World Bank: Untaxed Capital Income!

The World Bank has identified untaxed capital income as a major weakness in Malaysia's tax system. This contributes to the country's low revenue collection despite a progressive personal income tax (PIT) structure. Capital income, derived from the ownership of assets or investments, includes dividends, interest, rental income, and capital gains. Malaysia's PIT structure has high chargeable income thresholds; low tax rates for upper-income brackets, and provides multiple tax reliefs given without an overall cap that reduces taxable income, and a narrow tax scope. 

Source:https://en.m.wikipedia.org

Malaysia’s heavy reliance on direct taxation is quite progressive. But capital incomes, which are highly concentrated and still constitute a high share of the national income, are not taxed, and direct taxation through personal income tax is low, at below 3% of GDP (gross domestic product)," World Bank said in their report. 

The PIT is also designed in a manner that places an inherent limit on its revenue capacity, and compromises the progressivity of the tax burden. The Bank suggested that addressing these issues, including the taxation of capital income, would broaden the tax base, primarily affecting higher-income earners, and consequently increase government revenue. 

World Bank had previously said in October 2023 that Malaysia's PIT revenue collection is limited — standing below 3% of GDP over the past decades, and below 2% in recent years — well below most high-income countries. In its latest report, the World Bank, using estimates from its own simulation model, suggested that reducing taxable income thresholds and applying higher rates to upper-income brackets could boost PIT revenue by RM2.5 billion to RM2.8 billion for the 2024 assessment year. Additionally, introducing a cap on overall relief claims could contribute an extra RM1.1 billion. 

The Ministry of Finance has projected that total government revenue would reach RM339.71 billion in 2025, up from a revised estimate of RM322.05 billion in 2024, driven by increased direct and indirect tax collection. While revenue has grown steadily since a near 15% decline in 2020, the revenue-to-GDP share is estimated to be 16.3% in 2025, slightly below 16.5% in 2024. This ratio has been below 18% since 2015, raising concerns about Malaysia’s increasing dependence on debt to fund its fiscal needs.   

An attractive feature of Malaysia’s tax structure is the untaxed capital income. It is better to leave this untouched. Why can’t the World Bank focus on other tax initiatives like a Tobin tax or widening the “excess profit or windfall tax”. I don’t know. My assessment is that the additional revenue from the initiatives suggested (Tobin or windfall) together with a revised PIT (as proposed by the World Bank) will generate sufficient revenue for development expenditure and avoid any new borrowings! 

Reference:

World Bank: Untaxed capital income, low tax rates for the upper income among key weaknesses in Malaysia's tax system, Yu Jien Lim & Syafiqah Salim, theedgemalaysia.com, 5 February 2025

Petronas: Survival in Question?

Since the enactment of the Petroleum Development Act 1974 (PDA), Malaysia's petroleum revenues have been a significant contributor to the country's economy. The PDA established Petronas (Petroliam Nasional Berhad) as the national oil company, granting it exclusive rights to explore, develop, and manage Malaysia's petroleum resources. Over the decades, petroleum revenues have played a crucial role in Malaysia's economic development, funding infrastructure projects, government expenditures, and national savings.

Petronas has been one of the largest contributors to Malaysia's federal revenue. On average, it has contributed 20-30% of total federal revenue annually, though this figure fluctuates depending on global oil prices and production levels. In recent years, Petronas’ contributions have ranged from RM50 billion to RM80 billion per year, depending on oil prices and production volumes. 

Source: https://en.wikipedia.org

Since its establishment in 1974, Petronas has generated trillions of ringgit in revenue from oil and gas production, exports, and related activities. For example, between 2010 and 2020 alone, Petronas contributed over RM800 billion to the federal government in the form of dividends, taxes, and royalties.

Malaysia's petroleum revenues are heavily influenced by global oil prices. For instance, during periods of high oil prices (e.g., the 2000s and early 2010s), revenues surged, while periods of low oil prices (e.g., 2014-2016 and 2020) led to significant declines. The COVID-19 pandemic in 2020 caused a sharp drop in oil prices, reducing Petronas’ revenues and contributions to the federal government.

