Diagnosis and Briefing on the Malaysian Economy—Group1 v2.pdf

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1. Diagnosis and Briefing on the
Malaysian Economy GROUP 1

2. CONTENTS
Real Sector1
Monetary&Inflation2
FiscalPolicy3
Financial Sector4
External Sustainability5
Risk6

3. Real Sector

4. Real Sector
GDP The structure of Malaysia economy

5. Real SectorLOGO
private consumption remains the main driver of economic growth

6. appropriately tightened monetary policiesrecent signs of moderation
Actives your Loyal Costumer
Monetary&Inflation：Inflation

7. Monetary&Inflation：Unemployment rateLOGO
•the unemployment rate will
gradually drop to its pre-
pandemic level
•supportive of private
consumption

8. Monetary&Inflation：Exchange rateLOGO
•floating exchange rate
system
•continued to depreciate
during the pandemic
•peak at 2024
•appreciate slightly in 2025

9. Monetary&Inflation：Monetary Policy
•MonetaryPolicy
Stance: accumulative
tightened but still
moderate loose
Actual-Taylor Rule< 0
Actual-Inflation Target Rule< 0
-6
-4
-2
0
2
4
6
Q1-2010 Q3-2010 Q1-2011 Q3-2011 Q1-2012 Q3-2012 Q1-2013 Q3-2013 Q1-2014 Q3-2014 Q1-2015 Q3-2015 Q1-2016 Q3-2016 Q1-2017 Q3-2017 Q1-2018 Q3-2018 Q1-2019 Q3-2019 Q1-2020 Q3-2020 Q1-2021 Q3-2021 Q1-2022 Q3-2022 Q1-2023 Q3-2023
Actual Policy Rate vs Taylor & IT Rule
Inflation Target Rule Taylor Rule Actual Policy Rate

10. the decline in broad money
growth…
the decline in credit of non-financial
corporate growth…
The underlying cost of cumulative interest raise:
Monetary&Inflation：Monetary Policy
3,2
5,1
8,9
3,5
4,5
6,3
4,3
0,0
1,0
2,0
3,0
4,0
5,0
6,0
7,0
8,0
9,0
10,0
2016201720182019202020212022
Nominal Growth of Broad Money-
average M2 (%)
6,1
11,3
6,9
4,6
4,1
3,6
2,3
0,0
2,0
4,0
6,0
8,0
10,0
12,0
2016201720182019202020212022
Credit Growth of Non-financial Corporations
Sector(% )

11. Forecast
Monetary&Inflation：Monetary PolicyLOGO
3,0
3,3 3,3
2,7
1,8 1,8
2,8
3,0 3,0
2,8
0,0
0,5
1,0
1,5
2,0
2,5
3,0
3,5
20162017201820192020202120222023
proj
2024proj2025proj
Central Bank Policy Rate (%)
…tend to stabilize the policy interest rate at a relatively high level in the short term, as the
loose monetary policy stance, and the inflation pressure driving the undervalued effective
exchange rate and the positive output gap…

12. key points for real
sector,monetary&inflation:
slowndown in growth rate
relatively stable inflation(easing)
exchange rate:
depreciation and
appreciation

13. FiscalPolicy
Government Revenue and Expenditures(Percent of GDP)
0,0
5,0
10,0
15,0
20,0
25,0
2016201720182019202020212022202320242025
Government Revenue by Source (Percent of GDP)
Direct Taxes:
Corporate
Income
Direct Taxes:
Petroleum
Income
Direct Taxes:
Individual
Income
Direct Taxes:
Others
Indirect Taxes:
Excise Duties
Indirect Taxes:
Import and
Export Duties
Indirect Taxes:
Sales Tax
Indirect Taxes:
Others
General
government
revenue
Central
Government
Revenue
0,0
5,0
10,0
15,0
20,0
25,0
30,0
2016201720182019202020212022202320242025
Government Expenditure by Category (Percent of GDP)
Central Govt:
Emoluments
Central Govt:
Pension and
Gratuities
Central Govt:
Supplies and
Services
Central Govt:
Subsidies
Central Govt:
Grants and
Transfers
Central Govt:
Interest Expense
Central Govt: Other
Expense
Central Govt:
Development
Spending
General Govt
Expenditure
Central Govt
Expenditure

