Malaysia-Africa Knowledge Exchange Seminar Kuala Lumpur, Malaysia 1 Key Principles of Planning and Financial Management for Growth and Poverty Reduction Malaysia s s Experience Presentation by Datuk Dr. Awang Adek Hussin Deputy Minister of Finance II Ministry of Finance, Malaysia 211 September 2006
Briefing Outline 2 Background Development Planning - Major Policies and Strategies Macroeconomic Performance Poverty Eradication Strategies Restructuring of Society Financial Management and Budget Moving Forward Conclusion
3 The Guiding Parameters DEVELOPMENT PLANNING Small Open Economy Mixed Economic System Multi Racial Society Majority/ Minority Nexus A Federation
4 Malaysia: An Open Economy Trade 230% of GNP FDI about 34% of total private investment High foreign presence in banking and insurance A quarter of stock market foreign-owned No restriction on capital flows Labor force - 15% foreign workers
PLANNING HORIZON & MACHINERY Planning Horizon LONG TERM PLANNING Vision 2020, 1991-2020 First Outline Perspective Plan (OPP1), 1971-1990 Second Outline Perspective Plan (OPP2), 1991-2000 Third Outline Perspective Plan (OPP3), 2001-2010 National Mission, 2006-2020 MEDIUM TERM PLANNING Five-year development plans, such as the Ninth Malaysia Plan (2006-2010) Mid-Term Review (MTR) of the five-year Plans SHORT TERM PLANNING Annual Budget (Ministry of Finance) 5
Other National Plans Outline Perspective Plan (3 (3 rd rd )) Five-Year Malaysia Plan (9 (9 th th )) Industrial Master Plan (3 (3 rd rd ) ) Small & Medium Ind s Dev. Plan National Agriculture Policy (3 (3 rd rd )) Financial Sector Master Plan Capital Market Master Plan Nat. Nat. Science & Tech. Policy (2 (2 nd nd )) K-Economy Master Plan National Integrity Plan Sustainable long-term growth and competitiveness Ensure balanced and equitable wealth Create employment, manage inflation and enhance quality of life Promote ethical values and governance to enhance integrity Help future macroeconomic management by reducing risks 6 Foundation for Growth and National Unity Towards Achieving Vision 2020
Major Economic Policies OPP2 (1991-2000) OPP3 (2001-2010) THE NATIONAL MISSION 2006-2020 National Vision Policy (NVP) National Development Policy (NDP) Vision 2020 Total Development Enhancing Nation s Capability ~ competitiveness, unity, distribution & quality of life Building a Resilient & Competitive Nation: To raise quality of development & generate high sustainable growth Balanced Development : To establish a more united & just society 7 OPP1 (1971-1990) Postindependence 1957-70 New Economic Policy (NEP) Growth with Equity : To eradicate poverty & restructure of society Laissez-faire / export-oriented Economic and rural development
Malaysia s s Growth Experience 8 Decade/Year 1960s 1970s 1988-1997 1999 2000 2001 2002 2003 2004 2005 2006e Real GDP Growth (%) 5.0 8.3 8.5 6.1 8.5 0.3 4.4 5.5 7.2 5.2 5.8 Inflation (%) 1.0 6.0 3.4 2.8 1.6 1.4 1.8 1.2 1.4 3.0 3.7 MINISTRY OF FINANCE
9 Economic Performance (% per annum) 1971-1990 (%) 1991-2000 (%) 2006 (%) GDP 6.7 7.0 5.8 Private Consumption 6.3 5.5 7.1 Public Consumption 7.1 5.5 5.5 Private Investment 9.4 2.9 10.1 Public Investment 10.0 10.5 10.6 Exports 9.2 12.4 7.7 Imports 10.0 11.4 10.0 MINISTRY OF FINANCE