Under the PDA, oil-producing states like Sarawak, Sabah, and Terengganu receive a 5% royalty on oil and gas production. This has been a point of contention, as states argue that the royalty is insufficient. The federal government retains the majority of petroleum revenues, which are used for national development, subsidies, and other expenditures.

In 2022, Petronas reported a record profit of RM101.3 billion, driven by high global oil prices following the Russia-Ukraine conflict. This resulted in a significant increase in contributions to the federal government. However, the long-term sustainability of petroleum revenues is a concern, as Malaysia's oil reserves are gradually depleting, and the global shift toward renewable energy could reduce demand for fossil fuels.

While exact figures are not publicly available, conservative estimates suggest that Petronas has contributed over RM2 trillion to Malaysia's federal revenue since 1974. This includes:

(i)              Dividends

Petronas has paid substantial dividends to the federal government, often exceeding RM20 billion annually in recent years.

 

(ii)            Taxes and Royalties

The company also pays corporate taxes, petroleum income tax, and royalties to the federal and state governments.

(iii)     Export Earnings

Malaysia is a major exporter of liquefied natural gas (LNG) and crude oil, generating significant foreign exchange earnings.

 

Meanwhile, Petronas intends to right size its workforce in view of an evolving and increasingly challenging global operating environment, according to its president and group CEO Tan Sri Tengku Muhammad Taufik. 

The number of jobs affected is not known yet, as the new structure will only be out in the second half of the year. Once the structure is out, certain employees will be redeployed to new roles while some will be displaced. The exercise is expected to be completed by end 2025. 

The exercise mainly aims to reduce the number of “enablers” — meaning those in administrative roles — whose ratio relative to the group’s workforce is above the industry average. There are currently 15,000 to 16,000 enablers in Petronas, as opposed to its global workforce of 52,000 to 53,000 people. 

Petronas is not the only oil company that is trimming its staff. International oil giants such as Shell and ExxonMobil have also implemented job cuts recently, hit by rising volatility and the long-term decline of oil prices, amid a global push for decarbonisation and green energy. (Petronas is facing the cessation of its gas aggregator role in Sarawak). 

Shell’s job cuts, announced in September 2024, involved 20% of its workforce in two subdivisions responsible for exploration. ExxonMobil expects to reduce nearly 400 jobs by 2026 as part of its operation integration. 

Petronas’ average cost per barrel is about US$50. Brent crude was trading at US$74 per barrel recently. On top of the long-term downward trend in oil price, market uncertainties include the possibility of lower-cost producer Russia supplying hydrocarbon to its allies, including Petronas’ clients, as well as the chance of a drilling bonanza in the US. 

For the six months ended June 30, 2024, Petronas booked a net profit of RM32.38 billion on revenue of RM156.9 bil­lion. Capital expenditure totalled RM25.72 billion. Its cash balance stood at RM217.44 billion as at end-June, against borrowings of RM114.59 billion, giving it a net cash position of RM102.85 billion. 

Unlike Norway, we don’t have a good sovereign wealth fund. Khazanah supposedly acts like one! And 1MDB was a joke! So, unless we save and invest in “safe” assets we will be like the U.K. or Nigeria – wasted opportunities! 

Reference:

Petronas rightsizing workforce to “ensure survival”, says group CEO, Adam Aziz and Kathy Fong, The Edge Malaysia, 18 February 2025

World Inflation at Risk?

As President Donald Trump threatens tariffs on the US’s trading partners, the worry of another inflation wave troubles global economists. Tariff wars are inflationary, that’s not up for debate. 

While China shows little sign of vulnerability to a price shock for now, the same can’t be said for the rest of the world if some spiral of tariffs unfolds. Multiple economies face latent inflation pressures, either domestic or external. 

In the US, a resilient labour market is keeping the Federal Reserve alert. Trump’s policies threaten to drive bond yields higher. Elsewhere, dollar strength is haunting emerging markets such as Indonesia. Eurozone consumer-price growth has been faster than expected. The Bank of England recently said they may be forced to raise its forecast for inflation. 