14. FiscalPolicy
-4,0
-3,0
-2,0
-1,0
0,0
1,0
2,0
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Aggregated Approach: Cyclically Adjusted Primary Balance and Fiscal Impulse
Fiscal Impulse-Aggregated CAPB-Aggregated (% of Potential GDP)
Fiscal Stance and Fiscal Impulse -Aggregated Approach

15. Fiscal Policy
Fiscal Policy Stance, and the
Medium-Term Prospects20212022202320242025
Revenue 18.619.519.6 19.9 20.4
Expenditure 24.325.3 24.8 24.7 24.6
Government Expense 19.818.6 18.2 18.1 18.0
Primary Expense 17.116.1 15.7 15.6 15.6
Interest 2.7 2.5 2.5 2.4 2.4
Government net acquisition of nonfinancial
assets
4.6 6.8 6.6 6.6 6.6
Primary Balance -3.1-3.4 -2.8 -2.3 -1.8
Cyclically Adjusted Primary Balance-
Aggregated
-2.5-3.6 -2.7 -2.2 -1.1
Fiscal Impulse 1.0 1.2 -0.9 -0.5 -1.1
General Government Budget (Percent of GDP)
Primary balance deficit will be much lower, debt baseline relatively smooth, contingent liability
shock bears the largest risk.

16. Key points for
FiscalPolicy
sustainable debt ratio due to lower primary
balance
driven by energy subsidy reform

17. Financial Sector
1,3
1,4
1,4
1,5
1,5
1,6
1,6
1,7
1,7
1,8
16
16
17
17
18
18
19
19
20
2016 2017 2018 2019 2020 2021 2022
Capital Adequacy Ratio and Non-Performing Loans
Regulatory Capital to Risk-Weighted Assets (%)
Non-performing loans (% of total loans)
The capital adequacy and asset
quality remains healthy
Regulatory Capital to Risk-Weighted
Assets of the banking sector stood at 19
percent, with common equity Tier 1
capital ratio at 15.8 percent, which
indicates well above minimum
requirements by the end of 2022.
Asset quality continued to hold up,
with nonperforming loans (NPL) at 1.7
percent of total loans.

18. Financial Sector
The Liquidity of the banking sector
has declined
The ratio of liquid assets to total
assets in banks has dropped to
28.5%, and the ratio of short-term
debt has fallen to 39.6%, indicating
a decline in liquidity in the banking
sector. 0
10
20
30
40
50
60
2016201720182019202020212022
Capital Adequacy Ratio
Bank Liquid Assets to Short Term Liabilities (%)
Liquid Assets to Total Assets (Liquid Asset Ratio)

19. Financial Sector
Overall, the Financial Sector remains
healthy
The liquidity of the banking sector
has declined

20. Externalsustainability
Balance on Goods is the largest component of CAB
-15
-10
-5
0
5
10
15
20
-15
-10
-5
0
5
10
15
20
25
30
19901992199419961998200020022004200620082010201220142016201820202022
Current Account and Components (% of GDP)
Balance on Goods Balance on ServicesPrimary Income, net Transfers, netCurrent Account Balance-Right Axis

21. Externalsustainability
FAB:InvestmentVS International reserves
-15
-10
-5
0
5
10
15
20
-20
-15
-10
-5
0
5
10
15
20
25
19901992199419961998200020022004200620082010201220142016201820202022
The Financial Account (% of GDP)
Direct investment, net (fdi) Portfolio investment, net
Other investment, net Change in international reserves (- = decrease)
Financial Account

