611,4733,9441,6713,520
Total12,21528,16830,81827,77513,753
Source: Data provided by the Malaysian authorities.

Includes equity and loans.

Source: Data provided by the Malaysian authorities.

Includes equity and loans.

Table 16.Malaysia: Labor Market Developments, 1989-93
1989199019911992Prel.

1993
(In thousands)
Population17,37717,84618,17818,60619,044
Total labor force6,8507,0427,2047,3707,567
Labor force participant rate (in percent)66.366.566.866.966.8
Unemployment rate (in percent)6.75.14.33.73.0
Total employment6,3906,6866,8917,0967,341
Primary sector1,8661,7751,7161,6211,555
Agriculture, forestry, and fishery1,8331,7381,6801,5851,520
Mining and quarrying3337363635
Secondary sector1,5481,7571,9262,1472,330
Manufacturing1.1711.3331.4701.6401.780
Construction377427456507550
Tertiary sector2,9763,1543,2493,3283,456
Of which:
Transport, etc.278302314326345
Wholesale and retail services1,1441,2181,3141,2541,280
Finance, insurance, real estate, and business services253258279300320
Government services847850854858863
(Annual percentage change)
Total labor force3.42.82.32.32 7
Total employment5.04.63.13.055
Primary sector-4.1-4.9-3.3-5.5-4.1
Agriculture, forestry, and fishery-3.9-5.2-3.3-5.7-4.1
Mining and quarrying-10.812.1-2.7---2.9
Secondary sector13.113.59.611.58.5
Manufacturing15.613.810.311.68.5
Construction5.913.36.811.28.5
Tertiary sector7.46.03.02.43.9
Of which:
Transport, etc.6.58.64.03.85.8
Wholesale and retail services6.96.57.9-4.62.1
Finance, insurance, real estate, and business services2.08.17.56.7
Government services0.40.40.50.50.6
(Percentage share)
Total employment100.0100.0100.0100.0100.0
Primary sector29.226.524.922.821.2
Agriculture, forestry, and fishery28.726.024.422.320.7
Mining and quarrying0.50.60.50.50.5
Secondary sector24.226.327.930.331.7
Manufacturing18.319.921.323.124.2
Construction5.96.46.67.17.5
Tertiary sector46.647.247.146.947 1
Of which:
Transport, etc.4.44.54.64.64.7
Wholesale and retail services17.918.219.117.717.4
Finance, insurance, real estate, and business services4.03.94.04.24.4
Government services13.312.712.412.111.8
Source: Data provided by the Malaysian authorities.
Source: Data provided by the Malaysian authorities.
Table 17.Malaysia: Federal Budgetary Developments, 1989-94(In millions of ringgit)
19891990199119921993Proj.

1994
Total revenue and grants24,22828,97234,45839,17242,03345,156
Tax revenue17,50622,24126,96930,18133,23537,186
Nonpetroleum tax revenue12,67316,27919,04522,62026,06330,409
Taxes on net income and profits 1/5,5177,1018,46311,20012,97915,919
Sales tax and excises 2/4,8616,4357,4758,4539,94410,828
Taxes on international trade2,2952,7433,2073,0673,1403,462
Petroleum tax revenue4,8335,9627,9247,4617,1726,877
Oil production companies1,8472,6444,0523,4172,8592,634
Excises and duties2,9863,2183,8724,1444,4134,243
Nontax revenue6,7216,7277,4898,9918,7987,970
Petroleum2,8092,9273,4753,8743,8413,907
Other3,9123,8004,0145,1174,9574,063
Total expenditure and net lending28,60932,49837,73540,40841,71444,482
Current expenditure23,13225,43529,80133,18133,03234,494
Wages and salaries8,4519,1649,94411,66011,80312,487
Other expenditure on goods and services3,0803,4544,9174,9925,0715,872
Subsidies and transfers4,8595,9807,8859,2258,9928,874
Interest6,7426,8307,0487,4047,1667,361
Development expenditure5,4777,0637,9347,4278,6829,888
Direct expenditure5,5838,6616,9537,4508,0718,748
Net lending 3/-106-1,498981-236111,140
Overall balance-4,381-3,526-3,277-1,336319674
Memorandum items:
Current balance1,0333,4074,6275,9348,96410,433
Primary balance2,3613,4043,7715,9687,4858,035
Overall financing (net)4,3813,5263,2771,336-319--
External (net)-1,016-815117-3,168-3,135--
Domestic (net)5,4974,4413,1604,4042,816--
Banking system123-522-2,044-1,7781,084--
Central bank4151,152-1,070-1,050-107--
Of which:
Share acquisition1,0501,0501,050----
Banking institutions-3332,492-256-645-1476--
Change in government cash balances41-4,166-718-832,767--
Nonbanks5,4744,8635,2046,2821,732--
Employees Provident Fund1,6022,0212,1481,462-367--
Petronas321,151100-502110--
Other3,6401,6912,9565,4221,989--
(In percent of GNP)
Memorandum items:
Overall balance-4.5-3.2-2.7-1.00.20.4
Current balance1.13.23.74.25.75.9
Primary balance2.43.03.14.34.74.5
Sources: Data provided by the Malaysian authorities; and staff estimates and projections.

Includes taxes on property.

Includes “other tax revenue.”

Includes adjustment for accounts payable.

Sources: Data provided by the Malaysian authorities; and staff estimates and projections.

Includes taxes on property.

Includes “other tax revenue.”

Includes adjustment for accounts payable.

Table 18.Malaysia: Economic Classification of Federal Government Expenditure and Net Lending, 1989-94
19891990199119921993Proj.

1994
(In millions of ringgit)
Current expenditure 1/23,13225,43529,80133,18133,03234,594
Expenditure on goods and services11,53112,61814,86116,65216,87418,359
Wages and salaries8,4519,1649,94411,66011,80312,487
Other purchases of goods and services 2/3,0803,4544,9174,9925,0715,872
Interest payments 3/6,7426,8307,0487,4047,1667,461
Subsidies and other current transfers4,8595,9877,8929,4258,9928,874
Transfers to state governments1,4201,4571,4331,4191,4021,478
Pensions1,0731,1541,8152,1832,4202,355
Other current transfers 4/2,2663,4764,7445,8235,4705,141
Development expenditure5,7657,4817,7897,4908,7399,888
Direct development expenditure5,4838,6616,9537,4508,0718,748
Net lending 5/182(1,080)8362406681,140
Adjustment for accounts payable(288)(518)145(263)(57)--
Total expenditure and net lending28,60932,49837,73540,40841,71444,482
(In percent of total expenditure and net lending)
Current expenditure 1/80.978.379.081.979.277.8
Expenditure on goods and services40.338.839.441.140.541.3
Wages and salaries29428.226.428.828.328.1
Other goods and services10.810.613.012.312.213.2
Interest payments23.621.018.718.017.216.5
Subsidies and other current transfers17.018.420.922.821.619.9
Transfers to state governments4.34.53.53.03.13.1
Pensions3.83.64.85.45.65.3
Other current transfers9.010.412.614.412.911.6
Development expenditure20.223.320.618.720.922.2
Direct development expenditure19.526.718.418.119.319.7
Net lending0.6-342.20.61.62.6
Adjustment for accounts payable-1.0-1.60.4-0.6-0.1--
Sources: Data provided by the Malaysian authorities.

Includes expenditure refund.

Includes defense expenditures shown in the development budget and some net lending shown in the current budget.

Excludes contributions to the sinking funds.

Consists of subsidies, indemnities, refunds and write-offs, transfers to statutory bodies (excluding emoluments), and other transfers.

Includes repayments of loans from revenue and loan funds.

Sources: Data provided by the Malaysian authorities.

Includes expenditure refund.

Includes defense expenditures shown in the development budget and some net lending shown in the current budget.

Excludes contributions to the sinking funds.

Consists of subsidies, indemnities, refunds and write-offs, transfers to statutory bodies (excluding emoluments), and other transfers.

Includes repayments of loans from revenue and loan funds.

Table 19.Malaysia: Functional Classification of Federal Government Expenditure and Net Lending, 1989-94(In millions of ringgit)
19891990199119921993Budget

1994
General services17,77019,46122,90125,97827,12729,149
General public services4,7664,4675,2216,3556,5846,278
General administration3,1412,6423,2633,8864,1474,017
Internal security1,6251,8251,9582,4692,4372,261
Defense2,7613,0434,3234,5004,9515,367
Education5,6496,5967,0678,0598,5389,450
Health1,4541,7772,0352,4142,4072,418
Social security 1/1,0731,1541,8152,1832,3202,355
Housing and community developments2,0672,4242,4402,4672,3273,181
Of which:
Other community and social securities1,0251,4351,1981,6131,4371,777
Economic services6,6488,9947,1648,0027,7769,848
Agriculture, forestry, and rural development2,0522,4422,3452,3892,4422,675
Transport and communication2,1202,4562,6253,5173,4644,409
Other economic services 2/2,4764,1962,1942,0961,8702,764
Unallocable4,4794,4617,5256,7916,8686,457
Public debt interest6,7426,8307,0487,3047,1667,361
Grants to states1,2201,4571,3331,2191,3021,378
Others 3/(3,483)(3,826)(856)(1,732)(1,600)(2,282)
Adjustment for accounts payable(288)(518)145(263)(57)--
Total expenditure and net lending28,60932,39837,73540,50841,71445,454
(In percent)
Memorandum item:
Public debt interest/GNP7.06.25.75.24.54.1
Sources: Data provided by the Malaysian authorities; and staff estimates and projections.

Includes government pensions.

Includes general administration, regulations and research, mining, manufacturing and construction, and utilities.

Includes expenditure refunds and net lending items.

Sources: Data provided by the Malaysian authorities; and staff estimates and projections.

Includes government pensions.

Includes general administration, regulations and research, mining, manufacturing and construction, and utilities.

Includes expenditure refunds and net lending items.

Table 20.Malaysia: Federal Government Revenue and Grants, 1989-94(In millions of ringgit)
19891990199119921993Proj.