Trump’s arrival has added to pre-existing worries. Despite an International Monetary Fund official declaring (in October) that the battle against inflation was “almost won,” attendees at the World Economic Forum in Davos in January 2025 harboured open doubts. 

A Bank of America survey of global fund managers in January showed the re-emergence of global consumer-price growth as a key theme for 2025. The World Bank predicted slowing inflation but still warned that it “could prove to be more persistent than expected.” That chimes with markets. 

For the US in particular, analysts are openly starting to reassess inflation prospects. Morgan Stanley recently scrapped its forecast for a Fed interest-rate reduction in March. That followed Chair Jerome Powell’s remarks recently that officials aren’t in a rush to lower borrowing costs as policymakers pause easing to see further progress on inflation. The potential for increased tariffs complicates that outlook.

Across the Atlantic, the extent of any trade response is to be watched closely if Trump unleashes tariffs. For now, policymakers have downplayed them as a price driver in either direction. European Central Bank President Christine Lagarde has argued she isn’t “overly concerned” about imported inflation and BOE Governor Andrew Bailey has said tariff effects aren’t straightforward to predict. Euro-area inflation unexpectedly accelerated in January, while selling-price expectations rose to the highest level in almost a year for services, and the strongest in nearly two years in manufacturing. Consumers and professional forecasters are less sanguine than policymakers, raising their 2025 inflation outlook. And a Bloomberg poll showed a majority of economists is now more concerned about price pressures exceeding 2% in the medium term. 

What about Malaysia? Tariffs will raise headline inflation but we also have other issues like petrol subsidy rationalisation (RON95), electricity tariff hike and salary increases (for civil servants) to help inflation to 3.5% in 2025 (1.8% in 2024). 

What could we do? Raise interest rates? Defer electricity tariff hike? Defer subsidy rationalisation? Produce more food and essential items locally? We may need to set-up a reserve for the most vulnerable?  All of the above and many more! Remember, this time there is no savings left in EPF for contributors to dip into! 

Reference:

World inflation at risk of rekindling with Trump’s trade war, Jana Randow, Katia Dmitrieva and Enda Curran, Bloomberg, 6 February 2025

Trump’s Trade War: Ways Forward for Malaysia?

US President Donald Trump has fired several tariff shots. Currently, the only one in effect is the 10% tax on China imports. ASEAN countries, including Malaysia, are well-positioned to capitalise any trade diversion. Tariffs have become central to Trump’s economic and political strategy which ultimately raise costs for Americans. 

According to the Peterson Institute for International Economics (PIIE), tariffs from the 2018-2019 US-China trade war were passed on to US purchasers, effectively acting as a tax hike on US households. According to the analysis, Trump’s proposed tariffs would offset his tax cuts plans as bottom 60% of households would face financial setbacks due to higher tariff costs outweighing tax relief. 

During Trump’s first term (2017-2021), ASEAN nations, notably Vietnam, benefited from the US-China trade war due to trade diversion; Vietnam’s exports to the US grew at a compound annual growth rate (CAGR) of 15.9%. Malaysia also saw notable gains (CAGR: 4.6%). With Trump’s new 10% tariff on Chinese imports, similar trade shifts could reemerge, creating opportunities for export-driven Asian economies. 

Industries that could benefit further include: toys, sporting goods (66.5% US import dependency on China), and cell phones and appliances (57.3%). As such, ASEAN countries are again well-positioned to capitalise on this shift. 

President Trump has signed a memorandum calling for “fair and reciprocal” tariffs, directing a country-by-country review; this is aimed at addressing perceived trade imbalances. The overall tariff gap between the US and Malaysia is estimated at 2.3%, indicating no substantial imbalances. Although reciprocal tariffs could generate revenue for the US, the impact is limited, contributing just 0.2% of US gross domestic product (GDP) and only 0.002% from Malaysia. (This is HLIB’s analysis and views) 

Given his unpredictable trade stance, the risk of a blanket 10% universal tariff is not entirely off the table.

The US China trade war in 2018-2020 led to a notable decline in Chinese exports, underscoring the role of trade elasticities in shaping trade flows. 

