Malaysia’s Fiscal Challenges!

Malaysia is on the right track in reducing its fiscal deficit from a high of 5.5% in 2022 to 4.1% last year and 3.8% this year. But the pace of reduction has been rather slow. This is mainly due to delayed reforms in terms of revenue collection and reigning in of unwarranted expenditure. 

The RM100 handout for every Malaysian above the age of eighteen and the lowering of the pump price for RON95 to RM1.99 per litre is more populist than substantive. In terms of fiscal reforms, one would expect the government to raise tax collections via the introduction of not only new taxes but also by expanding the tax scope and removing unnecessary reliefs given to businesses and individuals.

 

Malaysia’s low tax revenue as a percentage of gross domestic product (GDP) of 12% needs to improve to reduce our dependence on debt to fund government spending. In 2024, Malaysia’s tax-to-GDP ratio fell to 12.4% as total tax revenue expanded by 4.8%, reaching RM240.2bil from RM229.2bil in 2023. The low tax-to-GDP ratio has really been a pain for the government’s reform efforts. The other rigour required is curtailing expenditures and “leakages”. Expenditures are essential but some have been bloated with interference of cronies or an act of political largesse. Leakages have been highlighted yearly by the Auditor General, but no real measures have been seriously implemented. When there is no accountability, the problem repeats. 

The introduction of the Fiscal Responsibility Act (FRA), 2023, includes keeping annual development expenditure at least at 3% or more of GDP; a fiscal deficit of 3% or lower as a percentage of GDP; a debt level at or below 60% of GDP; and financial guarantees not exceeding 25% of GDP. Section 27(1) of the FRA also requires the minister to table a fiscal adjustment plan in Parliament if the fiscal objectives and targets specified in the First Schedule are not achieved. 

According to the government, Malaysia’s debt stood at RM1.3 trillion as at the end of the second quarter of financial year 2025, compared with RM1.25 trillion at the end of 2024, while government liabilities reached RM384.6bil as of June 2025. Based on the 2024 figures, Malaysia’s debt-to-GDP ratio stood at 64.6%. Hence, with an estimated additional net debt burden of RM32bil this year to fund the projected development expenditure of RM86bil, the total federal government debt is expected to rise to RM1.33 trillion. 

According to the 13MP tabled recently, the government is expected to continue to drive the economy with relatively high development expenditure, averaging at about RM86bil per annum, similar to this year’s allocation. 

To support this, the government’s annual borrowings will likely be RM84bil per annum over the next five years, taking total government debt to RM1.74 trillion by the end of 2030. With a lower growth in 13MP period, this statutory ceiling ratio could be under threat. 

Based on data provided in the 13MP, government revenue over the next five years is expected at RM1.82 trillion, while total expenditure is envisaged at RM1.81 trillion, leaving a meagre surplus of just RM12bil. Under the 13MP, the government did not specifically target any new form of taxes other than the proposed carbon tax but reiterated its efforts to widen the scope and rate of the existing, as well as implement the Global Minimum Tax. 

What is lacking sorely is reform of the tax regime and new tax measures to reduce government borrowings and improve inequalities. If we continue with “more of the same” there is no solid end in sight for fiscal improvement but more “firefighting” measures in the annual Budget.

 Reference:

Addressing Malaysia’s fiscal challenges, Pankaj C. Kumar, The Star, 9 August 2025

Semiconductor Tariff Shock!

Local semiconductor companies in the tech supply chain will need to brace for impact since the United States has now voiced its intention to reshore this type of manufacturing back to the US with plans to impose a 100% tariffs on semiconductors. 

While Malaysia’s semiconductor exports to the United States remain exempt from retaliatory tariffs for now, the industry will be severely impacted if tariffs are eventually imposed on this sector.

 

Source: https://semiwiki.com

 

Based on 2024 data, Malaysia’s exports of electrical and electronics (E&E) goods to the United States reached RM119.86bil. Semiconductor exports alone were valued at some RM60.6bil. This industry involves more than 72,000 skilled workers and is supported by over 7,200 local suppliers, comprising mainly small and medium enterprises.