1994 1/
Tax revenue17,50622,24126,96930,18133,23537,186
Taxes on net income and profits7,2959,65012,39714,38615,66118,391
Oil production companies1,8472,6444,0523,4172,8592,634
Petronas1,4821,9832,7072,2831,9131,795
Other oil companies4656611,3451,134946839
Other companies3,4024,4975,3527,5248,55110,580
Individuals2,0432,5062,9893,4414,2485,172
Other 2/334435
Taxes on property6995118231177162
Taxes on goods and services5,1796,3667,4698,4109,98610,436
Sales tax1,9132,4422,7633,0823,4683,668
Imported goods6598389741,1121,3431,270
Domestic goods1,2541,6041,7891,9702,1252,398
Selective excises on goods1,9322,2662,8493,0623,7123,540
Tobacco and alcoholic beverages421459590700887890
Petroleum products7946719431,1381,3231,423
Motor vehicle tax6611,0561,2491,1451,3261,458
Other568067797669
Selective excises on services1,3341,6581,8572,2662,8063,228
Of which:
Motor vehicle tax772871,0121,0701,1521,116
Taxes on international trade4,4875496,1366,0736,0306,482
Import duties2,8993,4204,1074,3844,5665,036
Tobacco and alcoholic beverages270312315358295254
Petroleum products7607371,0291,3601,4611,514
Other import duties1,7722,3352,7632,6652,8103,268
Surtax on imports9736--1----
Export duties1,4881,9702,0291,6891,4641,446
Rubber583--------
Petroleum1,4321,9101,9001,6461,4291,406
Tin2----------
Palm oil1424678
Other8255125372832
Other tax revenue 3/4767408491,0811,3811,715
Nontax revenue6,6586,6977,4598,9348,7617,941
Property income5,3605,6086,1067,8167,2056,523
Nonfinancial public enterprises1----------
Public financial institutions8048028201,010501--
Rent and interest 4/1,7461,8791,8112,9322,8632,616
Dividends paid by Petronas2,3002,3002,6003,1003,1003,100
Petroleum royalties509627875774741807
Administrative fees and charges sale of goods, fines, and forfeit788639089871,4401,318
Contributions to pension fund244153123------
Other nontax revenue27173322131116100
Capital revenue633030573729
Total revenue24,22728,96834,45839,17242,03345,156
Foreign grants14--------
Total revenue and grants24,22828,97234,45839,17242,03345,156
Source: Data provided by the Malaysian authorities.

Includes effects of tax measures contained in the budget.

Consists of income taxes on cooperatives and other direct taxes.

Excludes expenditure refunds and net lending.

Excludes revenue from sales of shares.

Source: Data provided by the Malaysian authorities.

Includes effects of tax measures contained in the budget.

Consists of income taxes on cooperatives and other direct taxes.

Excludes expenditure refunds and net lending.

Excludes revenue from sales of shares.

Table 21.Malaysia: Operations of the Employees’ Provident Fund, 1989-93(In millions of ringgit)
19891990199119921993
Receipts6,5437,3988,70710,87112,679
Contributions3,5664,1394,9216,3177,376
Investment income2,9513,2313,7524,5045,251
Other26283450
Expenditure1,6671,8082,0561,8722,331
Withdrawals1,5961,7271,9671,7602,205
Operating expenditure718189112126
Balance4,8765,5906,6518,99910,348
(In percent of GNP)7.17.48.110.210.8
Holding of government securities34,10836,12938,27639,63539,264
Registered employees (in millions)5.55.96.36.66.9
Registered employers (In thousands)160171191206223
Source: Data provided by the Malaysian authorities.
Source: Data provided by the Malaysian authorities.
Table 22.Malaysia: Outstanding Federal Government Debt, 1989-93
1989199019911992Est.

1993
(In billions of ringgit; end of period)
Domestic debt65.770.073.676.176.5
Government securities58.262.165.366.666.0
Treasury bills4.34.34.34.34.3
Other3.23.64.05.26.2
Foreign debt24.224.725.420.919.4
International institutions and foreign governments 1/7.28.58.78.17.8
Market loans17.016.216.712.811.6
Total debt89.994.799.097.095.9
(In percent of GNP)
Domestic debt68.063.259.654.348.4
Government securities60.256.152.947.541.8
Treasury bills4.43.93.53.12.7
Other3.33.33.23.73.9
Foreign debt25.022.320.614.912.3
International-institutions----------
and foreign governments 1/7.47.77.05.84.9
Market loans17.614.613.59.17.3
Total debt93.085.580.169.260.7
Source: Data provided by the Malaysian authorities.

Consists of project loans.

Source: Data provided by the Malaysian authorities.

Consists of project loans.

Table 23.Malaysia: Consolidated Public Sector, 1989-94 1/(In millions of ringgit)
19891990199119921993Proj.

1994
Total revenue and grants 2/36,61743,09950,37856,38859,28064,820
Federal government24,22828,97234,4539,1742,03345,15
Statutory bodies1,9982,2362,2972,8613,0502,924
State governments4,5385,3375,0525,3325,3035,192
Local governments1,1391,4411,2191,3921,5321,594
NFPE operating surplus4,7145,1137,3527,6317,3629,954
Total expenditure and net lending39,94345,53551,21757,29960,43165,628
Total current expenditure27,11529,82734,37938,74938,13940,400
Federal government20,20321,96125,75629,31128,70730,491
Statutory bodies2,3822,6042,6813,1053,2343,444
State governments3,5324,1704,7555,0334,8094,867
Local governments9981,0921,1871,3001,3891,598
Total development expenditure12,63915,69415,40918,37221,58824,353
Federal government3,5735,6934,7945,5906,6536,910
Statutory bodies1,5862,2181,4352,0432,0732,226
State governments2,5332,9433,0633,4723,5723,542
Local governments262329426396507635
NFPEs4,6854,5115,6916,8718,78311,040
Net lending4775321,284441761875
Adjustment for accounts payable(288)(518)145(263)(57)--
Overall public sector balance(3,326)(2,436)(839)(911)(1,151)(808)
Financing of the public sector3,3262,4368399111,151808
External(2,583)(712)(292)(2,851)(2,733)(133)
Domestic7,84010,5604,6156,7191,124961
Change in assets(1,931)(7,412)(3,484)(2,957)2,760(20)
Memorandum items:
Current balance9,43913,24215,96917,58221,10424,391
Overall balance (in percent of GNP)-3.4-2.2-0.7-0.6-0.7-0.4
Sources: Data provided by the Malaysian authorities; and staff estimates and projections.

Consists of the federal government, statutory bodies, state and local governments, and nonfinancial public enterprises.

Net of transfers.

Sources: Data provided by the Malaysian authorities; and staff estimates and projections.

Consists of the federal government, statutory bodies, state and local governments, and nonfinancial public enterprises.

Net of transfers.

Table 24.Malaysia: Federal Government Operations, 1989-94(In millions of ringgit)
19891990199119921993Proj.

1994
Total revenue and grants24,22828,97234,45839,17242,03345,156
Revenue24,22728,96834,45839,17239,85545,156
Grants14--------
Total expenditure and net lending28,60932,49837,73540,50841,71444,482
Current expenditure 1/23,13225,43529,80133,18133,03234,594
Of which:
Transfers to:2,9293,4744,0453,8704,3254,103
Statutory bodies1,6721,9732,6802,6032,9582,681
State governments1,2201,4571,3201,2191,3051,372
Local governments374445486250
NFPEs------------
Direct development expenditure5,5838,6616,9537,3508,0718,748
Of which:
Transfers to:2,0102,9682,1591,7601,4181,838
Statutory bodies1,6182,1021,5001,3781,0341,597
State governments 2/645757101101101
Local governments3763286869114
NFPEs29174657421321426
Net lending182-1,0808362406681,140
Of which:
Loans (net) to:-295-1,612-448-201-93265
Statutory bodies26823111132-532
State governments-3-29144290124246
Local governments3-12-13-13-13-13
NFPEs-563-1,540-590-510-199--
Adjustments for accounts payable-288-518145-263-57--
Overall balance-4,381-3,526-3,277-1,336319674
Financing4,3813,5263,2771,436-319-674
External (net)-1,016-815117-3,1683,135
Project loans-435363-56-184-1,199
Market loans-398-1,010339-2,858-1,824
Other-183-168-166-126-112
Domestic (net)5,3974,3413,1604,5042,816
Banking system123-522-2,044-1,7781,084
Central bank4151,152-1,070-1,050-107
Banking institution-3332,492-256-645-1,576
Use of cash balances41-4,166-718-832,767
Nonbanks5,2744,8635,2046,2821,732
Employees’ Provident Fund1,6022,0212,1481,362-367
PETRONAS321,151100-502110
Other3,6401,6912,9565,4221,989
Memorandum items:
Current balance1,0323,5034,6275,9348,96410,533
Overall balance (In percent of GNP)-4.5-3.2-2.7-1.00.20.4
Sources: Data provided by the Malaysian authorities; and staff estimates and projections.

Excludes net lending shown in the current budget.

Includes reimbursement to state governments.

Sources: Data provided by the Malaysian authorities; and staff estimates and projections.

Excludes net lending shown in the current budget.

Includes reimbursement to state governments.

Table 25.Malaysia: Operations of Statutory Bodies, 1989-94(In millions of ringgit)
19891990199119921993Proj.

1994
Total revenue5,2886,3116,4776,8427,0427,202
Own revenue1,9982,2362,2972,8613,0502,924
Transfers from:3,2904,0754,1803,9813,9924,278
Federal government (operating grants)1,6721,9732,6802,6032,9582,681
Federal government (development grants)1,6182,1021,5001,3781,0341,597
State governments------------
Local governments------------
NFPEs------------
Total expenditure3,9684,8224,1165,1485,3075,670
Operating expenditure2,3822,6042,6813,1053,2343,444
Development expenditure1,5862,2181,4352,0432,0732,226
Overall balance1,3201,4892,3611,6941,7351,532
Financing-1,320-1,489-2,361-1,694-1,735-1,532
Domestic-1,151-1,395-2,078-1,491-1,525-1,399
Federal government net lending25211311132-532
Other136-169230417482575
Change in assets-1,539-1,339-2,419-1,940-2,002-2,006
Foreign-169-94-283-203-210-133
Current balance1,2881,6052,2962,3592,7742,161
Overall balance (In percent of GNP)1.41.31.91.21.10.9
Sources: Data provided by the Malaysian authorities; and staff estimates and projections.
Sources: Data provided by the Malaysian authorities; and staff estimates and projections.
Table 26.Malaysia: Operations of State Governments, 1989-94(In millions of ringgit)
19891990199219921993Proj.

1994
Revenue and grants5,8226,8516,4296,6526,7096,665
Own revenue4,5385,3375,0525,3325,3035,192
Transfers from:1,2841,5141,3771,3201,4061,473
Federal governments (statutory grants)578641607742798836
Federal governments (other grants)706873770578608637
Statutory bodies------------
Local governments------------
NFPEs------------
Expenditure6,2167,3267,9958,7328,5838,567
Operating expenditure3,5944,2634,8385,0964,8664,898
Of which:
Transfers to:629383635731
Federal government------------
Statutory bodies------------
Local government629383635731
NFPEs--------_--
Development expenditure2,6223,0633,1573,6363,7173,669
Direct development expenditure2,6183,0573,1683,6083,6893,641
Of which:
Transfers to:8511410513611799
Federal government------------
Statutory bodies------------
Local governments8511410513611799
NFPEs------------
Net lending46-11282828
Of which:
Local governments46-11282828
Overall balance-394-475-1,566-2,080-1,874-1,902
Financing (net)3944751,5662,0801,8741,902
Lending from federal government-3-29144290124246
Changes in assets (increase -)3977661,5121,7901,7501,656
Domestic borrowing----10------
Memorandum items:
Current balance2,2282,5881,5911,5561,8431,767
Overall balance (In percent of GNP)-0.4-0.4-1.3-1.5-1.2-1.1
Sources: Data provided by the Malaysian authorities; and staff estimates and projections.
Sources: Data provided by the Malaysian authorities; and staff estimates and projections.
Table 27.Malaysia: Operations of Local Governments, 1989-94 1/(In millions of ringgit)
19891990199119921993Proj.

