Malaysia s Response to the Global Economic Crisis and the Way Forward 12 February 2009 (Thursday)

Malaysia s Response to the Global Economic Crisis and the Way Forward 12 February 2009 (Thursday)

GROSS DOMESTIC PRODUCT GROWTH (1971 2009) 15 (%) Oil crisis National Development Policy OPP 2 ( 7. 0 %) Oil hike / 10 11.5 Commodity crash Iraq war / SARS Sub prime crisis 5.0-5.5 5 0.5 3.5 0 '71 '73 '75-5 -10 '77 '79 '81 '83 '85 '87 '89 '91 New Economic Policy OPP 1-1.3 '93 '95 Asian financial crisis '97 '99-7.4 '01 9/11 '03 '05 '07 '09 National Vision Policy OPP 3 2

KEY ECONOMIC INDICATORS: 1997/1998 & 2008/2009 ECONOMIC DATA 1997 1998 2008 2009 (Nov 2008) GDP (real) (%) 7.3-7.4 5.0 5.5 3.5 Income per capita: RM USD Purchasing Power Parity (USD) 12,310 4,376 10,920 12,080 3,079 6,914 26,188 8,184 17,218 26,652 7,508 15,590 National Savings (% share GDP) 37.0 39.9 38.4 37.1 Current Acc. BOP (% share GNP) -6.3 14.0 15.9 4.8 Net International Reserves: USD Mil. Months of retained imports Times of short-term debts 15.7 3.4 3.4 26.2 5.6 5.6 91.4 1 7.4 3.3 91.5 2 7.3 3.3 Exp. goods / services (real) (%) 5.5 0.5 4.0-3.6 Domestic Demand (real) (%) 6.6-25.2 7.5 6.4 Private Investment 9.4-55.2 6.1 0.6 Private Consumption 4.3-10.2 8.2 5.1 Public Investment 8.4-8.4 2.7 26.5 Public Consumption 5.7-8.9 10.5 0.1 Inflation (%) 2.8 5.2 5.4 1.0 2.0 Unemployment (%) 2.5 3.2 3.1 1 4.0 4.5 1 As at 31 Dec 2008 2 As at 15 Jan 2009

KEY ECONOMIC INDICATORS: 1997/1998 & 2008/2009 ECONOMIC DATA 1997 1998 2008 2009 (Nov 2008) GDP (real) (%) 7.3-7.4 5.0 5.5 3.5 Manufacturing 10.1-13.4 4.3 0.8 Services 9.9-0.4 6.9 5.6 Construction 10.6-24.0 3.6 3.1 Agriculture 0.7-2.8 3.9 2.9 Mining 1.9 0.4 1.7 2.3 Industrial Prod. Index (overall %) 10.6-7.2 1.7 1 - Export-oriented industries 9.7-6.4-0.9 1 - Domestic-oriented industries 15.4-14.4 6.7 1 - Sales of manu. goods (overall %) 4.0 17.0 12.0 1 - Primary Production: Crude palm oil (million/tonne) Annual growth (%) 9.1 8.1 8.3-8.3 17.3 1 12.1 16.7-1.8 Rubber ( 000/tonne) Annual growth (%) 953-12.0 886-7.1 1,000 2-8.1 1,221 1.2 Crude oil (barrel/day) Annual growth (%) 713,929-0.5 725,036 1.6 696,152 1 2.0 723,000 3.0 Natural gas (mmscf) Annual growth (%) 3,368 20.4 3,897 15.7 5,596 1-4.6 2,672 2.7 1 Jan Dec 2008 2 Jan Nov 2008

KEY ECONOMIC INDICATORS: 1997/1998 AND 2008 MONETARY AND FINANCIAL (end-period) Money supply (% growth) M1 M3 Interest Rates (%) Overnight Policy Rate 3-month interbank (average at end-period) Base lending rate (average at end-period) Statutory Reserve Requirement (%) Deposits (RM billion) Annual growth (%) Loans (RM billion) Annual growth (%) Loans-Deposit ratio (%) 2 97.9 96.7 74.7 Loans-GDP ratio (%) 215.8 228.9 135.5 Net Non Performing Loans ratio (%) 3 months Risk-Weighted Capital Ratio (RWCR %) 1 BNM Intervention Rate. The Overnight Policy Rate was introduced in 2004 2 As at end November 2008 3 Including Cagamas 4 Total net non-performing loans ratio 5 As at 21 Jan 2009 1997 4.6 18.5 8.70 1 7.78 10.33 13.5 433.6 21.3 424.5 26.6 4.1 3 10.5 1998-14.6 2.7 7.00 1 9.43 8.04 4.0 431.4-0.5 417.1-1.7 13.6 11.8 2008 8.3 11.9 3.25 (2.5) 5 3.61 6.66 2.5 5 972.4 11.9 726.6 12.8 2.2 12.6