 

Meanwhile, analysts are split on the effect the latest levies will have on the domestic semiconductor industry, noting that Malaysia is not a big-scale manufacturer per se, but is more active in the assembly, testing and packaging end of the production chain.

 

The protectionist stance could accelerate the shift of manufacturing footprints into the United States, particularly among firms seeking to mitigate tariff risks. It sounds inevitable, but to build new plants in the US and find the workers is going to be tough. The cost and time involved in getting this idea going may deter many. And the way forward for us is to diversity and move-up the value chain and leave the US in its primitive state, like Trump himself!

 

Reference:

Semiconductor tariff shock, Daniel Khoo and Keith Hiew, The Star, 8 Aug 2025

The New US 19% Tariff on Malaysia: What Does it Mean?

Only 61% of goods exported to the United States by Malaysia incur the 19% tariff. Most of Malaysia’s exports to the United States are largely not affected. Malaysia’s palm oil, rubber and latex gloves, semiconductors, agricultural commodities like rubber and cocoa, and pharmaceuticals are exempt from the 19% tariff. 

From this point of view Malaysia got of lightly. With product categories such as furniture, Malaysia still has the same relative advantage as it did before the tariffs because competitor exports face the same 19% tariff.

 

 

However, Malaysia has now committed USD 240 billion in commercial transactions over the next five years including USD 150 billion in the purchase of US manufactured equipment, USD 19 billion in Boeing aircraft, USD 3.4 billion purchases in LNG, and USD 70 billion investment in the US economy. In addition, Malaysia must eliminate tariffs on US goods on 98.4% of goods coming into Malaysia from the United States. 

This is an RM 850 billion commitment to the United States, which is just as large as the forecast spending of the 13^th Malaysian plan. Most of the money committed to the US will be by GLCs and not the private sector.  And that means the Government. 

The public may have been falsely assured that the government had not crossed any red lines during the trade negotiations. Trump has undoubtedly demanded the proverbial pound of flesh before agreeing to any tariff reduction. It is lobsided in America’s favour. The worst part of the trade negotiations leading up to the tariff reduction was the disingenuous claim that the government had emerged unscathed. 

We have capitulated to American imperialism. Is this the “Pangkor Treaty of the 21^st century”. There will be growing public outcry when taxes rise to meet the new expenditures and sectors are decimated by American imports. 

Malaysia’s fiscal freedom has been hijacked and, in the end, the people will have to pay for all of this. There is going to be a lot of pressure on the government to increase taxes over the next few years. 

References:

The new US 19% tariff only applies to 61% of Malaysian exports to the United States, Murray Hunter, 8 August 2025

 

A tariff deal wrapped in deception: Malaysia’s costly compromise with the US, P Ramasamy, 6 August 2025

Singapore Sees Surge in Business Liquidations!

 

A growing number of businesses are going belly up in Singapore. More companies were liquidated in the first half of 2025 than in the same period in the last five years. From January to June 2025, 187 firms were forced by the courts to wind up. This is up from 146 in the same period last year and 95 the year before. Industries like food and beverage, interior design and construction have been the hardest hit, say debt collectors and liquidators. Singapore also hit a 15-year high in the number of compulsory liquidations – 307 – last year.

 

Source: https://www.investopedia.com

Liquidation is the last resort as it typically recovers only a fraction of the amount owed - sometimes as low as 10 per cent. The process involves a company’s assets being seized and realised, with the resulting proceeds used to pay off its debts and liabilities. Cash flow problems are a key reason why companies go bust. This means they do not have enough money coming in to cover what they owe, even if they have assets on paper. Businesses also dealt with rising interest rates between 2022 and 2024, with rates beginning to ease only in 2025. 

Challenges such as rental costs, demand uncertainty and manpower will continue to plague businesses. But there is strong momentum in new business formation, with more companies being registered this year than last year. 