Structure of Production (% share to GDP) 10 100% 80% 60% 40% 29 14 23 20 19 27 9 8 32 31 20% 36 40 43 54 58 0% 1970 1980 1990 2000 2005 Services Construction Manufacturing Mining Agriculture MINISTRY OF FINANCE
% 25 20 15 Current Account of the Balance of Payments and Overall Balance of the Federal Government Account Current Account of BOP Overall Balance of Fed. Govt. (% of GDP) % 15.9 15.9 11 25 20 15 10 8.2 10 5 2.4 5 0-5 -10 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 '01 '03 '05 '07-5.7-3.4 0-5 -10-15 -20-16.7-13.4-9.7-15 -20
Foreign Direct Investment (FDI) Year Direct Investment (Net FDI) (RM million) % Share of Private Investment 12 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 14,585 18,358 17,788 10,647 14,802 14,393 2,105 12,173 9,398 17,572 15,024 21.0 23.1 19.8 24.2 47.2 32.6 6.1 41.4 31.5 44.2 33.9
% 60 50 40 Employment by Sector 1970 1990 2005 13 30 20 10 0 Agriculture Mining Manufacturing Construction Services MINISTRY OF FINANCE
14 15321 15321 409 409 1,495 1,495 2,783 2,783 2,688 2,688 4,460 4,460 888 888 431 431 2,167 2,167 1999 1999 49,201 49,201 1,730 1,730 303 303 Engineers Engineers 109,352 109,352 10,659 10,659 1,011 1,011 Total Total 1,339 1,339 4,290 4,290 11,750 11,750 15,574 15,574 2,608 2,608 3,001 3,001 21,589 21,589 2005 2005 310 310 50 50 Veterinary Veterinary Doctors Doctors 1,309 1,309 32 32 Surveyors Surveyors 1,731 1,731 164 164 Lawyers Lawyers 1,422 1,422 210 210 Accountants Accountants 368 368 74 74 Architects Architects 577 577 32 32 Dentists Dentists 1995 1995 1973 1973 3,212 3,212 146 146 Doctors Doctors Number of Professionals
15 WOMEN IN LABOUR FORCE AND EMPLOYMENT 2000-2005 In 2005, women accounted for 48% of the working age population of 15-64 years The female labour force participation rate increased from 44.7% in 2000 to 45.7% in 2005 The number of women employed increased from 3.3 milion in 2000 to 3.9 milion in 2005 Its share to total employment increased from 35.6% to 36.7% during the same period Women were mainly involved in the manufacturing, wholesale and retail trade as well as the agricultural sectors
16 Registered Professionals by Profession and Sex 2005 Female Male Dentist 43.8 56.2 Lawyers 55.1 44.9 Accountants 57 43.0 Medical Doctors 62.8 37.2 Profession Veterinary Surgeons Quantity Surveyors Architects 66.8 67.4 75 33.2 32.6 25.0 Professional Architects 86.3 13.7 Graduate Engineers 87.2 12.8 Professional Engineers 97.3 2.7 Land Surveyors 99.8 0.2 0 20 40 60 80 100 Per cent
17 Poverty Eradication... MINISTRY OF FINANCE
Major Success to Eradicate Poverty... 18 (% total households) 60 50 40 30 20 10 0 1970 1980 1990 1999 2004 Total 49.3 37.4 16.5 8.5 5.7 Rural 58.6 45.8 21.1 14.8 11.9 Urban 24.5 17.5 7.1 3.3 2.5 Hard-core poor 3.9 1.9 1.2 Note : Poverty Line Income (PLI) revised methodolody for 2004 was RM661 per month in Peninsular Malaysia (household size 4.4); RM888 in Sabah (household size 5.2); & RM765 in Sarawak (household size 4.6). Hardcore poverty is estimated using half of PLI.