1994
Total revenue1,3601,7551,4801,7071,8371,888
Own revenue1,1391,4411,2191,3921,5321,594
Transfers from:221314261315305294
Federal government (operating grants)374445486250
Federal government (development grants)3763286869114
Statutory bodies------------
State governments147207188199174130
NFPEs------------
Total expenditure1,2601,4211,6131,6961,8962,233
Current expenditure9981,0921,1871,3001,3891,598
Development expenditure262329426396507635
Overall balance100334-13311-59-345
Financing-100-334133-1159345
Lending from federal government3-12-13-13-13-13
Lending from state governments46-11282828
Changes in assets (increase -)-107-328157-2644330
Domestic borrowing------------
Memorandum items:
Current balance362663293407448290
(In percent of GNP)0.10.3-0.1-----0.2
Sources: Data provided by the Malaysian authorities; and staff estimates and projections.

Figures include 111 of the 141 local governments in Peninsular Malaysia.

Sources: Data provided by the Malaysian authorities; and staff estimates and projections.

Figures include 111 of the 141 local governments in Peninsular Malaysia.

Table 28.Malaysia: General Government Operations, 1989-94 1/
19891990199119921993Proj.

1994
Total revenue and grants31,90337,98643,02648,75751,91854,866
Revenue31,90237,98243,02648,75751,91854,866
Federal government24,22728,96834,45839,17242,03345,156
Statutory bodies1,9982,2362,2972,8613,0502,924
State governments4,5385,3375,0525,3325,3035,192
Local governments1,1391,4411,2191,3921,5321,594
Grants14--------
Total expenditure and net lending34,98640,23045,51050,13151,66354,614
Current expenditure27,11529,82734,37938,74938,13940,400
Federal government20,20321,96125,75629,31128,70730,491
Statutory bodies2,3822,6042,6813,1053,2343,444
State governments3,5324,1704,7555,0334,8094,867
Local governments9981,0921,1871,3001,3891,598
Direct developments expenditure8,24511,92910,29211,71413,01913,339
Federal government3,8646,4395,3685,8036,8676,936
Statutory bodies1,5862,2181,4352,0432,0732,226
State governments2,5332,9433,0633,4723,5723,542
Local governments262329426396507635
Net lending-86-1,008694-69562875
Federal government-86-1,008694-69562875
State governments------------
Adjustments for accounts payable-288-518145-263-57--
Overall balance-3,083-2,244-2,484-1,374255252
Financing (net)3,0832,2442,4841,374-255-252
External-1,185-909-166-3,371-3,345-133
Domestic5,4768,2204,1185,00453199
Change in assets (increase -)-1,208-5,067-1,468-2592,559-20
Memorandum items:
Current balance4,7258,1298,6179,95113,74214,437
Overall balance (in percent of GNP)-3.2-2.0-2.0-1.00.20.1
Sources: Data provided by the Malaysian authorities; and staff estimates and projections.

Includes federal, 13 state, and 80 local governments; and statutory bodies.

Sources: Data provided by the Malaysian authorities; and staff estimates and projections.

Includes federal, 13 state, and 80 local governments; and statutory bodies.

Table 29.Malaysia: Operations of Nonfinancial Public Enterprises, 1989-94 1/(In millions of ringgit)
19891990199119921993Proj.

1994
Operating surplus5,0055,8597,9267,8447,5769,980
Of which:
Transfers from:29174657421321426
Federal government (operating grants)------------
Federal government (development grants)29174657421321426
Statutory bodies----------
State governments----------
Local governments----------
Transfers to:----------
Federal government----------
Statutory bodies----------
State governments----------
Local governments----------
Surplus net of transfers4,7145,1137,3527,6317,3629,954
Development expenditure4,6854,5115,6916,8718,78311,040
Of which:
Transfers to:----------
Federal government----------
Statutory bodies----------
State governments----------
Local governments----------
Overall balance3201,3482,235973-1,207-1,060
Financing-320-1,348-2,235-9731,2071,060
Foreign borrowing-1,398197-126520612
Domestic borrowing60888-218-115104
Lending from federal state governments-563-1,540-590-510-199
Other (banking system)1,1711,628372395303
Other1,1937121251,3202901,060
Use of assets-723-2,345-2,016-2,698201
Memorandum items:
Current balance5,0055,8597,9267,8447,5769,980
Overall balance in percent of GNP0.31.21.80.7-0.8-0.6
Sources: Data provided by the Malaysian authorities; and staff estimates and projections.

Consists of 42 NFPEs in 1993, 44 NFPEs in 1991, and 52 NFPEs in 1989 as defined in the Bank Negara Malaysia, Annual Reports.

Sources: Data provided by the Malaysian authorities; and staff estimates and projections.

Consists of 42 NFPEs in 1993, 44 NFPEs in 1991, and 52 NFPEs in 1989 as defined in the Bank Negara Malaysia, Annual Reports.

Table 30.Malaysia: Reserve Money by Components, 1989-94(In millions of ringgit: end of period)
Currency in

Circulation
Excess

Reserves
Required

Reserves
Deposits of

Private Sector
Total
19899,174.1848.04,874.496.914,993.4
199010,059.21,454.36,911.276.618,501.3
199111,044.51,380.29,542.0101.422,050.1
1992
First quarter11,669.81,284.59,656.9101.222,712.4
Second quarter11,267.51,143.211,398.177.623,886.4
Third quarter11,423.91,835.411,487.6128.124,875.0
Fourth quarter12,142.11,210.011,286.0106.924,745.0
1993
First quarter12,525.61,477.011,631.595.825,729.9
Second quarter12,245.91,289.011,661.8124.825,321.5
Third quarter12,824.21,126.712,100.086.526,137.4
Fourth quarter13,533.91,191.212,689.7149.427,564.2
1994
First quarter14,489.11,576.115,801.3449.232,315.7
Source: Data provided by the Malaysian authorities.
Source: Data provided by the Malaysian authorities.
Table 31.Malaysia: Assets and Liabilities of Bank Negara, 1990-94(In millions of ringgit: end of period)
MarchJuneSept.Dec.March
19901991199219931994
Foreign assets27,04530,46747,21952,05054,86957,01976,47490,918
Gold and foreign exchange25,88629,19746,07550,94853,77455,89175,30989,741
IMF reserve position629700848806793815839852
Holdings of SDRs530570296296302306326325
Claims on Government2,6811,611561508373692454577
Bills discounted4,0505,1953,8604,0124,0033,9833,3243,011
Deposits with financial institutions1,7342,3871,9441,9341,7891,8181,7492,651
Deferred expenditure------------5,7075,707
Loans and advances2,1321,8982,3692,3443,3363,3322,6372,818
Other assets3,2733,0013,6417,01214,40323,0349,75412,999
Total assets40,91444,55959,59267,86078,77389,871100,299118,681
Paid-up capital100100100100100100100100
General reserve fund3,2583,4583,5563,5563,5563,5563,5563,556
Other reserves8,74910,0537537537537534141
Currency in circulation11,22412,07013,17414,01513,40913,96214,64915,864
Deposits:15,22316,51540,58443,20551,43763,21973,20893,864
Banks and other financial institutions9,93610,44727,55929,20333,56344,80356,76274,687
Federal government4,8785,5965,6795,3406,3836,2682,9112,372
Other4094727,3468,66211,49112,14813,53516,805
Bank Negara certificates------3,8258,5777,1757,1613,961
Allocation of SDRs534542491491491491509509
Other liabilities1,8051,8009061,9154506151,076786
Total liabilities40.91444.55959.59267.86078,77389.871100,299118,681
Source: Data provided by the Malaysian authorities.
Source: Data provided by the Malaysian authorities.
Table 32.Malaysia: Money Market Indicators, 1991-94(In percent: end of period: unless otherwise indicated)
March.June.Sept.Dec.March.June.Sept.Dec.MarchJuneSept.Dec.March
1991199219931994
Loan/deposit ratio 1/97.4102.4103.5101.2104.098.295.293.993.791.987.983.576.8
Liquidity operations of central bank (RM mn, qtr. Change)-3,7732,1303,575530-4,374-538-10,745-7,828-6,815-11,498-9,574-12,411-13,360
Interbank rate (overnight)6.57.07.87.77.98.08.28.17.57.26.66.34.3
Treasury bill rate (3-month)6.57.17.97.77.68.07.67.17.16.85.85.22.8
Bond coupon rate (8-year)2/8.18.08.28.18.08.08.58.48.58.58.58.58.0
Deposit rate (12-month) 3/7.07.08.08.08.08.38.07.87.37.06.56.35.8/6.0
Base lending rate 1/7.58.08.59.09.09.59.59.59.25/9.59.259.08.57.6/7.9
Average lending rate 1/9.19.49.29.710.010.310.310.310.210.110.09.79.3
Source: Data provided by the Malaysian authorities.

Commercial banks.

Coupon rate on eight-year bonds.

Fixed deposits.

Source: Data provided by the Malaysian authorities.

Commercial banks.

Coupon rate on eight-year bonds.

Fixed deposits.