Singapore’s economic growth is also expected to weaken in the second half of the year due to global headwinds, which could spill over into domestic oriented sectors such as retail and F&B. In April, the Ministry of Trade and Industry downgraded the country’s gross domestic product growth forecast for 2025 to 0 per cent from 2 per cent.

 

In the US, elevated interest rates helped push Chapter 11 bankruptcy filings to their highest level in eight years in 2024. High volume of restructurings will continue in the first half of 2025. Over the last two years, higher borrowing costs have eroded capital and liquidity for many companies. Softening consumer spending, especially in sectors such as retail and restaurants could push distressed companies in those industries could be pushed over into bankruptcy as a result. 

In Malaysia, data is dated. More than 2,600 cases were report in 2022. About 10% were government-owned companies. About 99% cited inability to repay their loans. Of those wound-up, 59% of the companies belonged to non-Bumiputras. Selangor and Federal Territories had the greatest number of cases. About 50% were in the trade, wholesale and retail sectors. This was followed by those in construction. With growing market uncertainty, it is good for the Government to plan for a stabilisation fund for SMEs. 

Reference:

Singapore sees surge in business liquidations; figure hits 5-year high in first half of 2025, Sherlyn Seah, Louisa Tang, CNA, 31 July 2025 

Restructuring 2025 Outlook, PWC

Rude People Will Not Be Successful in Life!

 

There are at least 5 reasons why rude people will not be successful in life.  These five compelling reasons suggest why rudeness and success simply do not go hand in hand:

1. Deterioration of Relationships

One of the main reasons why rude people will face countless hurdles in life is because of "burnt bridges". Rude behaviour often leads to strained relationships, both personally and professionally. People naturally gravitate towards positivity and kindness, while rudeness pushes them away. When individuals consistently display rude behaviour, they alienate themselves from potential allies, mentors, and collaborators. The deterioration of relationships inhibits growth opportunities, limits networking prospects, and ultimately hampers success.

A study conducted by Harvard Business Review found that individuals who consistently displayed rude behaviour experienced significant negative impacts on their professional relationships, leading to decreased productivity and lower career advancement opportunities. 

Source: https://www.wikihow.com

2. Lack of Cooperation and Teamwork

Success in any field often requires effective cooperation and teamwork. Rude individuals struggle to foster positive working environments and are unable to inspire collaboration among their peers. Their disrespectful demeanour creates a hostile atmosphere that hinders creativity, innovation, and productivity. Consequently, their inability to work well with others impedes their progress and limits their chances of achieving success.

Research published in the Journal of Applied Psychology highlighted that employees who experienced rude behaviour from their superiors or colleagues were less likely to engage in helpful behaviours or provide support to others within the organization.

3. Negative Reputation

One of the main reasons why rude people will fail is because they choose to be "notorious". In today’s interconnected world, reputation is everything. Rude individuals often develop a negative reputation that precedes them in both personal and professional settings. Word spreads quickly, and potential employers, clients, or partners are likely to think twice before engaging with someone known for their rudeness. A tarnished reputation can significantly hinder career prospects and limit success in various aspects of life.

A study conducted by the University of California found that individuals with a negative reputation due to rude behaviour faced substantial difficulties in securing job offers and forming successful business partnerships.

4. Emotional Intelligence Deficiency

Rude people commonly lack emotional intelligence, which is crucial for effective communication, empathy, and conflict resolution. Emotional intelligence entails understanding and managing emotions, both their own and those of others. Individuals who struggle in this area find it challenging to build meaningful connections or resolve conflicts peacefully. This deficiency hampers personal growth and limits success in various social and professional domains.

Multiple studies have shown a strong positive correlation between emotional intelligence and job performance, indicating that individuals with higher emotional intelligence tend to achieve greater success in their careers.

5. Self-Sabotage

Ultimately, rude people often engage in self-sabotaging behaviour that impedes their own progress. This is one of the main reasons why they find it difficult to be successful in whatever they do. Their inability to control their temper or communicate respectfully undermines their potential for success. Whether it be missed opportunities, damaged relationships, or lost credibility, their actions consistently hinder their own advancement.