HLIB’s analysis suggests 0.7/2.0 for lower/upper bound elasticity to access the potential impact on GDP. Hypothetically they say, if Trump impose a 10% global tariff and we utilise a lower trade elasticity of 0.7 is used, Malaysia could see a decline of 0.5% of GDP with the impact potentially rising to 1.6% of GDP over time if trade elasticity strengthens.

Countries with even higher exposure to US trade such as Vietnam, Taiwan and Thailand would likely experience a more pronounced impact. While global trade tariff measures pose potential risks to Malaysia’s economic outlook, the country is well-positioned to withstand these challenges. 

As such, HLIB Research maintains 2025 GDP growth at 4.9% (2024: 5.1%) driven by strong domestic demand drivers, particularly resilient household spending and implementation of public and private investments. This is further reinforced by higher civil wage hikes, an increase in the minimum wage, expanded cash transfers (2025:RM13 bil; 2024: RM10 bil), a robust labour market (December 2024: 3.1%) and a steady pipeline of investments benefiting from government’s incentives packages. 

These factors may serve as key buffers against external headwinds, thus ensuring that Malaysia remains on a stable growth trajectory despite the evolving global trade landscape. 

Reference:

The art of emerging winners from Trump’s trade war: Ways forward for Malaysia, Felicia Ling and Nurul Athira Salith, Focus Malaysia, 17 February 2025

Malaysia Maintains Graft Index Score!

Transparency International Malaysia (TI-M) president revealed that Malaysia’s ranking in CPI 2024 has remained stagnant at the 57th spot, out of 180 countries, after it again scored 50 points. Topping the list was Denmark with 90 points while Singapore was third (84 points), Indonesia was 100th (37 points), and Thailand came in at 111th (34 points).

TI-M believed that the score was due to several factors, including revised jail sentences and fines on high-profile cases, and the high number of “discharges not amounting to acquittals” (DNAAs) given for high-profile cases.

On the alleged corruption involving Sabah elected representatives and whether this could have caused the stagnant performance. TI-M was of the view this may not have been captured when determining the score. That could mean we should have been higher than 57!

The authorities’ alleged slow action over the scandal, remains a challenge under the current Whistleblower Protection Act. The law specifies that a whistleblower can only be protected when he or she complains to enforcement agencies not to other third parties.

Since November, Malaysiakini published a series of articles about several Sabah leaders who allegedly took bribes from a businessperson in exchange for their support for a mineral exploration licence to be granted. Sabah’s Chief Minister dismissed the allegations and said the videos implicating the assemblypersons were edited, though he later suggested that it may have captured discussions about political donations rather than bribes.

Why do corruption cases of elites seem to end in legal limbo instead of accountability? Are there two standards? One for the billions ripped-off and another for a Milo tin? We have a long way to go. And the road is hard and the will is weak. PMX came in with Reformasi but to-date it is difficult to gauge what reforms he has done. It doesn’t take too much to understand that we need a new MACC chief and Parliament oversees it; a revised Whistleblower Protection Act: establish a high-level Corrupt Cases Court and tabulate a yearly progress report for public consumption. 

Reference:

TI-M: Sabah graft scandal might affect M'sia corruption ranking, Hariz Mohd, Malaysiakini, 11 February 2025

Are There Rate Shifts Ahead?

The global interest-rate landscape is entering a period of uncertainty. Diverging monetary policies and geopolitical developments are shaping the outlook. According to RHB Research and UOB Bank, the US Federal Reserve (Fed) and the European Central Bank (ECB) are expected to cut rates in 2025, but the trajectory remains clouded by inflation trends, economic resilience and political risks. RHB Research sees a more aggressive Fed rate cut cycle, while UOB Bank expects a more measured approach. Meanwhile, the ECB appears set on multiple cuts to support the struggling European economy.

Source: https://en.wikipedia.org

RHB Research maintains its forecast of three US Fed Funds Rate (FFR) cuts in 2025, citing inflation uncertainty, a resilient labour market and an elevated current rate. However, UOB Bank takes a more cautious stance, predicting just one cut in 2025.