POVERTY ERADICATION The Development Programme For The Hardcore Poor (PPRT) Launched in 1989 Involves registration of hardcore poverty group in every district Incidence of hardcore poverty: 0.7% (2004) Four types of projects: - income generation - basic amenities/facilities - human development / values - welfare assistance 19
NGO AND PRIVATE SECTOR CONTRIBUTIONS 20 AIM: Project Ikhtiar (Endeavor Project) NGOs based on Grameen Bank concept loans for small business (RM1,000-RM10,000) beneficiaries are those earning < 2/3 PLI no collateral repayment almost 98% (>80,000 participants) small business loans industrial training & job opportunities educational support for children improved housing
21 Restructuiring of Society... MINISTRY OF FINANCE
Restructuring of Society... 22 DISTRIBUTION AGENDA Creation of Permodalan Nasional Berhad (PNB) in 1978, to promote Bumiputera share ownership in the corporate sector & develop opportunities for suitable Bumiputera professionals to participate in the creation & management of wealth Through PNB, substantial shares acquired in major Malaysian corporations from funds provided by the Bumiputra Investment Foundation were transferred to a trust fund & sold to the Bumiputera in the form of smaller units PNB will ensure that these shares are retained ~ cultivate widespread savings habits and development of entrepreneurship & investment skills of Bumiputera Total fund managed ~ more than RM46 billion with a diversified portfolio of interests that include unit trusts, institution property trust, property & asset management
Restructuring of Society 23 DISTRIBUTION AGENDA Creation of national equity company, the PNB, to promote Bumiputera share ownership in the corporate sector & develop opportunities for suitable Bumiputera professionals to participate in the creation & management of wealth Promoting Bumiputera ventures in the manufacturing & services sectors Provide an enabling environment through incentives & financing to acquire appropriate technology and management expertise Increasing Bumiputera ownership through privatization Enhancing the role of Bumiputera institutions by: Review and streamline functions of trust agencies Development of potential resources such as Malay Reserve Land, Baitulmal and Wakaf asset
THE STRATEGIES TO CREATE BIGGER AND PROSPEROUS MIDDLE INCOME GROUP Increase the income of the lower class group Utilisation of resources will significantly influence productivity and income earning capacities in the modern economic activities. Modernisation and commercialisation of agricultural activities. Intensification of the employment restructuring programmes to create a greater number of successful entrepreneurs. Increasing ownership and wealth among Bumiputera community Enhancing education and training as well as providing more opportunities for Bumiputera to competitively gain employment in higher paying occupation. 24
25 PECENTAGE SHARE OF HOUSEHOLDS BY INCOME GROUP Income Group 1970 1990 2002 2004 Low (RM1,500 and below) 98.6 77.8 35.4 32.2 Middle (RM1,500 - RM3,499) 1.2 18.2 38.4 38.7 High (RM3,500 and above) 0.2 4.0 26.2 29.1
26 Financial Management and Budget... MINISTRY OF FINANCE
Thrusts of Financial Management 27 Budget is used as an instrument to achieve growth, distribution and poverty reduction goals. Malaysia has always ensured that revenue is more than sufficient to cover operating expenditure. Borrowings are generally for development purposes and overall deficit kept below 6% of GDP. Fiscal sustainability - Sustainable deficit Fiscal prudence - Efficiency of budget allocation, periodic review, MBS. - Effectiveness in programs, projects and sector thrusts
Federal Government Financial Position (RM billion) 28 1970 1986 1987 1990 2002 2004 2005 2006 Rev. 2007 Budget Revenue 2.4 19.5 18.1 29.5 83.5 99.4 106.3 120.6 134.8 Operating Exp. 2.2 20.1 20.2 25.0 68.7 91.3 97.7 105.4 112.9 Current Balance 0.2-0.6-2.1 4.5 14.8 8.1 8.6 15.3 21.8 Development Exp. 0.7 7.6 4.7 10.7 35.9 28.9 30.5 35.8 44.5 Loan Recoveries 0.01 0.6 0.6 2.8 0.9 1.3 3.3 1.3 2.5 Overall Balance -0.5-7.6-6.2-3.4-20.2-19.4-18.7-19.3-20.2 % of GDP -3.8-10.6-7.6-2.9-5.6-4.3-3.8-3.5-3.4
3MP '76-'80 4MP '80-'85 5MP '86-'90 6MP '91-'95 7MP '96-'00 2MP '71-'75 50.6 18.3 14.6 14.4 2.9 13.1 7.1 1.9 1.7 10.4 1.5 100.0 9.8 54.4 18.7 13.0 16.0 6.3 14.6 6.2 1.2 5.2 14.2 1.9 100.0 24.9 60.5 16.3 13.6 20.2 9.9 21.5 10.1 1.6 8.5 16.2 1.8 100.0 46.3 64.8 20.8 11.3 21.5 10.2 24.8 16.1 2.6 4.1 7.2 3.2 100.0 35.3 50.6 11.6 7.4 22.5 7.8 24.8 13.4 4.4 3.3 20.1 4.5 100.0 54.7 47.6 8.2 11.4 21.0 5.5 31.6 19.9 3.8 3.4 11.8 9.0 100.0 99.0 8MP '01-'05 38.5 4.6 6.0 19.0 7.5 40.8 25.7 5.6 4.1 13.0 7.7 100.0 170.0 Development Expenditure Gives Priority To Economic And Social Sectors (% to Total) Economic Agriculture Industry Infrastructure Utilities Social Education Health Housing Security Administration TOTAL RM billion Sector 9MP '06-10 44.9 5.7 9.9 16.2 10.9 37.5 20.6 5.4 5.0 10.6 6.9 100.0 200.0 29