In conclusion, the negative consequences of rudeness on personal and professional success are undeniable. From deteriorating relationships to a damaged reputation, rude individuals face significant barriers in their pursuit of success. As we strive for personal growth and fulfilment, it is crucial to distance ourselves from rude people and surround ourselves with positivity instead. By embracing kindness, empathy, and respect, we enhance our chances of achieving long-lasting success. 

Reference:

5 Reasons Why Rude People Will Not Be Successful in Life, Tekkaus, 10 August 2023

Structural Issues and the 13th Malaysia Plan (“Plan”)

 

Amidst the “old wine in a new bottle”, Malaysia faces structural issues not addressed in the Plan. Malaysia’s GDP was RM 1.8 trillion in 2023, Sarawak’s GDP was RM 142.35 billion, and Sabah’s GDP was RM 111.9 billion. 

 

A major part of Malaysia’s formal economy is controlled by the government through government linked companies or GLCs. These GLCs control around 55 percent of the market economy.  GLCs are primarily rent-seeking and profit orientated organizations. GLC operations are aided by regulated monopolies, oligopolies, or restricted markets based upon legislated barriers of entry to other competitors. The primary objective of GLCs is to provide the maximum dividends as possible to the government to assist in financing the annual budget.

Although a major part of the private sector is over-run by GLCs, banking, finance, and communications, much of the private sector is based upon long established firms that have grown up over the last 70 years. Most of these firms are in service industries, although there is some manufacturing, construction and agriculture enterprises. Many firms that participate in construction and utilities are politically connected.

 

Foreign investment is primarily focused upon labour-intensive industries, although Penang has successfully developed a chip manufacturing cluster. Overall, very few firms are innovative. Issues of equity/ownership also surface. NEP is still an on-going exercise, which provides the brakes for any growth initiative.

 

Economists insufficiently pay attention to Malaysia’s informal sector. Most of the workforce are either self-employed sole proprietorships or work in MSMEs employing between 2-5 people in agriculture, small manufacturing, or retail activities. These ventures are not sufficiently capitalized, run on ‘hand to mouth’ finance. These firms are based upon low technology, low levels of innovation and think only in the short term. 

 

Malaysia’s formal workforce is made up of approximately 15 million people. According to statistics in 2019, 15.5 percent or 1.7 million worked in government. GLCs employed around 1.3 million people. Wage improvements are pegged to government announcements for the public sector, rather than competitive pressures.

 

As a result of the clearly divided economic sectors in Malaysia, there is a three-tier labour market. Dirty and dangerous low paying jobs done by foreign guest workers, which Malaysians will not work in. The second sector of the labour market is where Malaysians primarily occupy. This runs from semi-skilled right up to corporate managerial positions.

 

The second professional tier is now coming under threat from computerisation, automations, and now artificial intelligence (AI), which is rapidly taking away jobs. This can be seen within the banking sector, and even fast-food outlets where ordering and e-payment systems allows for the reduction of staff at outlet level.

 

The third sector is within the informal sector, where there are no minimum wages and conditions. Those under-employed or not working are not counted in official figures. 

 

Education in general is hindered by the focus upon religious studies, where recent surveys have shown that students spend up to 67 percent of their school time on religious studies. Students in Malaysia are falling behind other countries in the region which focus firmly on STEM subjects.

 

Bank lending practices prevent many MSMEs from obtaining loans to commence or expand their businesses. Lack of collateral is a major issue. Sourcing raw materials for many types of manufacturing, especially where firms develop their own unique products (innovation) is often very difficult where it is required to import large quantities of materials firms can’t finance. This is a major hinderance to the ability of firms to innovate, due to lack of resources.

 

Malaysia’s Cabotage Policy restricts foreign vessels participating in domestic shipping activities in Malaysia, means that firms in Sabah and Sarawak must first send their goods to a port in peninsula Malaysia before shipments can be exported. This makes the cost of potential products cultivated or manufactured in Borneo prohibitive internationally, and vice versa. This prevents Sabah and Sarawak exporting competitively to South-East Asia, especially the coast of China, Hong Kong and Taiwan. This prohibits the growth of export based agricultural industries.