 

UOB Bank expects rates to stay at 4.25% for the rest of the year, before two cuts next year – one each in 2Q26 and 3Q26 – after Powell steps down as Fed chair in May 2026. This will bring the terminal rate to 3.75% in 3Q26. The debate over rate cuts is shaped by US economic resilience.

 

The return of Donald Trump as president could introduce inflationary risks, with his policies on tax cuts, deregulation and tariffs likely to have “material macroeconomic and financial market impact to the United States and globally”.

 

While the Fed is expected to move cautiously, the ECB appears more committed to easing. RHB Research sees three more ECB rate cuts in 2025. The research house anticipates the next reduction will be in March, with officials possibly dropping their description of rates as “restrictive”. The rationale behind the ECB cuts is a weak economic outlook.

 

It also points out that past ECB comments suggest neutral rates are between 1.75% and 2.5%, implying further room for cuts. The expected rate differentials between the United States and Europe could boost the US dollar in the short term.

 

Trade-related risks arise, with the Trump administration imposing the first wave of tariffs on Canada and Mexico at 25% and China at 10%. These tariffs when implemented could potentially introduce fresh inflationary pressures, complicating the outlook for central banks.

 

With inflation trends still uncertain, geopolitical risks unfolding and policy decisions in flux, the global interest-rate outlook remains anything but settled. As central banks navigate these complexities, every move they make – and every political development that unfolds – will keep markets on edge, ready to recalibrate expectations at any moment.

 

For Malaysia, the likelihood is OPR will remain unchanged at 3% for 2025, unless inflation pressures result in an increase (of OPR). The key is to watch the differentials in real rates between the Fed Fund and OPR. Hopefully, BNM will minimise the differential and keep the exchange rate on even keel.

 

Reference:

Rate shifts ahead, Star Biz7, The Star, 8 February 2025

Loan Fraud Syndicate Involving Bank Officers, Celebrities!

The Malaysian Anti-Corruption Commission (MACC) has uncovered a massive loan fraud and money laundering syndicate through Op Sky, which involved bank officers, a financial consulting firm, and even local celebrities. The scheme targeted blacklisted civil servants who could not get bank loans. Corrupt bank officers referred them to a financial consulting firm, which forged documents to secure multiple loans from different banks. The firm took a 35% cut of the loan amount and invested the rest in its own scheme.

The firm used public figures as ambassadors to promote its services on social media, at roadshows, and even through charity events targeting teachers and government workers. Celebrities allegedly received payments between RM150,000 and RM400,000 for endorsing the firm. MACC also found concert sponsorships and songs commissioned for the syndicate.

Source:https://en.wikipedia.org

MACC’s action so far is as follows:

· 98 bank accounts frozen (over RM22 mil)

· 9 luxury cars, RM300,000 cash, 17 luxury watches, and 5 designer handbags seized

· 27 arrests, including 18 bank officers and 8 consultancy firm employees

Celebrities Implicated in Op Sky include:
1. Datuk Jalaluddin Hassan (Actor)
2. Datuk Dr Sheikh Muszaphar Shukor (Astronaut)
3. Ziana Zain (Singer)

These celebrities have provided statements but are not officially suspects. MACC has now reached the final stage of its investigation.

The scheme is part of a broader loan scheme with commission in single or early double digits. Unscrupulous individuals, firms participate in such shenanigans. How do we reduce these activities? Employing people with integrity is helpful but not a fail-safe solution. Another is to use service “auditors” who may act as “bogus” applicants to flush-out the individuals involved. This must be carefully worked-out with the authorities.

Corruption and greed are not just in banking or finance. It has become pervasive in the eco system. We need a set of courts to adjudicate and dispose quickly cases of corruption in this country. But will we do it?

Reference:

MACC busts massive loan fraud syndicate involving bank officers, celebrities, Focus Malaysia, 9 January 2025

 

World Bank: Malaysia’s Latest Income Inequality Trends!

Malaysia has the highest rate of income inequality among peers nearing high-income status. Intra-ethnic disparity is the biggest contributor despite the widely held belief that wage gaps between races are bigger. This is according to the World Bank’s latest report released on 5 February 2025. 