WORLD ECONOMIC SCENARIO (Growth % for 2007 2009) 2007 2008 2009 2009 Nov. Revised 2008 (%) Jan. Revised (%) World Trade 7.2 4.6 2.1-2.8 World GDP 5.0 3.7 2.2 0.5 United States 2.0 1.4-0.7-1.6 Euro area 2.6 1.2-0.5-2.0 United Kingdom 3.0 0.8-1.3-2.8 Japan 2.1 0.5-0.2-2.6 South Korea 5.0 4.1 2.0-2.0 Taiwan 5.7 3.8 2.2-4.0 China 11.9 9.7 8.5 6.7 India 9.3 7.8 6.3 5.1 Malaysia 6.3 5.0-5.5 3.5 1.4 Singapore 7.7 2.7 2.0-4.9 Thailand 4.8 4.5 4.0 1.5 Indonesia 6.3 6.0 4.5 3.5 Philippines 7.2 4.4 3.5 1.9 Source: World Economic Outlook, IMF 6

Selected Economic Indicators

INDUSTRIAL PRODUCTION INDEX 2007-2008 % 15.0 10.0 5.0 0.0-5.0-10.0-15.0-20.0 IPI MPI Export oriented Domestic oriented Electricity % 15.0 10.0 5.0 0.0-5.0-10.0-15.0-20.0-25.0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec -25.0 8

BUSINESS CONFIDENCE INDEX Business Confidence Index fell by 45.8 points to 53.8 points in Q4 2008 Source: MIER. 9

CONSUMER SENTIMENTS INDEX Consumer Sentiments Index fell by 17.5 points to 71.4 points in Q4 2008 Source: MIER. 10

CRUDE OIL PRICES and GLOBAL FOOD PRICES INDEX (Monthly/Yearly Growth Rate) USD per barrel USD per barrel 150 125 100 75 50 25 0-25 -50 Index 300 Crude Oil Prices West Taxes Intermediate,USA Tapis Malaysia 75 50 25 0 J F M A M J J O S O N D J F M A M J J O S O N D J F 2007 2008 2009 FAO Global Food Prices Index Index 150 125 100-25 -50 300 USD per barrel WTI: Jan 08 92.98 3 Jul 08 153.12 22 Dec 08 31.41 3 Feb 09 40.78 Tapis: Jan 08 96.74 15 Jul 08 153.12 29 Dec 08 38.14 3 Feb 09 47.3 275 275 250 250 225 200 175 150 125 100 Cooking oil Dairy Grain Sugar Poultry 225 200 175 150 125 100 Total Food Prices 2008 Increased 38.2% (a) Declined -2.8% (b) 75 75 50 2000 2001 2002 2003 2004 2005 2006 2007 2008a 2008b 50 a Forecast in Aug 2008 b Forecast in November 2008 Source: Bloomberg. 11

PRICES OF MAJOR COMMMODITIES (January 2007 - January 2009) Sen per kg 1,500 1,400 1,300 1,200 1,100 1,000 900 800 700 600 500 400 300 200 100 0 RM per tonne 12,000 11,400 10,800 10,200 9,600 9,000 8,400 7,800 7,200 6,600 6,000 5,400 4,800 4,200 3,600 3,000 2,400 1,800 1,200 600 0 Tapis Crude Oil (Right) Rubber J F M A M J J A S O N D J F M A M J J O S O N D J F Palm Oil (Right) Soy Bean (Right) Cocoa J F M A M J J A S O N D J F M A M J J O S O N D J F USD per barrel 150 140 130 120 110 100 90 80 70 60 50 40 30 20 10 RM per tonne metric 0 4,000 3,800 3,600 3,400 3,200 3,000 2,800 2,600 2,400 2,200 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 Tapis Oil: 3 Feb 09: USD47.3 per barrel Rubber: 3 Feb 09: RM4.95 per kg Palm Oil: 2 Feb 09: RM1,740 per tonne Soy Bean: 30 Jan 09: RM1,233.64 per tonne Cocoa: 3 Feb 09: RM8,200 per tonne 2007 2008 2009 Source: DOS Malaysia 12