2007 Budget: Federal Development Expenditure Security 15.3% (Sectoral allocation, %) General Administration 5.9% 30 Development Budget 2007: RM44.51 billion Social 31.9% Economic 46.8% Of which: Of which: Education 17.8% (RM7.9 b) Health 3.7% (RM1.6 b) Housing 4.8% (RM2.2 b) Transport 16.4% (RM7.3 b) Agriculture 9.3% (RM4.2 b) Communication 0.4% Trade & 3.7% Industry (RM5.1 b)
2007 Budget Highlights 31 Reduction of Corporate Income Tax by 2 percentage points to 27% for the year assessment 2007 and 26% in 2008 Income tax exemption for 10 years on income of a venture capital company that invest at least 50% of its investment funds in seed capital Royal Malaysian Custom and Inland Revenue Board to issue advance tax rulings to ensure certainty of tax treatment and transparency in tax administration Greater incentives and allocation to promote new sources of growth, including biotechnology, biodiesel, ICT, R&D and halal industry Enhancing public service delivery system, including simplifying immigration procedures and improving the quality of public transport
2007 Budget Highlights 32 Examination fees for UPSR, PMR, SPM and STPM abolished. Increase monthly school allowance to students from poor families in Government primary school (from RM30 to RM50) and secondary (from RM50 to RM70) Tax relief on book purchase increased to RM1,000 per year. Computer purchase rebate increased to RM3,000 once in three years. Students scoring 10 A1 in SPM or equivalent from poor families to get college scholarships. One month bonus for civil servants. Those earning up to RM750, two months bonus (minimumrm1,500).)
33 Moving Forward... MINISTRY OF FINANCE
34 Globalization & uncertain external environment Stiff competition in export markets & FDI Private sector led-growth Issues and Challenges Strengthen new sources of growth Delivery system & competitiveness Human capital development and R&D capabilities
35 Downside Risks High crude oil prices Rising inflationary pressures Higher interest rates Slowing world growth and trade Stiff competition for FDI Geopolitical tension
IMD World Competitiveness 2006 36 United States 1 (1) Hong Kong 2 (2) Singapore 3 (3) Iceland 4 (4) Denmark 5 (7) 2006 2005 Japan 17 (21) Taiwan 18 (11) China 19 (31) New Zealand 22 (16) Chile 24 (19) India 29 (39) Thailand 32 (27) South Korea 38 (29) Malaysia 23 (28) Philippines 49 (49) Indonesia 60 (59)
Strategies to Meet the Challenges 37 In this regard, Malaysia has to carve out a niche for itself, taking into account its economic strengths and effectively link up with other economies in the global supply chain. Among the strategies taken are: Venturing into New Sources of Growth Enhancing Competitiveness Promoting Private Investment Increasing Supply of Human Resource Accelerating Transformation to High Technology and Knowledge-based Economy Enhancing International Cooperation for Prosperity
GDP, real prices (%) Overall Economic Performance (2005-2007) 2007) Current prices (RM billion) (USD billion) GNP, current prices ((RM billion) Per Capita (RM) (USD) Purchasing power parity (USD) Inflation (%) Unemployment rate (% labor force) Federal overall deficit (% GDP) Fed Govt. debt (% GDP) International reserves (USD billion) (months of retained imports) 1 January July 2006 2 As at end- August 2006 2005 5.2 495.2 130.8 471.3 18,039 4,763 10,614 3.0 3.5 3.8 46.2 70.5 7.7 2006 5.8 548.4 148.7 525.9 19,739 5,353 11,871 3.9 1 3.5 3.5 44.6 79.3 2 8.1 2 2007 6.0 596.8 161.8 575.2 21,168 5,740 12,666 3.5 3.4 38
Conclusion We should ensure that the policies and strategies are always forward-looking to adapt to the changing environment and benefit from new opportunities that arise. Government policies to benefit all levels of society through more efficient delivery system. Empowering society through utilization of latest innovation and technology as well as providing opportunities for education and training. Education and training is crucial in the creation of knowledge manpower to support the new industries and economic activities and to develop an information-rich society, which is progressive, united and creative as well as possesses other positive values to make Malaysia a developed nation by the year 2020. 39
40 THANK YOU