The Bank said despite pro-poor growth, income is still highly concentrated at the top. Income has grown more rapidly for the poor and for people in the middle of the income distribution, but because they started from a low base, absolute gaps remain. As of 2022, the bottom 20 per cent of people in Malaysia held less than 6 per cent of income, up from just 4.6 per cent in 2004. The share of income held by the Top 20 per cent of the distribution fell from 46 per cent in 2004 to 41 per cent in 2022. In 2022, labour share of income was likely below the 45 per cent target set by the government as part of the Madani Economic Framework.

 

Source: https://upload.wikimedia.org

 \Employment remains the main source of income for Malaysian households. Salaries and wages represent 50–60 per cent of household income, and self-employment income accounts for almost 40 per cent, the Bank noted. The rich, on the other hand, derive additional income from capital, which is not taxed. Capital ownership is highly concentrated among top income earners, with the richest 10 per cent of Malaysian households holding 70 per cent of total wealth, meaning that this outsized income share benefits the richer few. This concentration of wealth and income is reinforced by the differences in skills premium across income distribution. 

The premium to higher education, be it vocational or university, typically results in an upward slope, which means that for the same level of education, richer workers in Malaysia receive a larger return than poorer workers do. Several factors explain the lower return for poor workers.

One of them is that poorer children learn less at school than richer children and tend not to pursue fields that yield high salaries. Many also do not graduate with the skills that are in demand and are usually forced to take up the same types of jobs. Decline in household size among the poor is also likely a factor. 

The Bank noted fertility rates, and consequently household size, have plummeted in Malaysia, especially among the poor. This trend contributed to the decline in inequality in 2004–14, when average household size fell 5.3 per cent. The decline was much greater for households in the poorest 40 per cent of the distribution, particularly households in the poorest 10 per cent, among which average household size fell almost 10 per cent. 

The report said the current inequality level means that the high-income prosperity is not yet within the reach of many people in the country. At 39, Malaysia’s Gini index, a measure of the distribution of income across a population, is higher than that of economies that recently achieved high-income status (mean of 31) and established high-income countries (mean of 30). Malaysia has the third-highest Gini (in the region) after the Philippines and Thailand. (That is a measure of inequality, the higher the figure the more inequal is income distribution). 

We are so focused on growth, that inequalities within each race is causing some social tension. That together with corruption and cost of living are the profound problems facing Malaysia. Madani has not got off the firing line in all three areas and remain distracted by race and religion (or is it ham and socks)? 

Reference:

Malaysia’s latest income inequality trends explained, according to the World Bank, Syed Jaymal Zahiid, Malay Mail, 5 Feb 2025

Will Malaysia Achieve Its 40% Renewable Energy Target by 2035?

In 2021, Malaysia’s Ministry of Energy and Natural Resources announced a goal of 31% renewable capacity by 2025. By 2035, it should increase to 40%. Upon releasing the National Energy Policy, the government pledged to build up 18.4 GW of renewable capacity by 2040. 

GlobalData’s latest report reveals that Malaysia is advancing toward its goal, and there is a real possibility that renewables will account for 40% of the country’s energy capacity by 2035.

Currently, renewables make up 13.3% of the total. The current trajectory reveals that Malaysia is on course to achieve 18.2% renewable energy capacity by 2025. By 2035, its share should rise to 36.4%.

Source: GlobalData

While Malaysia steadily advances towards its targets according to Malaysia renewable energy roadmap (MyRER), its clean energy mix comprises only three renewable sources. These include solar, biopower and hydropower.

According to data by IRENA, Malaysia has 9 GW in installed clean energy capacity, up from 7.5 GW in 2018. Solar accounts for 1.9 GW – the third-biggest in ASEAN after Vietnam and Thailand. The share of bioenergy sits at 0.9 GW. With 6.2 GW, hydropower accounts for the biggest share in Malaysia’s clean energy mix at 69.9%.

Malaysia’s Renewable Energy Resource Potential. Source: IRENA

There are arguments that Malaysia’s conditions are unfavourable to wind power development. The reason is the low wind speeds of around 2 m/s. Although they can get up to 11 m/s in high-altitude regions, the countrywide average annual wind speed is less than the recommended for small wind (4 m/s) and utility-scale turbines (5.8 m/s) to become viable. In total, studies estimate the maximum wind power potential in the country at between 500 MW and 2 GW.