CONSUMER PRICE INDEX: SELECTED COMPONENTS (2007 2008) % 25.0 Diesel (Right scale) Petrol (Right scale) % 75.0 CPI (%) Food (%) 22.5 20.0 17.5 15.0 12.5 10.0 Transportation Food Restaurant/hotel Utilities 67.5 60.0 52.5 45.0 37.5 30.0 2008 Jan 2.3 3.9 May 3.8 8.2 Jun 7.7 10.0 Jul 8.5 11.2 Aug 8.5 11.7 7.5 22.5 Sept 8.2 12.3 5.0 2.5 0.0 15.0 7.5 0.0 Oct Nov Dec 7.6 5.7 4.4 12.1 11.0 10.4-2.5 J F M A M J J A S O N D J F M A M J J O S O N 2007 2008-7.5 2008 5.4 8.8-5.0 Total CPI -15.0 2007 2.0 3.0 Source: DOS Malaysia 13

S EXTERNAL SECTOR PERFORMANCE RM Billion 70 65 60 55 50 45 40 35 30 25 20 15 10 5 0-5 -10 J '07 Exports External Trade Imports External Trade Surplus (Right scale) F M A M J J A S O N D J '08 F M A M J J A S O N RM Billion 35 33 30 28 25 23 20 18 15 13 10 8 5 3 0 Feb. 2008-3 -5 Times / Months 14 13 12 11 10 9 8 7 6 5 4 3 2 1 0-1 -2 J '07 International Reserves Retained imports Short-term (months) external debt (times) Net International Reserves (Right scale) F M A M J J A S O N D J '08 Jul. 08 Sep. 08 Dec. 08 F M A M J J A S O N D USD Billion 140 130 120 110 100 90 80 70 60 50 40 30 20 10 0-10 -20 Exports RM bil. 47.1 63.3 (-2.8%) (25.4%) International Reserves (USD bil.) 116.3 62.3 (15.0%) 51.8 (Nov) (-4.9%) 125.1 109.7 91.4 Source: DOS Malaysia. 14

Impact on Malaysia s Economy

IMPACT ON S ECONOMY Shrinking exports Lower earnings Sept 2008: 15.1% y-o-y Oct 2008: - 2.6% y-o-y Nov 2008: - 4.9% y-o-y Dec 2008: -14.9% y-o-y Declining crude oil prices Less revenue USD per barrel Tapis WTI 15 Jul. 2008 3 Feb. 2009 3 Jul. 2008 3 Feb. 2009 153.12 47.3 145.29 40.78 Volatility in stock market Sentiment affected KLCI: 1163 points on 31 Jul. 2008 879.67 points on 3 Feb. 2009 16

IMPACT ON S ECONOMY Declining commodity prices: Palm Oil (RM per tonne) Rubber (RM per kg) Average Jul 2008 RM3,363.76 RM10.23 Average Nov 2008 RM1,528.40 (2 Feb 09: RM1,740) RM5.95 (3 Feb 09: RM4.95) Shrinking demand in the manufacturing sector output of export-oriented industries declined Rising unemployment 23,274 total retrenched workers (2008) Domestic demand affected by low business and consumer confidence 17

GDP FORECAST BY SELECTED ANALYSTS/INSTITUTIONS MOF (Nov 2008) MIER (15 Jan 2009) MARC (5 Jan 2009) UBS (22 Jan 2009) RHB Standard Chartered CIMB (Feb 2009) ASLI (22 Jan 2009) CITIGROUP (14 Jan 2009) IMF FITCH OSK (22 Jan 2009) AFFIN (5 Jan 2009) Previous (%) 5.4 3.4 3.5 3.0 n.a. n.a 3.0 n.a 3.1 3.8 n.a 2.7 3.5 Current (%) 3.5 1.3 2.5 0.0 1.5 0.5 0.8 4.0 0.5 1.4 1.5 1.1 2.8 18

IMPACT ON S ECONOMY: GROWTH DOMESTIC PRODUCT (GDP) DEMAND AND SUPPLY (Growth Rate For Year 2008 2009) 2008 2009 (%) Revised Forecast (%) Real GDP 5.0-5.5 3.5 Demand Public Sector 4.7 9.6 Consumption 5.7 6.3 Investment 3.6 13.4 Private Sector 6.6 4.3 Consumption 6.8 4.9 Investment 6.2 1.9 Export 4.7-1.5 Import 5.7 0.3 Supply Agriculture 3.6 2.9 Mining 2.8 2.3 Construction 4.0 3.1 Manufacturing 4.7 0.8 Services 7.1 5.6 GDP* 2008 Q1 7.4 Q2 Q3 6.7 4.7 J-Sep 6.2 Key drivers for growth: - Services sector - Domestic economy - Private sector activities supported by Fiscal and Monetary measures * Nov. 2008 Source: MOF. 19

