Malaysia - Overview
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Malaysia has the highest debt levels in the region, with spending increasing faster than GDP and the budgetary deficit has been worsening, mainly due to the need of compensating the weakness of private investment and also because the public debt has highly increased. To face this problem, the government has launched a program to perform a progressive revision of subventions in order to reduce its expenditures. The objective is to bring the budget deficit to 3% of GDP by 2015. In addition, the "New Economic Model" (NEM) intended to promote innovation and to increase production profits, was launched together with the tenth five-year plan (2011-2015). The objective of this plan is to double per capita income by 2020. The 2014 budget is trying to reduce the deficit and debt. The aim is to balance the budget by 2020 and maintain debt under 55% of the GDP. The budget involves a programme of remittances, bonuses and welfare aid; a reduction of income tax; an increase of property taxation; measures to simplify access to affordable housing; the introduction of a VAT in 2015; reduction of subsidies; and infrastructure projects.
Malaysia has one of the highest living standards in South-East Asia and a very low unemployment rate (3%). However, the objective of NEM is to double the income per capita from now until 2020. Despite the government's long-term efforts to improve the economic situation of native Malays, the population of Chinese origin continues to maintain its traditional dominance.
Industry contributes to around 40% of the GDP. Malaysia is one of the world's largest exporters of semi-conductor devices, electrical goods and appliances, and the government has ambitious plans to make of Malaysia the main producer and developer of high-tech products, including software. Malaysia is a major outsourcing destination for components manufacturing after China and India. The country has attracted significant foreign investments which have played a major role in the transformation of Malaysia's economy.
The tertiary sector accounts for nearly half of the GDP, which is due mainly to the tourism sector. Malaysia has become one of South-East Asia's major tourist destinations and it is currently the 9th largest tourist destination in the world.
Foreign trade overview
The trade balance is structurally positive. However, the surplus has been declining because exports are growing less rapidly than importas and the prices of the country's exports (palm oil, gas, rubber) are continuing to decline. The surplus decreased from 96b RM in 2012 to 70.6b RM in 2013. Exports should improve in 2014.
The country mainly exports electric and electronic equipment, machinery, mineral fuels and hydrocarbons, animal and vegetable oils and fats, wood and charcoal. The country mainly imports electric and electronic equipment, machinery, fuels and oils, plastic products, iron and steel. Its main trade partners are the United States, Singapore and Japan, followed by China and the European Union.
The authorities want to make Malaysia into a gate to the ASEAN market and the country offers various incentives to foreign companies, notably the status of pioneer company and tax reductions associated to the investment. The country benefits from a high-skilled and English speaking workforce. However, the government maintains a large discretionary power for authorizing investment projects and uses it to obtain the maximum profit from foreign participation and demands agreements that are advantageous in matters of transferring technologies or creating joint ventures.