So far, Malaysia’s efforts to expand its clean power mix beyond solar, biomass and hydropower have fallen short. GlobalData’s analysis notes that while the country made efforts to explore geothermal power in 2015 with a 30 MW project, the plans were scrapped. The government also hasn’t prioritised onshore wind due to unfavourable wind speeds during the off seasons. For example, on the country’s east coast, which has the strongest winds, wind speed declines by 50% between seasons. This variability makes it difficult to depend on wind energy. It also explains why Malaysia has just one small 0.2 MW onshore wind plant in operation.

Malaysia’s clean energy market is still in its infancy and remains underdeveloped. As a result, it would need massive investments to get up and running.

IRENA warns that Malaysia would need more ambitious targets to align with a 1.5°C-compatible scenario. By 2030, solar PV alone would have to scale up to 17.1 GW in capacity. This would require around USD 10.8 billion in investments. In total, aligning with a 1.5°C scenario would require energy transition investments to top USD 415 billion by 2050. 

 Selected Technology Scale-up and Investment Needs to 2030

Under 1.5°C Scenario. Source: IRENA

Raising the needed investments would require enhancing the policy support for clean energy and overcoming existing barriers, including project bankability.

Malaysia has launched three key policies to accelerate renewable power deployment: the Renewable Energy Act, the National Renewable Energy Policy and Action Plan and the Sustainable Energy Development Authority Act. Other efforts that the Malaysian government has undertaken include extending the Green Investment Tax Allowance and Green Income Tax Exemption until 2023. For solar leasing companies, the latter measure was extended to December 2026.

“In addition, the government has feed-in tariffs for up to 1 MW capacity and net metering policies in place to encourage the adoption of renewables,” notes Sudeshna Sarmah, power analyst at GlobalData. 

According to Sarmah, encouraging foreign investments towards setting up large-scale renewable projects is among the measures that can further push the country towards achieving its renewable energy goals.

IRENA notes that the Malaysian government can also work to shorten project approval times and improve the financing landscape through new and existing mechanisms like power purchasing agreements and tariff rates to ease and stimulate clean energy project developers. Accelerating grid infrastructure capacity buildup and ensuring its stability and flexibility are also crucial measures for adopting renewables at scale and connecting with neighbouring countries.

While scaling up financing might be a major barrier to Malaysia’s energy transition, it isn’t the only one, as the country’s economy remains heavily dependent on fossil fuels. It is Southeast Asia’s second-largest oil and natural gas producer and the fifth-leading LNG exporter globally.

Source: OurWorldInData

However, according to estimates, the country’s petroleum reserves will last only for another 15 years. While production has become challenging, the country continues to maintain robust natural gas activity with recent investment and planned exploration efforts, according to an analysis by Rystad Energy.

Furthermore, the Central Bank of Malaysia estimates that the country spends around 12% of its GDP on fossil fuel subsidies. This is significantly higher than the global average of 8.1%, and way above most regional peers.

The government has made some progress, including planning to reduce coal reliance by 50% by 2035 and completely retire its plants by 2045. Building upon those efforts would unlock massive economic benefits. 

Considering its potential, Malaysia is lagging in its renewable energy transition. However, the government’s targets promise that this process will accelerate in the near future. By 2050, Malaysia aims for renewables to have a 70% share in its electricity mix. Furthermore, the country plans to take advantage of its rich raw resources, establishing itself as a leader in solar power module manufacturing and advancing in other green industries, such as EV battery development. It will also set up an exchange hub for cross-border renewable energy trading.

With Trump, fossil fuels may have just extended their life cycle. Coal and gas will remain important since the U.S. (President) does not subscribe to climate change. What happens after 2028 is anybody’s guess! Meanwhile, we could “pause” the dismantling or shutting down of coal plants to provide energy security in the immediate term.

 

Reference:

Malaysia nears its 40% renewable energy target by 2025, Viktor Tachev, Energy Tracker Asia, 5 August 2024