Table 33.Malaysia: Central Bank Liquidity Operations, 1990-94(Changes in millions of ringgit)
1990199119921993March

1994
Export credit refinancing1,6791,145-1,335-334-513
Rediscount of BAs--89------
NIF financing-77-95-143-11630
Leding to institutions1,282313828-355441
Money market intervention
Clean money2,2372,072-14,939-25,194-9,622
Repos----------
Money market operations51101-180-1,410-634
Money market loans2--------
BNM certificates-------6,1293,300
Bilateral payment----19020640
Vostro balance---------2,885
Malaysia government securities1,332-1,118-1,089-985-325
Of which:
Direct transactions1,362-1,179-1,034-121-354
Repos-3061-55-5--
Malaysia savings bond-------85929
EPF money market account-----6,703-5,969-3,161
Cagamas bonds-3-45-114-12-31
Total6,5032,462-23,485-40,298-13,360
Source: Data provided by the Malaysian authorities.
Source: Data provided by the Malaysian authorities.
Table 34.Malaysia: Monetary Authorities’ Account, 1989-94
MarchJuneSept.Dec.MarchJuneScot.Dec.March
198919901991199219931994
(In millions of ringgit: end of period)
Foreign assets (net)21,68327,02430,45234,80036,14142,82347,19652,01754,83656,97876,43590,879
Domestic assets (net)-6,338-8,172-8,013-11,841-11,872-17,529-21,890-25,878-28,956-30,374-48,183-58,086
Claims on Government (net)817-2,197-3,985-2,954-7,505-6,855-5,118-4,833-6,010-5,576-2,457-1,796
Claims on Government1,5292,6811,6111,6491,610742561508-373692454577
Government deposits7124,8785,5964,6039,1157,5975,6795,3406,3836,2682,9122,372
Claims on private sector1,5731,4571,1471,1231,0801,0311,1071,0529109402,4002,736
Claims on banks 1/-1,2732,6035,7401,330317-9,358-11,566-12,727-17,194-28,079-38,727-50,942
Less other items net-7,455-10,035-10,915-11,340-5,764-2,347-6,314-9,370-6,6622,341-9,398-8,084
Of which:
BNM certificates------------------------
Reserve money15,34518,85222,43922,95924,27025,29425,30626,13925,88026,60428,25332,793
Of which:
Currency in circulation9,90311,22412,07012,86012,29612,47813,17413,84013,40513,93114,64915,853
Bankers’ deposits 1/4,9935,2156,9756,7397,9578,5817,6437,8077,6957,7528,16110,667
NFIs’ deposits1,2621,9862,9043,0133,5563,6883,8223,9874,0964,3694,6055,347
Other deposits-813427490348461547667505683553839927
(Twelve-month rate of change)
Foreign assets (net)18.324.612.720.823.753.955.049.551.733.162.074.7
Domestic assets (net)0.428.9-1.921.117.7156.3173.2118.6143.973.3120.1324.5
Claims on Government (net)-42.1-368.981.494.1111.8146.828.463.6-19.9-18.7-52.0-62.8
Claims on private sector14.8-7.4-21.3-19.3-9.3-12.6-3.5-6.3-15.7-8.8116.8160.1
Claims on banks-167.9-304.5120.5-379.4-83.7-287.3-301.5-1,056.9-5,524.0200.1234.8300.3
Reserve money27.722.919.020.626.820.512.813.86.65.211.625.5
Source: Data provided by the Malaysian authorities.

Includes commercial banks, finance companies, and merchant banks.

Source: Data provided by the Malaysian authorities.

Includes commercial banks, finance companies, and merchant banks.

Table 35.Malaysia: Assets and Liabilities of Commercial Banks, 1989-94(In millions of ringgit: end of period)
MarchJuneSept.Dec.March
198919901991199219931994
Reserves4,2046,3328,4748,4688,8938,6238,7159,03811,694
Foreign assets7,8897,6106,3405,2215,8405,9055,99610,3727,671
Claims on Government11,79911,97111,97711,06910,35510,79310,3009,8729,775
Claims on private sector67,18482,80299,234109,263110,630114,372115,527121,188122,519
Claims on NFIs 1/2,8454,4736,7567,8287,5037,0876,5968,3268,524
Demand deposits12,09014,58316,05718,60119,45421,32522,84428,71528,466
Time and savings deposits44,09555,09658,25772,72476,14579,10484,43688,62097,242
Money market instruments 2/9,84513,35620,22521,72220,74021,22120,58923,17028,264
Foreign liabilities6,3178,12911,75518,68219,22019,47121,74331,48831,853
Government deposits4,2831,8412,3391,4571,5461,7711,9101,8712,446
Credit from central bank1,4521,2213,971-12,943-14,378-18,681-29,620-40,080-52,064
Capital accounts10,00611,24113,15114,65015,01415,59116,09516,63017,811
Other items (net)5,8337,7217,0266,9565,4806,9789,1378,3826,165
Source: Data provided by the Malaysian authorities.

Nonmonetary financial institutions (finance companies, merchant banks, and discount houses).

Includes bonds, repos, and other money market instruments.

Source: Data provided by the Malaysian authorities.

Nonmonetary financial institutions (finance companies, merchant banks, and discount houses).

Includes bonds, repos, and other money market instruments.

Table 36.Malaysia: Consolidated Statement of Assets and Liabilities of Nonmonetary Banking Institutions, 1989-94 1/(In millions of ringgit: end of period)
MarchJune.Sent.Dec.March.JuneSept.Dec.March
198919901991199219931994
Reserves2,8564,5243,7563,6014,0634,2654,4365,0515,4877,5368,42111,133
Foreign assets2884130131130130129132139134137147
Claims on federal government5,3684,5634,8854,5564,4024,2214,2094,5384,0374,0983,7273,276
Finance companies1,5371,6852,0382,1552,2122,0412,1222,2062,0932,0311,9901,798
Merchant banks8078981,0381,1039509701,0411,1239001,0971,103962
Discount houses3,0241,9801,8091,2981,2401,2101,0461,2101,045969634516
Claims on private sector27,44036,23045,47347,20748,90651,12252,70653,85755,49457,29259,68360,219
Finance companies20,24527,48234,64435,83736,89038,16939,41540,32341,26742,89544,90345,778
Merchant banks6,3267,3628,4438,4148,9519,2069,5639,71710,20210,10610,61910,801
Discount houses8691,3862,3862,9563,0653,7473,7283,8174,0264,2914,1613,640
Time and savings deposits28,61734,94440,89738,98341,18142,60444,60146,40149,67753,49956,36257,472
Finance companies20,80625,75032,35431,84834,02834,76535,44037,21939,06740,50943,20045,345
Merchant banks5,2745,1415,7474,9895,1125,4496,3726,4157,3459,1919,4647,993
Discount houses2,5374,0522,7962,1462,0412,3902,9892,7683,2653,7993,6974,134
Money-market instruments8282,6893,8634,2464,3484,1935,0914,2064,7435,1935,0395,530
Foreign liabilities462----------0.10.112.845.321.2
Central government deposits1,107424510469458490453500553598722622
Credit from commercial banks7854,4974,5783,8814,0114,4274,7176,4025,4375,9836,91110,108
Finance companies4622,5271,8251,9201,9552,3442,6542,4922,2642,9953,2523,568
Merchant banks3231,6622,7531,9612,0562,0832,0632,5561,9251,4252,1863,409
Capital accounts3,5384,5175,2465,4405,5805,7465,9346,1066,3206,5176,8207,226
Other items (net)-2,023-1,962-3,476-2,360-2,012-2,172-2,0061,9771,4931,008796182
Source: Data provided by the Malaysian authorities.

Consolidation of the accounts of finance companies, merchant banks, and discount houses.

Source: Data provided by the Malaysian authorities.

Consolidation of the accounts of finance companies, merchant banks, and discount houses.

Table 37.Malaysia: Interest Rates of Commercial Banks and Finance Companies, 1987-94 1/, 2/(In percent: end of period)
Fixed DepositsSavings

Deposits
Base Lending

Rate 3/
Average Lending

Rate 4/
136912
19872.002.25/2.503.00/3.503.504.253.507.509.73
(3.50)(3.75)(4.25)(4.50)(5.50)(12.62)
19883.003.253.754.004.253.507.008.95
(3.5/4.0)(4.00)(4.00)(4.50)(4.50)(12.47)
19894.505.004.755.005.503.507.008.70
(5.25)(5.25)(5.50)(6.00)(4.50)(8.50)(11.86)
19906.507.007.257.257.253.507.508.99
(7.60)(7.80)(7.80)(7.90)(5.00)(9.00)(11.87)
1991
March6.006.506.50/6.756.757.003.507.509.27
(6.8/7.0)(6.9/7.0)(7.00)(7.20)(5.00)(9.00)(12.04)
June6.507.007.107.007.003.508.009.36
(7.30)(7.45)(7.50)(7.50)(5.00)(9.0/9.5)(11.98)
Sept.7.507.607.757.758.003.508.509.16
(8.50)(8.50)(8.60)(8.70)(5.00)(9.50)(13.07)
Dec.7.7/7.88.008.008.008.003.259.009.72
(7.90)(8.15)(8.35)(8.40)(8.50)(5.00)(10.00)(13.07)
1992
March7.707.808.008.008.003.25/3.59.0010.00
(7.80)(8.05)(8.10)(8.15)(8.20)(5.00)(10.50)(12.94)
June8.008.208.208.208.253.259.5010.32
(8.20)(8.30)(8.30)(8.30)(8.35)(5.00)(10.50)(12.97)
Sept.7.907.907.907.908.003.259.5010.32
-(7.90)(8.00)(8.00)(8.00)(8.00)(5.00)(10.50)(13.26)
Dec.7.907.907.907.907.803.259.5010.26
(7.90)(8.00)(8.00)(7.95)(8.00)(5.00)(10.50)(12.28)
1993
March7.407.407.307.307.303.259.4010.19
(7.40)(7.50)(7.50)(7.45)(7.45)(5.00)(10.50)(13.09)
June7.007.007.007.007.003.259.2510.09
(7.25)(7.25)(7.20)(7.20)(7.10)(5.00)(10.50)(12.86)
Sept.6.706.706.706.506.503.259.009.95
(6.80)(6.80)(6.80)(6.80)(6.70)(5.00)(10.50)(12.09)
Dec.6.406.406.306.306.303.258.509.65
(6.50)(6.50)(6.50)(6.40)(6.40)(5.00)(10.50)(12.15)
1994
March5.805.806.005.805.803.257.609.25
(5.70)(5.85)(6.00)(6.00)(6.00)(5.00)(10.50)(12.14)
Source: Data provided by the Malaysian authorities.

Most frequently quoted rates.

Rates in parentheses are corresponding interest rates of finance companies.

With effect from February 1991, all lending rates are pegged to a bank’s declared base lending rate, with the exception of those levied on loans to priority sectors and those prescribed by law.

Refers to the weighted average lending rate of all commercial banks and finance companies, respectively.

Source: Data provided by the Malaysian authorities.

Most frequently quoted rates.

Rates in parentheses are corresponding interest rates of finance companies.

With effect from February 1991, all lending rates are pegged to a bank’s declared base lending rate, with the exception of those levied on loans to priority sectors and those prescribed by law.

Refers to the weighted average lending rate of all commercial banks and finance companies, respectively.

Table 38.Malaysia: Direction of Commercial Bank Lending, 1989-93 1/, 2/(In millions of ringgit; end of period)
19891990199119921993
Agriculture3,6224,2384,6424,6574,125
(5.4)(5.2)(4.8)(4.4)(3.5)
Mining and quarrying876833831877631
(1.3)(1.0)(0.9)(0.8)(0.5)
Manufacturing14,05818,74223,53625,39526,932
(20.9)(23.2)(24.2)(24.0)(23.0)
Electricity197202709671937
(0.3)(0.2)(0.7)(0.6)(0.8)
General commerce10,54611,64212,86412,90713,662
(15.7)(14.4)(13.2)(12.2)(11.7)
Building and construction4,7635,5026,7308,6029,309
(7.1)(6.8)(6.9)(8.1)(7.9)
Real estate8,5229,0979,97010,97511,383
(12.7)(11.3)(10.3)(10.4)(9.7)
Individual housing loans8,1439,58711,58812,20314,508
(12.1)(11.9)(11.9)(11.6)(12.4)
Transport, storage, and communication1,2661,3422,0451,4522,001
(1.9)(1.7)(2.1)(1.4)(1.7)
Financing, insurance, and business services7,4199,10511,53313,62116,983
(11.1)(11.3)(11.9)(12.9)(14.5)
Other7,73110,47312,75814,36116,765
(11.5)(13.0)(13.1)(13.6)(14.3)
Total67,14280,76397,206105,721117,236
Source: Data provided by the Malaysian authorities.