FEDERAL GOVERNMENT FISCAL POSITION: (RM Billion) 2008 1 (ER) 29 Aug 08 (ER) 2009 2 4 Nov 08 (Rev.) Revenue 161,558 176,220 168,732 Operating Expenditure 150,953 154,170 154,170 Fuel Subsidies 18,100 21,000 13,922 Current Balance 10,605 22,050 14,562 Gross Development Expenditure 46,258 51,729 51,729 Minus: Loan Recovery 1,191 1,229 1,229 Net Development Expenditure 45,067 50,500 50,500 Overall Balance % of GDP -34,462-4.8-28,450-3.6-35,938-4.8 1 ER 2008 2 Forecast 20

Malaysia s Policy Response

STRENGTHENING ECONOMIC RESILIENCE Policy Response: Immediate action to strengthen domestic economy and implement fiscal stimulus package: RM7 billion (4 Nov. 2008) Other countries which have introduced fiscal stimulus packages: United States: Germany: South Korea: China: France: Singapore: USD700 billion (Obama USD819) USD42.5 billion USD25.5 billion USD585 billion USD36.2 billion SGD20.5 billion To ensure continuous credit flow to all sectors of the economy To enhance domestic investment and consumer confidence To ensure purchasing power of the rakyat remains strong To mitigate the impact of unemployment through training programmes 22

FISCAL MEASURES Reprioritise Government projects to focus on those with high multiplier effects and low import content; Upgrading, repair and maintenance: - Public amenities including schools, hospitals, and roads (RM500 million) - Rural roads, jalan kampung, jalan pertanian including in Sabah and Sarawak (RM500 million) - Police stations and camps as well as quarters for armed forces and police personnel (RM500 million) Upgrading and maintenance of public transportation (RM500 million) and expedite implementation of public transport projects such as extension of existing 2 LRT lines and building 1 new line; 23

FISCAL MEASURES Build additional low and medium cost houses and enhance housing programmes (RM1.2 billion) including Sabah and Sarawak; - SPNB (Rumah Mesra Rakyat) 6,500 units - PPRT, KKLW 15,000 units Abandoned housing projects SPNB (RM200 million); Encourage development of Government assets (to unlock the value of assets) through joint ventures and PFI initiatives to ensure steady income stream for Government more than RM5 billion (selected prime land in KL); and Other small maintenance projects (PIA and PIAS) - RM600 million 24

PRIVATE CONSUMPTION Complete registration of welfare recipients based on the revised eligibility criteria by end December 2008; Voluntary reduction of EPF employees contribution by 3 percentage points from 11% to 8% for a 2-year period effective 1 January 2009; Raise ceiling of car loans for civil servants; Government loans for properties in the secondary market without strata title will be allowed; Repayment period for existing Government housing loans to be extended up to 30 years; Additional business premises for small and medium entrepreneurs RM100 million; and Extend business hours for shopping malls and hypermarkets. 25

PRIVATE INVESTMENT Establish investment fund to attract private investment (RM1.5 billion); Facilitate development of health and education tourism particularly in the areas of human capital and immigration as well as simplifying procedures; Abolish the current 10% import duty for cement; Liberalise imports of long iron and steel products both APs and import duties for the construction sector; Allow purchase of commercial properties above RM500,000 by foreigners for own use without FIC approval; Micro financing BNM to provide additional soft loan amounting to RM200 million to commercial banks; 26

PRIVATE INVESTMENT Work permits will also be issued directly to knowledge workers in critical fields as compared to present practice of issuing work permits to their company; and To accelerate the implementation of High Speed Broadband (HSBB) project as a catalyst to spearhead private investment and reduce cost of doing business. Additional RM400 million will be provided. 27

TRAINING AND EDUCATION Enhance training and employment opportunities by providing initial training. A fund of RM300 million to be provided to Growth Corridors; Encourage employment of professionals and skilled Malaysians affected by global financial turmoil (bankers, investment advisors and fund managers) - BNM and SC to coordinate initially; Expedite recruitment of critical service staff in the public sector by way of contract for service. Currently, total critical vacancies in the public sector stand at 18,000 posts; Buying places to train youth in private training institutions RM200 million; Enhance preschool education (PERMATA, KEMAS, Tadika) RM200 million; and Financial assistance to Sekolah Agama Bantuan Kerajaan, missionary schools, SJK Cina and SJK Tamil (RM200 million). 28

MOVING FORWARD Monitor closely global economic developments and the impact on domestic economy Swift implementation of RMK-9 projects and the stimulus package initiatives Project Management Unit established in Ministry of Finance to expedite projects in stimulus package which are to be realised in 2009 Working on additional measures to support the economy Addressing emerging concerns as a result of the global slowdown 29

Thank You