22. Externalsustainability
The Current and Financial Account balances
will decline
-15
-10
-5
0
5
10
15
20
199019921994199619982000200220042006200820102012201420162018202020222024
The Current and Financial Account Balances (% of GDP)
Current Account Balance (% of GDP) Financial Account Balance (% of GDP)

23. Externalsustainability
CAB Surplusecause increasing reserves
0
20
40
60
80
100
120
140
-20
-10
0
10
20
30
40
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024
International reserves
Stock of Reserves (bil US$)-Right AxisChange in Reserves (mil US$)-Left Axis

24. External
Sustainability
Net exports will lead to a
current account surplus,
more likely to see further
expanding on international
reserves.

25. Risk
Fiscal Sector Assessment
Vulnerability Assessment
Key Area Impact Description
1. Relatively high debt-to-
GDP ratio
Could hamper fiscal
sustainability
Relatively high and gradually rising debt levels
under the baseline erode fiscal buffers and leave
Malaysia exposed to shocks.
2. Large contingent liabilityIncrease fiscal risks
Malaysia’s contingent liabilities include
government loan guarantees (GG) granted to non-
financial government-related entities to execute
mainly infrastructure and other strategic projects.
As of 2022, GG amounted to 17.8 percent of GDP,
with a weighted average maturity at 10.9 years.
About 65 percent of all GG (11.5 percent of GDP)
are committed, whereby the government
provides financial assistance in the form of
temporary cash flow support during construction,
working capital assistance, interest repayment or
subsidies to ongoing projects.
Risk Assessment
Nature of RiskLikelihood (H,M, L) Expected Impact on Economy
Domestic
1.Fiscal risks from public
debt and continget
liabilities (Short-to-
medium-term)
M = Medium (10% -
30%)
Higher financing costs for the sovereign; a
relatively high public debt; and realization of
contingent liabilities would exacerbate concerns
about public debt sustainability and could lead to
an adverse feedback loop of spikes in domestic
interest rates and exit of foreign investors.
External
1. An increase in oil prices
M = Medium (10% -
30%)
Oil prices increase would induce higher
uncertainty, could weigh on economic activity,
and put pressure on fiscal policy given reliance on
oil revenues and also a large subsidy.
H = High (30% -50%)
M = Medium (10% -30%)
L= Low (below 10%)

26. Risk
risk The possibility andtransfer The expected impact of the risk Recommended countermeasures
under extraneous risks
The U. S. economic
growth has suddenly
slowed or plunged
into a recession
MiddleThe debt scale of the United
States has repeatedly reached new
highs, and the continuous high interest
rate has suppressed household
consumption and investment. If Japan
and other US Treasury holders continue
to sell the financial crisis on a large
scale
MiddleThe United States is one of Malaysia's
largest trading partners. The financial and
economic conditions of the United States are
closely related to the Malaysian economy, and the
US economic downturn and even the outbreak of
the financial crisis will directly impact the
Malaysian economy
Diversify foreign exchange reserves,
reduce dependence on the US dollar,
accelerate economic integration in
Southeast Asia, and enhance the ability
to fight the impact of economic crisis
Geopolitical conflictHighPopulism has soared, and conflicts
between races and nations have
increased
MiddleInterruption of international logistics or
prolonged transportation time, and the political
instability of the trade market disrupts normal
trade activities
Actively expand the global market, seek
trade market diversification, and reduce
the trade dependence on key
commodities of a single country
Reverse globalizationHighThe global economy is accelerating
to "de-risk", supply chains and
industrial chains are being rebuilt, and
trade protectionism is rising
HighThe frequency of trade sanctions directly
affects imports and exports, and tariff barriers
ignoring international trade rules and non-market
restrictions based on "national security" tend to
separate Malaysia's trade links with traditional
markets
Carefully participate in the global
economy and accelerate the
diversification of industrial and supply
chains.

27. Thank you & Questions
GROUP 1