 

GLCs have a management problem. There is a public service culture within many GLCs, where there is little passion for the business by employees. Great enterprises are built on passion, which is sorely absent in some GLCs. This prevents innovation and improvements in productivity.

 

The level of corruption within the Malaysian economy is still high, due to the large number of government-driven business. Connections and favoured clients/suppliers/contractors prevent open and competitive market practices. This also increases the cost of products and services.

 

Wages are in real decline leading to a greater divide between the rich and poor. This is putting pressure on the middle class that grew from the 1990s onwards. The growth of the middle class is slowing due to real wage stagnation.

 

So, there are structural issues like equity holdings, productivity, innovation, pre-ponderance of GLCs and endemic corruption which are not fully addressed. And finally, implementation or execution of plans. It is easier to set targets than to implement them. There is need for an annual review rather than mid-term (review) as practised currently.  Course correction is necessary with growing uncertainties in the marketplace globally. But of course, it is better to plan than not to plan at all!

 

References:

Structural Issues Within the Malaysian Economy: Vital Issues For The 13th Malaysian Plan – Analysis, Murray Hunter, Eurasia Review, 5 July 2025

 

Malaysia aims for 4.5%-5.5% GDP growth under 13th Malaysia Plan 2026-2030; allocates RM430b for development projects, Luqman Amin, theedgemalaysia.com, 31 July 2025

How Does US Trade Tariff Affect Us?

Tariff imposed by the United States on most Malaysian exports could soon pinch Malaysian consumers, not just exporters. From rubber gloves to furniture, palm oil and solar panels, Malaysian-made products that are shipped to the US and later re-exported under global brands, could return with nearly triple the original price tag. 

A rubber glove made in Klang costs RM1 at the factory. Once it enters the US, it is hit with the 19 per cent tariff, bumping the landed price to RM1.19. By the time it goes through importers, distributors and retailers, it could retail for RM2.49 in the US. If that same glove is repackaged or sold as part of a medical kit by a multinational and shipped back to Malaysia, the price might climb to RM2.89 – nearly three times what it originally cost. 

According to The New Straits Times, five key sectors are likely to be affected by the US tariff, despite being revised down to 19 per cent from an initial 25 per cent.

 

·        Gloves: Used worldwide in healthcare; made by companies like Top Glove Corp Bhd

·        Furniture: Major Malaysian export to US retailers

·        Solar panels: Manufactured here, often re-exported

·        Machinery components: Integral to multinational supply chains

·        Palm oil-based products: Common in foods, cosmetics, and industrial goods 

The US has been Malaysia’s third largest trade partner since 2015, according to data from the Malaysia External Trade Development Corporation. 

Last year, total trade went up almost 30 per cent to RM324.91 billion compared to 2023. Exports to the US also went up 23.2 per cent to a record RM198.65 billion in Electric and Electronic products (these include microchips, TVs, phones, refrigerators, air-conditioners, circuit boards, and switchboards), machinery, equipment, and parts as well as rubber products. Imports from the US went up by 42.1 per cent to RM126.26 billion last year. Three key imports of 2024 were E&E products; machinery, equipment, and parts; and chemicals and chemical products.  

The 19 per cent US tariff isn’t just a trade statistic; it’s a global price hike in disguise as part of the global trade route that goes from Malaysia to the US and back to Malaysia at a cost you won’t see coming. That’s why we need a global movement to drop US tariffs to zero! 

References:
Made in Malaysia, taxed in America, sold back at triple the price: Here’s how the US trade tariff could affect us, Malay Mail, 2 Aug 2025 

Hours before trade deal deadline, Trump orders new tariffs for dozens of economies

Malaysia, Thailand and Cambodia now face a reduced tariff rate of 19 per cent, CNA,
1 August 2025