Figures in parentheses are percentage shares.

Excludes lending to Government and nonresidents, trade bills payable outside Malaysia, and private sector securities.

Source: Data provided by the Malaysian authorities.

Figures in parentheses are percentage shares.

Excludes lending to Government and nonresidents, trade bills payable outside Malaysia, and private sector securities.

Table 39.Malaysia: Developments in the Kuala Lumpur Stock Exchange, 1989-93
19891990199119921993
Number of listed companies307285324369413
Capitalization (million ringgit)156,100131,691161,344245,823619,637
Turnover (million ringgit)18,53529,52230,09751,469387,275
KLSE index (percent change)57.3-10.19.915.898.0
Dividend yield (percent)2.002.502.552.211.04
Price/earnings ratio35.3822.2722.5722.8048.24
Source: Data provided by the Malaysian authorities.

Federal government securities at cost, excluding treasury bills.

Corporate securities issued by companies listed in the Kuala Lumpur Stock Exchange.

Securities with maturities of more than one year.

Source: Data provided by the Malaysian authorities.

Federal government securities at cost, excluding treasury bills.

Corporate securities issued by companies listed in the Kuala Lumpur Stock Exchange.

Securities with maturities of more than one year.

Table 40.Malaysia: Funds Raised in the Capital Market, 1989-93
19891990199119921993
(In billions of ringgit)
By the public sector
Net federal receipts2.53.93.21.4-0.6
Net issues3.63.93.21.4-0.6
Government securities (gross) 1/5.05.13.53.81.6
Less: Redemptions(1.3)(1.2)(0.3)(2.4)(2.2)
Advance subscriptions-1.3--------
Less: Government holdings(-0.1)(--)(--)(--)(--)
Investment certificates (net)---0.1--0.11.0
Malaysia savings bonds--------0.8
Net funds raised2.53.83.21.51.2
By the private sector
Shares (net)2.58.64.49.23.2
Public issues 2/1.33.81.75.41.4
Rights issues1.14.42.23.41.2
Special issues 3/--0.50.50.30.6
Private placements----------
Debt securities (net)2.12.52.43.12.0
Conventional bonds0.30.60.61.51.1
Convertible bonds0.40.90.90.30.2
Islamic notes--0.40.4--_
Cagamas bonds1.20.4--1.40.7
Net funds raised4.410.96.212.35.2
Total6.914.79.413.86.4
Commercial papers0.20.20.61.41.7
Total including commercial papers7.114.910.015.28.1
(In percent of GNP)
Memorandum items:
Funds raised in the capital market (net) 4/7.413.58.19.85.1
Public sector2.53.52.61.10.8
Private sector4.810.15.58.84.3
Shares2.67.83.66.52.0
Debt securities2.22.32.02.22.3
Source: Data provided by the Malaysian authorities.

Refers to Malaysian Government Securities.

Refers to corporate securities issued by companies listed on the stock exchange.

Special issues to Bumiputera and selected investors.

Includes short-term commercial paper.

Source: Data provided by the Malaysian authorities.

Refers to Malaysian Government Securities.

Refers to corporate securities issued by companies listed on the stock exchange.

Special issues to Bumiputera and selected investors.

Includes short-term commercial paper.

Table 41.Malaysia: Trade Indices, 1989-93 1/
1989199019911992Prel.

1993
(1983 = 100)
Exports
Value177.4208.6243.4288.3333.6
Volume206.0233.8268.0286.8322.4
Unit value86.189.390.8100.5103.5
Imports 2/
Value166.9214.2269.3292.5335.1
Volume181.0220.9271.3281.4319.3
Unit value92.297.099.2103.9104.9
Terms of trade93.492.091.596.798.6
(Percent change)
Exports
Value18.717.616.718.415.7
Volume18.013.414.77.012.4
Unit value0.63.71.810.72.9
Imports 2/
Value32.128.425.78.614.6
Volume30.122.122.83.713.5
Unit value1.55.22.34.70.9
Terms of trade-0.9-1.4-0.55.72.0
Source: Data provided by the Malaysian authorities.

Trade indices presented in this table are based on customs data and are in terms of U.S. dollars.

Clear imports, excluding lumpy items such as aircraft, ships, and offshore oil installations.

Source: Data provided by the Malaysian authorities.

Trade indices presented in this table are based on customs data and are in terms of U.S. dollars.

Clear imports, excluding lumpy items such as aircraft, ships, and offshore oil installations.

Table 42.Malaysia: Composition of Manufactured Exports, 1989-93(In millions of U.S. dollars)
1989199019911992Prel.

1993
Food, beverages, and tobacco6627628239581,002
Textiles, clothing, and footwear1,1431,4441,7102,0212,104
Wood and wood products3974986269241,568
Rubber products422501639847946
Chemical and petroleum products8901,0181,0731,4671,829
Of which:
Petroleum products(371)(475)(418)(568)(726)
Nonmetallic mineral products243285323350411
Manufactures of metal appliances5285836588991,190
Electrical machinery and appliances7,6799,79812,94016,32221,413
Of which:
Electronic components(3,757)(4,320)(4,746)(5,636)(7,262)
Transport equipment4377131,1921,5051,411
Omer manufactures 1/1,5222,2162,9513,6183,922
Total13,50117,31722,29728,05134,850
Source: Data provided by the Malaysian authorities.

Includes paper and paper products, and optical and scientific equipment.

Source: Data provided by the Malaysian authorities.

Includes paper and paper products, and optical and scientific equipment.

Table 43.Malaysia: Merchandise Exports, 1989-93 1/(In millions of U.S. dollars)
1989199019911992Prel.

1993
Rubber1,4581,119978925828
Volume1,8511,6451,4091,2881,166
Unit value78.868.069.471.871.0
Tin429333249283190
Volume352375302321253
Unit value121.788.982.488.175.2
Saw logs1,6081,4941,4911,5121,132
Volume1,5711,5161,4381,334692
Unit value102.398.6103.6113.4163.7
Sawn timber1,0731,1331,0941,3691,766
Volume889919884949964
Unit value120.7123.3123.8144.2183.2
Palm oil1,7321,6311,8292,1342,252
Volume2,0662,3642,3152,3232,466
Unit value83.869.079.391.991.3
Petroleum2,9143,9333,7083,5813,106
Volume2,3183,3333,1923,1832,972
Unit value125.7118.0116.1112.5104.5
Unit value (US$/bbl)23.3621.9421.5920.9219.43
LNG7629741,1931,0651,009
Volume703828828810867
Unit value108.4117.7144.1131.5116.4
Manufactured goods13,50717,32022,29928,05434,850
Other 2/1,5631,5111,5191,7721,956
Total exports25,04529,44934,36540,69547,089
Source: Data provided by the Malaysian authorities.

Customs data; volumes are expressed in 1988 prices and unit values are based on 1988=100.

Includes tin-in-concentrate.

Source: Data provided by the Malaysian authorities.

Customs data; volumes are expressed in 1988 prices and unit values are based on 1988=100.

Includes tin-in-concentrate.

Table 44.Malaysia: Gross Imports, 1989-93 1/(In millions of U.S. dollars)
1989199019911992Prel.

1993
Consumption goods4,0224,8126,2246,7877,401
Food1,0651,0331,1571,3541,435
Beverages, tobacco90101140149147
Consumer durables8109801,4001,3371,608
Other2,0562,6973,5273,9474,212
Investment goods7,68810,96514,84616,56018,529
Machinery2,3623,2644,2814,8655,140
Transportation1,3421,8462,4602,8812,539
Metal products1,4611,8472,2602,3802,836
Other2,5233,7195,8456,4348,014
Intermediate goods10,50413,27415,80816,24719,476
For manufacturing8,32410,49212,54612,67715,750
For construction5767941,1031,1821,328
For agriculture394405384476505
Crude petroleum117160128127173
Other1,0941,4231,6471,7851,719
Imports for re-export253200192227211
Tin ore174120139168113
Crude natural rubber7980535998
Total imports (trade basis)22,46729,25036,66539,82145,617
Total imports (b.o.p. basis)20,75426,96734,04936,23742,502
Memorandum item:
Imports of petroleum products 2/8471,1271,2471,8452,064
Source: Data provided by the Malaysian authorities.

Customs data.

Petroleum products are a component of “other imports” in both consumption and intermediate goods categories.

Source: Data provided by the Malaysian authorities.

Customs data.

Petroleum products are a component of “other imports” in both consumption and intermediate goods categories.

Table 45.Malaysia: Direction of Trade, 1989-93(Percentage shares)
ExportsImports
1989199019911992Prel.

1993
1989199019911992Prel.

1993
ASEAN countries25.528.929.329.527.918.918.919.920.419.8
Of which: Singapore(19.7)(22.7)(23.3)(23.0)(21.7)(13.6)(14.9)(15.6)(15.7)(15.2)
Japan16.115.815.713.413.024.224.026.126.027.4
India1.31.60.91.10.50.70.70.80.90.9
Australia2.31.71.71.71.33.83.73.22.72.8
European Union15.414.914.814.914.514.014.613.712.511.6
United States18.716.916.918.620.316.916.715.315.816.9
Other20.720.220.720.822.521.521.421.021.720.6
Total100.0100.0100.0100.0100.0100.0100.0100.0100.0100.0
Source: Data provided by the Malaysian authorities.
Source: Data provided by the Malaysian authorities.
Table 46.Malaysia: Services Account, 1989-93(In millions of U.S. dollars)
1989199019911992Prel.

1993
Freight and insurance (net)-1,117-1,419-1,762-1,661-1,937
Receipts580563613740763
Payments1,6971,9822,3762,4012,700
Other transportation (net)-2-9-4-69-125
Receipts6938079571,1391,111
Payments6958169611,2081,236
Travel (net)-329234199258260
Receipts1,0361,6841,7832,0282,220
Payments1,3651,4501,5841,7701,960
Investment income (net)-2,191-1,875-2,449-2,885-3,164
Receipts1,0331,6641,2951,4111,389
Payments3,2243,5393,7444,2964,553
Interest1,3791,3331,3001,2271,280
Dividends1,8452,2062,4453,0693,273
Government, n.i.e. (net)-96-1-201612
Receipts928989107109
Payments188911099197
Other (net) 1/-470-524-712-746-994
Receipts7511,0701,2881,6071,601
Payments1,2211,5952,0002,3532,595
Total services (net)-4,206-3,595-4,748-5,087-5,948
Receipts4,1855,8776,0277,0327,192
Payments8,3909,47210,77512,11913,140
Source: Data provided by the Malaysian authorities.

Includes contract and professional charges, agency fees, commissions, rents, royalties, and salaries.

Source: Data provided by the Malaysian authorities.

Includes contract and professional charges, agency fees, commissions, rents, royalties, and salaries.

Table 47.Malaysia: International Reserves, 1989-94(In millions of U.S. dollars)
19891990199119921993March

1994
Central bank (net)8,01210,00411,17918,06928,29433,993
Foreign assets8,02110,01111,18518,07828,30834,007
Gold and foreign exchange7,6279,58210,71817,64027,87733,567
Reserve position in IMF224233257325311319
SDRs170196209113121122
Foreign liabilities97681415
Government and other official entities (net)393735313131
Foreign assets393735313131
Foreign liabilities------------
Total official (net)8,05110,04111,21418,10028,32434,023
Foreign assets8,06010,04811,21918,10928,33934,038
Foreign liabilities97681415
Commercial banks (net)161-686-2,590-6,242-10,061-11,183
Assets2,9402,8072,3661,9983,8922,923
Liabilities2,7793,4934,9568,24113,95314,105
Memorandum items:
Gold (in millions of troy ounces)2.372.352.352.352.322.32
Gross official reserves in months of imports4.34.13.75.57.57.8
Source: Data provided by the Malaysian authorities.
Source: Data provided by the Malaysian authorities.
Table 48.Malaysia: External Debt and Debt Service, 1989-93(In millions of U.S. dollars: end of period)
1989199019911992Prel.

1993
Total external debt17,07117,89020,06222,93127,284
Medium- and long-term 1/15,56315,35716,07816,37919,142
Public sector13,85613,52813,61012,37513,473
Government and government-guaranteed12,40212,25012,53211,00510,292
By lender
Bilateral2,2272,7523,1563,2343,474
Multilateral1,2841,3961,5111,5181,363
Financial institutions8,4267,7507,6076,0825,371
Suppliers’ credits46435225816484
IMF----------
By debtor
Federal government8,9459,1539,3318,0107,167
Other guaranteed 2/3,4753,0973,2002,9953,125
Public sector nonguaranteed1,4551,2781,0791,3703,181
Private sector1,7061,8302,4684,0045,669
Short-term debt1,5082,5333,9846,5528,142
Total debt service2,9882,9362,9443,2453,780
Medium- and long-term2,7852,7192,6142,9513,382
Public sector2,3172,2282,1332,3492,476
Amortization 3/1,2021,1591,2061,4691,718
Federal government537518478755965
Other665641728714754
Interest1,1151,069927880758
Federal government732717644617520
Other383352283263238
Private sector468484432416906
Amortization408444439549782
Interest60474353124
Short-term debt service20421733094397
Debt/GNP ratio47.843.644.242.746.7
Medium- and long-term43.537.535.430.432.8
Public38.833.030.023.023.1
Private4.84.55.47.59.7
Short-term4.26.28.812.213.9
Debt-service ratio 4/10.48.57.47.07.1
Medium- and long-term debt9.77.96.66.36.4
Public sector8.06.55.45.04.7
Federal government4.43.62.82.92.8
Other3.62.92.62.11.9
Private sector1.61.41.21.31.7
Short-term debt0.70.60.80.60.7
Source: Data provided by the Malaysian authorities.

Original maturity of one year and over.

Mainly nonfinancial public enterprises.

Excludes prepayments and refinancing.

In percent of exports of goods and services.

Source: Data provided by the Malaysian authorities.

Original maturity of one year and over.

Mainly nonfinancial public enterprises.

Excludes prepayments and refinancing.

In percent of exports of goods and services.

ANNEX I Determinants of Saving

Over the past two decades, the rate of saving in Malaysia has increased significantly–from about 20 percent of GNP in the early 1970s to over 35 percent of GNP, on average, in the early 1990s. Malaysia’s saving performance ranks among the highest in the world and compares favorably even to that of many of the other dynamic Asian economies. This annex analyzes the trends in saving during the period 1970–92 and presents econometric evidence on the main determinants of saving in Malaysia.

Three factors appear to account for much of the increase and variation in Malaysia’s saving rate. First, a demographic change, manifested in a steadily increasing ratio of working age to total population, had a significant impact on private saving. The econometric analysis reported below indicates that the increase in the working age population ratio by 7 1/2 percentage points during the 1970s and 1980s served to raise the gross national saving rate by 5 1/4 percentage points of GNP.

Second, variations in the growth in private disposable incomes were also an important determinant of changes in the rate of private saving. The econometric estimates suggest that income growth, which averaged 8 1/2 percent in real terms and 6 percent in real per capita terms during 1988-92, boosted gross national saving by 3 percentage points of GNP.

Third, the fiscal consolidation undertaken in recent years, reflected in an increase in public saving by 6 percentage points of GNP, raised the overall national saving rate by 6 percentage points of GNP. The econometric evidence indicates that changes in public saving did not have a significant offsetting impact on private saving.

Finally, increases in mandatory saving through the EPF do not appear to have affected overall private saving. Instead, changes in EPF saving have tended to be offset by changes in voluntary non-EPF saving.

1. Historical trends

While the rate of national saving has increased over the past two decades, the rise has been marked by considerable volatility reflecting domestic and external shocks (Chart I-1 and Table 1). During the 1970s, the gross national saving rate rose from an average of 24 percent of GNP in the first half of the decade to 33 percent of GNP in the second half, despite a temporary decline in the rate of saving in 1975 following the oil price shock. In the early 1980s, the saving rate fell again in response to the second oil price shock and the onset of a domestic recession but recovered quickly until the recession of 1985-86. The subsequent economic recovery, though accompanied initially by a rebound in the rate of saving, was associated with a consumption boom and resulted in a decline in the saving rate. Finally, in 1992, the saving rate recovered as financial policies were tightened and the consumption boom subsided.

CHART I-1MALAYSIA GROSS NATIONAL SAVING, 1970–92

(In percent of GNP)

Sources: Data provided by the Malaysian authorities; and staff estimates.

Table 1.Malaysia: Gross National Saving, 1970-74/1990-92(In percent of GNP)
1970-741975-791980-841985-891990-92
Gross national saving24.332.633.237.035.1
Private saving24.227.527.132.327.9
EPF2.22.54.25.96.1
Non-EPF22.025.022.926.421.8
Public saving0.15.06.14.67.2
Sources: Data provided by the Malaysian authorities; and staff estimates.
Sources: Data provided by the Malaysian authorities; and staff estimates.

Changes in the rate of private saving have accounted for developments in the overall rate of saving (Chart I-2). 1/ The bulk of private saving consists of voluntary saving. However, a significant share of saving by the private sector, especially in recent years, has been due to mandatory contributions to the EPF (Chart I-3). 2/ EPF saving has risen steadily from an average of 2 percent of GNP in 1970–74 to over 6 percent of GNP during 1990–92. At present, EPF saving accounts for over 20 percent of total private saving.

CHART I-2MALAYSIA PUBLIC AND PRIVATE SAVING, 1970–92

(In percent of GNP)

Sources: Data provided by the Malaysian authorities; and staff estimates.

CHART I-3MALAYSIA PRIVATE SAVING, 1970–92

(In percent of GNP)

Sources: Data provided by the Malaysian authorities; and staff estimates.

The contribution of the public sector to overall national saving has increased over the past two decades, with public saving rising from an average of less than 1 percent of GNP in the early 1970s to over 7 percent of GNP in the early 1990s. The increase, however, was interrupted during the recessions in the early and mid-1980s when the public sector expanded substantially in an effort to offset the contractionary impact of the cyclical downturns. Since the recovery in the late 1980s, the ongoing process of fiscal consolidation and restructuring has resulted in a rapid increase in public saving.

2. Employees Provident Fund

Initiated in 1952, the EPF is a compulsory saving scheme under which employees and employers are required to contribute a portion of labor income to the EPF. EPF accounts are individual-specific and are intended to facilitate the accumulation of saving to finance a basic retirement income. In 1991, the number of active members of the EPF (those making contributions during the year) totalled over 3 1/4 million, or 47 percent of total employment.

As the main purpose of the EPF is to provide benefits to members upon retirement, withdrawals from the EPF were initially permitted only in the event of retirement, incapacitation, death, or emigration. Over time, however, withdrawals under various housing schemes have been introduced and, at present, a portion of EPF balances may be withdrawn for the purchase of low-cost and nonlow-cost houses, housing mortgages, and village houses.

Contribution rates to the EPF were originally set at 5 percent each for employees and employers but were raised to 6 percent and 7 percent for employees and employers, respectively, in 1975 and 9 percent and 11 percent, respectively, in 1980. In 1993, contribution rates were raised to 10 percent for employees and 12 percent for employers.

3. International comparisons

Malaysia’s rate of national saving compares favorably with rates achieved in a sample of other developing economies and has been broadly comparable to rates in the NIEs (Table 2). 1/ The increase in Malaysia’s saving rate during the 1970s and 1980s has broadly kept pace with increases in the saving rates in the other developing countries in the sample. Consequently, Malaysia’s gross national saving rate was over 6 percentage points of GNP higher than the average for developing countries in the sample during 1990–91.

Table 2.Malaysia: Gross National Saving in Selected Countries, 1970-74/1990-91(Period average: in percent of GNP)
1970-741975-791980-841985-891990-91
G-327.424.323.223.824.6
Germany, Federal Republic of 1/27.322.721.924.726.8
Japan38.232.430.932.634.2
United States16.917.716.914.112.8
NIEs25.129.632.435.035.5
Hong Kong 2/26.329.429.332.432.5
Korea19.024.624.234.335.9
Singapore24.431.242.239.743.6
Taiwan Province of China30.933.133.833.529.8 3/
Developing countries18.223.526.727.227.6
India16.226.232.030.5
Indonesia14.121.226.929.233.4
Malaysia24.332.633.237.033.9
Pakistan14.217.924.623.221.6
Philippines22.225.025.819.818.8
Thailand22.022.323.430.335.7
Source: IMF. International Financial Statistics.

With effect from October 1990, data for the Federal Republic of Germany and the German Democratic Republic have been merged and published under the Republic of Germany.

In percent of GDP.

Data covers 1990 only.

Source: IMF. International Financial Statistics.

With effect from October 1990, data for the Federal Republic of Germany and the German Democratic Republic have been merged and published under the Republic of Germany.

In percent of GDP.

Data covers 1990 only.

An important factor contributing to the rise in national saving rates in many of the economies in the sample is the rate of public saving. In Indonesia, Malaysia, and Singapore, government saving as a proportion of GNP rose by 4–5 percentage points between the early 1970s and early 1980s. In Korea, the rise was 1 1/2 percentage points over the same period. However, differences in fiscal policies can explain only part of the variation in national saving rates across countries, as there is also substantial variation in private saving rates. In Malaysia, increases in public saving contributed to the rise in national saving, but a significant share of the increase in the national saving rate was due to the increase in private saving.

4. Determinants of private saving

Econometric evidence on private saving behavior in Malaysia indicates that demographic characteristics and economic growth were important determinants of saving. In addition, changes in the rate of public saving did not have a significant impact on private saving, implying that increases in public saving were fully reflected in increases in overall gross national saving. Finally, changes in mandatory saving through the EPF, in the rate of inflation, and in Malaysia’s terms of trade were found not to have a significant impact on private saving.

a. Economic growth and demographic changes

Life-cycle theory suggests that economic growth and changing age structure of the population are important determinants of the rate of saving. The experience in Malaysia lends support to this hypothesis. The ratio of working age population, defined as the population between the ages of IS and 64, to total population increased steadily from about 52 percent in 1970 to almost 60 percent in 1992, broadly in line with the trend increase in the rate of private saving. 1/

Changes in the growth rate of private disposable income also appear to have tracked developments in the rate of private saving. In particular, large reductions in income growth following the oil price shock in 1975 and during the recessions of 1980–81 and 1985–86 were reflected in temporary declines in the rate of saving.

In an effort to quantify the impact of income growth and demographics on saving behavior, a consumption function incorporating the effects of changes in growth and age structure was estimated for Malaysia over the period 1970-92 (Table 3). 2/ The estimates obtained indicate that both demographic change and growth had an important effect on private saving. Inflation and changes in the terms of trade did not have a significant impact on saving, possibly because, except for the periods immediately following the two oil price shocks in the early 1970s and the early 1980s, Malaysia experienced relatively low inflation. Moreover, the impact of changes in the terms of trade was likely concentrated on the agricultural and mining sectors, which accounted for a progressively smaller share of the economy during the course of the sample period. Finally, the increase in the rate of EPF saving, broadly reflecting the trend increase in overall private saving during the sample period, was found not to have had a statistically significant impact on overall saving. This was possibly due to the relative ease with which individuals may offset changes in mandatory saving with changes in voluntary saving. Also, the liberalization of EPF withdrawal schemes to include withdrawals for the purchase of housing may have raised the substitutability of EPF saving with voluntary saving.

Table 3.Malaysia: Two-Stage Least Square Estimates of Consumption Functions
Constant0.2295
(1.47)
Rate of growth of private disposable income0.4065
(4.84)
Lagged consumption to income ratio-0.6225
(6.12)
Percentage of population aged 15-64-0.0079
(2.47)
Dummy for 1985-87 recession-0.0704
(4.20)
R20.8547
Standard error0.0239
Sum of squared residuals0.0103
Note: The dependent variable is the first difference of the natural logarithm of real per capita private consumption expenditure. The instruments used in the first stage were: contemporaneous working age population ratio, level and change; lagged consumption to income ratio; lagged rates of growth of real per capita private consumption and private disposable income; lagged natural logarithm of real per capita money balances; lagged ratios of public saving to GNP and EPF saving to GNP; lagged inflation; lagged change in the terms of trade; and a dummy for the 1985–87 recession. The sample period is 1970–92. The values in parentheses are t-statistics. Diagnostic checks showed no evidence of serial correlation of the errors.
Note: The dependent variable is the first difference of the natural logarithm of real per capita private consumption expenditure. The instruments used in the first stage were: contemporaneous working age population ratio, level and change; lagged consumption to income ratio; lagged rates of growth of real per capita private consumption and private disposable income; lagged natural logarithm of real per capita money balances; lagged ratios of public saving to GNP and EPF saving to GNP; lagged inflation; lagged change in the terms of trade; and a dummy for the 1985–87 recession. The sample period is 1970–92. The values in parentheses are t-statistics. Diagnostic checks showed no evidence of serial correlation of the errors.

The private sector’s steady state average propensity to save (APS) in Malaysia, calculated using the estimated consumption function, is estimated at 36 percent of private disposable income, or 30 1/2 percent of GNP. 1/ This calculation uses average values achieved in recent years as the steady state values of the main determinants of private saving–6 percent annual real per capita income growth and a working age population ratio of 59 percent. By way of comparison, Lahiri (1989) estimates the steady state zero-growth APS for Indonesia, Korea, the Philippines, and Sri Lanka at about 20 percent of disposable income, and for India at about 30 percent. In addition, staff estimates indicate that the APS for Singapore and Thailand is 45 percent and 34 percent, respectively, of private disposable income.

The empirical estimates for Malaysia also indicate that, on average, a 1 percentage point increase in the ratio of working age to total population increased the steady state APS by about 3/4 percentage point of private disposable income. Thus, if the working age population ratio had stayed at about 52 percent, the level prevailing in the early 1970s, the private sector’s APS would have been 6 percentage points lower, or, alternatively, the steady state ratio of private saving to GNP would have been 5 1/4 percentage points lower. Furthermore, the results indicate that a 1 percentage point increase in the rate of growth of real per capita income increased the steady state APS by over 1/2 percentage point. Had there been no growth in per capita income, the APS would have been 3 1/2 percentage points lower than actual, equivalent to 3 percentage points of GNP.

b. Substitutability of public and private saving

Given the substantial fiscal consolidation and restructuring that took place in the late 1980s and early 1990s, the contribution of public saving to the overall level of gross national saving in Malaysia is potentially important. Analytical models, such as that of Barro (1974), argue that an increase in government saving, because it is accompanied by a reduction in present or future taxation, is offset by a reduction in private saving. This concept, known as Ricardian equivalence, suggests that changes in public saving have little or no impact on national saving. In practice, however, many of the assumptions required for Ricardian equivalence to hold need not be valid, and a number of studies have focused on explanations for possible deviations from Ricardian equivalence. 1/

A measure of the impact of changes in public saving was obtained by adapting a framework developed by Aschauer (1985) for quantifying the substitutability of public and private consumption. 2/ The equation estimated to obtain such a measure was of the form:

where C is private consumption, G is government consumption, D is the overall fiscal balance of the consolidated central government, and all variables are expressed in real per capita terms. Under intertemporal optimization, the following parameter restrictions may be imposed:

where β is the private sector’s discount rate, and the parameter G measures the degree to which government spending substitutes for private consumption. The joint hypothesis of rational expectations and Ricardian equivalence implies that past values of government deficits should not have explanatory power for private consumption apart from their role in forecasting contemporaneous public spending. This yields the additional restriction:

Two versions of the consumption function were estimated using an iterative nonlinear two-stage least squares procedure. 3/ In the first, a constrained version under which Ricardian equivalence and rational expectations were hypothesized to hold, the restrictions in equations (2) and (3) were imposed. In the unconstrained version, only the restrictions in equation (2) were employed. The results, presented in Table 4, indicate that the estimated coefficients from the two versions are of the same sign and the coefficients that are statistically significant from zero are of similar magnitude. A log-likelihood ratio test, used to test the null hypothesis, yielded a test statistic of 3.94, which may be compared to its critical value of 6.25. Consequently, the joint null hypothesis of rational expectations and Ricardian equivalence was not rejected. 1/

Table 4.Malaysia: Iterative Nonlinear Two-stage Least Squares Estimates of Consumption Function
ConstrainedUnconstrained
α0.47960.4198
(1.40)(1.19)
β0.4353
(2.19)
θ-0.1767
(0.23)
μ10.4353 1/0.5398
(1.73)
μ2-0.0769 1/-0.4602
(0.54)
μ4-0.1767 1/-0.4804
(0.44)
μ4-0.1599
(0.61)
μ5-0.2471
(1.31)
R20.2230.350
Standard error1.4731.467
Log likelihood-38.119-36.150

Coefficients obtained by substitution of constrained coefficient estimates into the set of restrictions in expression (2).

Note: The dependent variable is the first difference of real per capita private consumption expenditure. The instruments used were: first and second lags of the first differences of real per capita private consumption, government consumption, and the overall and current fiscal balances of the consolidated federal government. The equations were estimated over the period 1971-92. The values in parentheses are t-statistics. No evidence of first order serial correlation was found in either version of the estimated equation.

Coefficients obtained by substitution of constrained coefficient estimates into the set of restrictions in expression (2).

Note: The dependent variable is the first difference of real per capita private consumption expenditure. The instruments used were: first and second lags of the first differences of real per capita private consumption, government consumption, and the overall and current fiscal balances of the consolidated federal government. The equations were estimated over the period 1971-92. The values in parentheses are t-statistics. No evidence of first order serial correlation was found in either version of the estimated equation.

However, the estimation results indicate that public consumption did not substitute for private consumption in Malaysia. This implies that increases in public saving, to the extent they were brought about by reductions in public consumption, did not have an impact on private saving and consumption decisions and were fully reflected in a rise in national saving. Thus, the increase in public saving that took place in the late 1980s, amounting to about 6 percentage points of GNP, raised national saving by an equal amount.

ANNEX II Guidelines and Incentives for Investment in Malaysia

This annex discusses the regulations governing industrial investments in Malaysia and describes the current package of investment incentives.

1. Industrial investment procedure

Potential investors in Malaysia must obtain a manufacturing license and comply with the guidelines on the distribution of ownership. In general, export-oriented companies are subject to fewer restrictions on their activities.

a. The Industrial Co-ordination Act, 1975

Under the 1975 Industrial Co-ordination Act (Amended), a manufacturing license, specifying the type and quantity of goods to be produced, must be obtained from the Ministry of International Trade and Industry. Only manufacturing companies with less than RM 2.5 million in shareholders’ funds, or less than 75 full-time employees, are exempted from this licensing requirement. Issuance of a license may be conditioned upon satisfying conditions related to the composition of employment and the distribution of equity ownership. In general, expansion of existing production capacity or diversification of the product line is permitted, as long as the conditions governing the initial investment are respected.

b. Guidelines on the distribution of equity

Foreign participation in manufacturing projects is governed by a set of guidelines based on the export propensity of the project. While joint-ventures are preferred, no foreign equity restrictions exist if 80 percent or more of the project’s output is destined for the export market. In general, the required proportion of local equity participation increases with the share of output to be sold in the domestic market, although other considerations–including size of the investment, level of technology, value added, local input content–raise the permissible share of foreign ownership.

Where foreign ownership is less than complete, the allocation of residual equity is determined by the nationality or ethnicity of the party initiating the investment, as follows:

(1) For projects initiated by foreigners, where no local partners have been identified:

(a) If 70 percent or more of the equity is held by foreigners, the balance will be reserved for bumiputeras (indigenous Malaysians).

(b) If less than 70 percent of the equity is held by foreigners, 30 percent will be reserved for bumiputeras and the balance may be allocated to nonbumiputeras.

(2) For projects initiated by bumiputeras, any equity not taken up by foreigners should be held by the bumiputeras concerned.

(3) For projects initiated by nonbumiputeras:

(a) If 70 percent or more of the equity is taken up by foreigners, the balance of the equity may be allocated to the nonbumiputeras concerned.

(b) If less than 70 percent of the equity is held by foreigners, 30 percent may be allocated to the nonbumiputeras concerned, while the balance will be reserved for bumiputeras.

Subsequent expansion or diversification of the company must preserve the initial equity (foreign/local, bumiputera/nonbumiputera) composition.

2. Investment incentives

As discussed in Chapter I, investment promotion incentives were initiated in 1958 with the introduction of the Pioneer Industries Ordinance, which granted relief from corporate income tax to qualifying firms. As Malaysia developed, the types of industries and activities eligible to receive “pioneer” status and other incentives also evolved. In particular, promotion of import-substituting industries was replaced by targeted incentives to export-oriented activities. In addition, the capital intensity and technology level of targeted investments has increased over time.

The principal incentives available to the manufacturing, agriculture, and tourism sectors are contained in the Promotion of Investments Act (1986) and the Income Tax Act (1967), which are designed to grant relief from corporate income tax. Measured in value terms, more than 50 percent of manufacturing investment projects approved in 1993 received tax relief under the auspices of these Acts. Incentives are also available for the promotion of exports, R&D, human capital development, development of small-scale companies, and the establishment of operational headquarters. The attached table presents the main investment incentives (and associated conditions) currently available in Malaysia.

Table. Malaysia: Manufacturing Incentives and Eligibility Criteria
Promoted Activity/IncentiveEligibility CriteriaConcession
General investment
- Pioneer status. 1/- Production of a good or engagement in an activity promoted by the Ministry of International Trade and Industry. Consideration is also given to value added, local content, level of technology, and industrial linkages generated by the project.- Corporate tax is payable on only 30 percent of net income. The tax exemption is for a period of 5 years, following commencement of production.
- A project of strategic importance, including those with heavy capital investment and a high level of technology, deemed to have a significant impact on the Malaysian economy.- Up to 100 percent tax relief is available for a period of 5 years.
- Investment tax allowance (alternative to Pioneer status). 1/- Same as pioneer status.- An allowance equivalent to 60 percent of qualifying capital expenditure can be used to offset, for the purpose of tax assessment, 70 percent of net income. The remaining 30 percent is taxable at the prevailing rate. Any unused balance may be carried forward to subsequent years.
- Reinvestment allowance. 2/- Qualifying capital expenditure incurred prior to December 31, 1995 for the expansion of capacity, modernization and upgrading of production facilities; and diversification into related products.- An allowance equivalent to 40 percent of capital expenditure.
- Industrial building allowance.- Expenditure on approved buildings for purposes of warehousing, bulk storage of goods for export, approved industrial training, approved research, and hotel business.- An initial allowance of 10 percent and an annual allowance of 2 percent to be used to offset net income.
Exports
- Export credit refinancing facility. 2/- Goods must have a minimum value added of 20 percent and a minimum domestic resource content of 30 percent. However, these criteria are applied flexibly.- Short-term credit, up to 100 percent of the value of exports, is available for up to six months, at a preferential rate of interest (a maximum of 6 percent in January 1994).
- Double deduction for the promotion of exports. 2/- Activities related to the promotion of exports of Malaysian products.- Double deduction of eligible expenses, including those related to: overseas advertising; supply of free samples abroad; export-market research; participation in trade exhibitions; employees9 overseas travel and accommodation; maintaining sales offices abroad.
Research and development2/- Establishment of companies to undertake R&D, and new technology-based companies.- Full tax exemption for a period of 5 years, and carry forward accumulated losses incurred during the tax relief period to the post-relief period.
- R&D activities within industrial firms.- Double deduction for expenses incurred on research approved by the Minister of Finance, and plant, machinery, and buildings used for approved research are eligible for capital allowances.
Upgrading skills and improving labor productivity and quality
- Double deduction of expenses incurred on approved training.- Employee training at approved institutions or in-house, available to companies with less than 50 Malaysian workers.- Double deduction of training costs.
industrial adjustment
- Industrial adjustment allowance.- Companies in operation prior to December 31, 1990 in the wood-based, textile, machinery and engineering sectors undertaking an activity to improve technology, increase productivity and raise self-sufficiency.- A tax allowance of up to 100 percent of qualifying capital expenditure.
- Industrial adjustment fund.- Restructuring activities.- Concessional credit lines.
Development of small-scale companies- Small-scale manufacturing companies with shareholders’ funds of less than RM 0.5 million, incorporated in Malaysia, with at least 70 percent Malaysian-owned equity.- 50 percent reinvestment allowance, and full exemption from customs duty on raw materials, components, machinery and equipment that are not produced locally. Alternatively, the company may be eligible for pioneer status if it supplies the domestic manufacturing industry, 50 percent or more of its output is exported, or local content exceeds 50 percent and the product is a substitute for an imported good.
Operational headquarters- Foreign-owned multinational companies (excluding those in the finance sector) operating in Malaysia, and that carry out the following activities in the region: administration; sourcing of inputs; R&D; technical support and maintenance; marketing; regional training and personnel management.- For a period of 5 to 10 years, a 10 percent tax rate will apply to management fees arising from services rendered, interest earned on funds channeled through financial institutions in Malaysia and royalties arising from R&D carried out in Malaysia. Income after tax is distributed to shareholders as tax-exempt dividends for a period of 10 years.
Source: Malaysia: Investment in the Manufacturing Sector. Malaysian Industrial Development Authority, January 1994.

Applicable to the manufacturing, agriculture, and tourism sectors.

Applicable to the manufacturing and agriculture sectors.

Source: Malaysia: Investment in the Manufacturing Sector. Malaysian Industrial Development Authority, January 1994.

Applicable to the manufacturing, agriculture, and tourism sectors.

Applicable to the manufacturing and agriculture sectors.

Malaya achieved independence in 1957. In 1963, the Federation of Malaysia was formed between Malaya, North Borneo (later renamed Sabah), Sarawak, and Singapore. Singapore left the Federation in 1965.

Nevertheless, in 1970, rubber remained the single largest export earner, contributing one third of total exports.

The price of food, which has a weight of about one third in the CPI, rose by only 2 1/4 percent in 1993, compared to 6 1/2 percent in the previous year. More recently, however, food prices have shown a tendency to accelerate, reflecting negative supply shocks and the coincidence of several major religious festivals. As a result, inflation rose to 4 1/2 percent in the first quarter of 1994 from 3 1/4 percent in the previous quarter. In response to these unfavorable developments, the authorities introduced in early 1994 a further round of tariff and excise tax reductions affecting some 500 commodities.

Although private fixed investment grew rapidly in 1993, a 50 percent decline in manufacturing investment approvals (especially for projects with foreign participation) may signal less rapid investment growth in the future (Appendix Table 15).

The differential behavior of the investment and GNP deflators was an important factor contributing to the increase in nominal stockbuilding relative to nominal GNP in 1993.

These agreements have a minimum duration of three years and mature on a staggered basis. While the coverage of new collective agreements is relatively low (only 10 percent of the labor force is unionized and, on average, less than one third of the unionized workforce is eligible for a new agreement in any given year), they are nonetheless indicative of the trend in wages in the rest of the economy.

Measured as the weighted average increase in the wages of workers who concluded new collective agreements.

At end-1993, the number of established posts in the civil service (including state and local governments but excluding the military and police) was about 841,000, of which 683,000 posts were filled. The Government is currently engaged in a review of the vacant posts and moved during 1993 to abolish those posts that have been vacant for more than three years. In addition, as part of the effort to downsize the public sector, a reassessment of manpower needs is being made in other areas to partially compensate for new recruitment in the health and education sectors.

See the Recent Economic Developments paper for the 1993 Article IV consultation (SM/93/195).

Despite reductions in income tax rates, the tax buoyancy of corporate and individual income tax revenue has averaged 2.0 and 1.6, respectively, since 1990.

For purposes of classification, all companies that have greater than 50 percent of their equity held by the Government are considered public enterprises and are part of the consolidated public sector. In the mid-1980s, there were 56 nonfinancial public enterprises, but this number was gradually reduced to 42, as of end-1993, through privatization. Of the remaining enterprises, many have substantial private sector equity participation.

The ringgit funds of foreign financial institutions held in noninterest-bearing accounts, referred to as Vostro accounts, were also considered part of the eligible liabilities base for the calculation of required reserves, resulting in a negative effective interest rate on Vostro balances. This latter requirement was lifted in May 1994.

Most of the measures imposed on short-term inflows in January-February were terminated in mid-August 1994. At this time, three measures are still in place.

For a detailed discussion of the development of Malaysia’s capital market, see Annex II of the 1993 Recent Economic Developments paper for Malaysia (SM/93/195).

In addition, all exchange control restrictions governing transactions with South Africa were lifted in September 1993.

See Annex III of the 1993 Recent Economic Developments paper for Thailand (SM/93/99) for a detailed discussion of the AFTA.

Time series data desegregating national saving into its private and public components are not available. However, fiscal data on tax revenue less subsidies and transfers to the private sector may be used to calculate private disposable income, from which private consumption may be subtracted to yield private saving. The residual national saving may then be attributed to the public sector.

EPF saving is calculated as contributions plus accumulated interest on EPF balances, less withdrawals for purposes other than the purchase of housing.

International comparisons of saving rates have to be interpreted with caution because national income statistics are not directly comparable across countries owing to differences in accounting practices.

This relationship must be interpreted with caution, however. Census information on the age structure of the population is gathered only every ten years or so, and data for intermediate years are constructed using interpolation techniques. Consequently, the correlation between the age structure and the time trend is likely to be high and any apparent relationship between demographic structure and saving could be due to the effect of a time trend.

The estimated consumption function was of the form: Δctβ0+β1(ct1yt1)+β2Δy1+β3Wt+β4ΔWt+β5πt+β6ΔTt+β7EPFt+ut,

where c and y are the natural logarithms of real per capita private consumption and private disposable income, respectively, W is the percentage of the population of working age, x is the rate of inflation, T is the terms of trade, and EPF is the ratio of EPF saving to GNP. A Δ in front of a variable denotes a first difference. The equation was estimated over the period 1970-92 using two-stage least squares. Statistically insignificant variables, which included π, T, ΔW, and EPF, were omitted from the final estimated equation. A detailed discussion of the equation is contained in Annex II of SM/94/49.

In a noninflationary steady state with constant terms of trade, πt = 0, Wt = W, and ct = yt = g, where g is the steady state rate of growth, the average propensity to consume (APC) may be expressed as:cyexp{1β1[β0+(1β2)gβ3W}.

As long as β1 < 0, 0 < β2 < 1, and β3 < 0, the long-run APS, which is simply (1 - APC), rises with an acceleration of income or with an increase in the working age population ratio.

Leiderman and Blejer (1988) provide a comprehensive survey of these studies.

A discussion of the framework and its adaptation is contained in Annex III of SM/94/49.

In order to avoid problems of nonstationarity, the equations were estimated in first differences.

By way of comparison, staff estimates for Singapore indicate a high degree of substitutability between public and private consumption and do not reject the joint null hypothesis. Estimates for Thailand indicate little or no substitutability and reject the joint null hypothesis.

References

Other Resources Citing This Publication