Malaysia’s Business-friendly Budget Whetting Appetites for Further Growth
Malaysia has tabled its new budget – and there are opportunities galore for investors hoping to enter a country looking to lure more investments and strengthen its economic resilience amid growing geopolitical tensions. The RM421 billion Madani Budget for 2025 strikes a delicate balance between economic recovery and fiscal discipline and there’s much for both locals and foreigners to look forward to.
Budget 2025 has re-enforced the narrative that Malaysia is firmly on the path towards achieving higher economic growth, as it introduces innovative measures to widen its revenue base and attract more investments.
Prime Minister Datuk Seri Anwar Ibrahim in Oct 2024 tabled an expansionary Budget of RM421 billion in Parliament, announcing a slew of positive figures.
The government has revised its economic growth forecast to 4.8 to 5.3 per cent for 2024, up from 4.0 to 5.0 per cent projected late last year. This in comparison to the 3.7 per cent gross domestic product (GPD) growth in 2023.
For 2025, the government remains optimistic, forecasting growth of 4.5 per cent to 5.5 per cent.
Indeed, even before the Budget 2025 was tabled, the World Bank had raised its forecast for Malaysia’s growth for 2024 to 4.9 per cent, up from the 4.3 per cent prediction made in April.
The World Bank’s lead economist for Malaysia, Dr Apurva Sanghi, remarked at a press briefing: “Overall, the Malaysian economy is in a rather good place. Growth is back — the second quarter growth of 5.9 per cent exceeded expectations. Both approved foreign direct investments (FDI) and domestic investments are on the uptick.”
He noted that Malaysia’s improving political stability, and an increasingly conducive policy environment had boosted investors’ confidence and wooed more investments into the country.
According to the Economic Outlook 2025 report released alongside the Budget, Malaysia posted a growth rate of 5.1 per cent in the first six months, driven by robust domestic demand, a strong recovery in exports, and a thriving tourism sector.
The new Budget, which won approval from many analysts, demonstrated Malaysia’s resolve to improve its fiscal position.
While existing infrastructure projects are allowed to continue, no new big-ticket items were introduced for implementation in 2025.
The Kuala Lumpur-Singapore high speed rail project was not included in the Budget delivery, as the government wants it to be funded by the private sector.
The country’s fiscal deficit was anticipated to narrow to 4.3 per cent of GDP in 2024, from 5.0 per cent in 2023. It is targeted to reduce further to 3.8 per cent in 2025.
“Our commitment to prudent debt management and the transition to targeted subsidies are central to fiscal reform, ensuring a sustainable and strong financial position for Malaysia. This provides a secure foundation for our future economic growth,” said Anwar in his Budget speech.
In response to the Budget, S&P Global Ratings said in a note that Malaysia’s smaller budget deficit for 2025 reflected the government’s continued commitment to gradual fiscal consolidation.
Malaysia’s planned expansion in the sales and services tax to widen revenue growth, as well as the rationalisation in the RON95 petrol subsidy in mid-2025 – which removed subsidies for the rich and upper middle class – would improve its fiscal position, said S&P.
S&P has Malaysia on A-, with a “stable” outlook. Moody’s has given Malaysia’s rating at A3, while Fitch at BBB+.
Ringgit expected to strengthen further
There’s reason for optimism too about the battered ringgit, which experienced new lows in early 2024.
RHB Investment Bank projected the dollar/ringgit rate to strengthen to 1: 4.05 by the end of 2024, and below 4.00 next year, from mid-October’s 4.30.
In fact, the ringgit has been regaining lost strength after Malaysia’s better-than-expected second quarter GDP data. Economic reforms have also boosted investor confidence, and foreign portfolio funds have turned positive on Malaysia.
Other factors have also boosted the ringgit’s performance.
According to Malaysia’s central bank, the move by government-linked companies to repatriate foreign income proceeds has played a significant role. The US Federal Reserve’s 50 basis points rate cut and outlook for further reductions is another factor.
In the third quarter of 2024, the ringgit strengthened 14.4 per cent against the US dollar, according to the central bank.
Promising investment outlook
FDI is expected to continue to stream into Malaysia, particularly in sectors highlighted by Anwar in Budget 2025.
Over the next five years, government-linked companies are set to invest RM120 billion in infrastructure, green energy, and technological innovation.
The Budget also proposes initiatives in rare earth exploration to capitalise on the rising global demand.
And a new paradigm shift to attract FDI that could bring broader economic benefits is being planned, with Anwar’s announcement of a New Investment Incentive Framework focusing on high-value activities.
This new framework is targeted at luring integrated circuit (IC) design services and advanced materials in the electrical and electronics (E&E) sector. It is also directed at sectors that could create high-income jobs, such as in the fields of AI and R&D; and at universities and skills training institutes that develop new courses in AI, robotics, Internet of Things, data sciences, FinTech and sustainable technology.
And amid rising US sanctions on products from China, China-based FDI and investments from China can continue to look to Malaysia as a destination under the China+1 strategy to buffer against US sanctions on China-manufactured goods.
In fact, business-friendly Malaysia is already a top choice for Chinese enterprises due to its strong ties with China, political stability, good infrastructure, competitive labour cost and language advantage, with ethnic Chinese forming 23 per cent of the country’s population.
Penang, in particular, has become a hotspot for Chinese FDI. Penang, which has already developed a high-value semiconductor industry, is emerging to be a manufacturing hub for electric vehicle batteries and other Chinese products.
The selection of Malaysia as a BRICS partner country in Oct 2024 also opens up new trade and investment opportunities with countries in the bloc. The BRICS is a grouping that collectively accounts for a quarter of global trade and 40 per cent of the global population.
As a freshly-minted partner, Malaysia can expect to strengthen bilateral relations with BRICS countries such as Russia, Brazil and South Africa, and expand economic relations with them.
Policy shift on data centre investment
The rakyat (people) won’t be left behind as Malaysia forges ahead with its digital transformation.
On the back of its policy to develop the AI sector and data centres, the country has secured investments totalling US$16.9 billion for the period up to 2038 from global technology giants such as Amazon Web Services (AWS), Microsoft, Google and Oracle, said Anwar in his Budget speech.
But to ensure local firms and Malaysians benefit from these projects, Anwar’s government is modifying its policy.
“Investments in data centres should not be pursued unless they bring tangible added value to the rakyat (people), such as high-paying job opportunities and knowledge transfer. A fresh shift in focus is now essential, ensuring that the support provided yields a multiplier effect that directly benefits the rakyat and the nation,” Anwar told Parliament.
Under Anwar’s premiership, Malaysia has emerged a top destination for data centre investors as it offers four key advantages: cheaper electricity prices, availability of water, tax exemptions, and legal certainty.
Data centre intelligence firm, DC Byte, has predicted that Johor Baru will soon surpass Singapore to become the largest data centre market in the region, growing from virtually zero two years ago.
Revitalisation of Forest City
There’s also a concerted push to re-invigorate Forest City, a mixed property project launched in 2016 with the hopes of housing 700,000 residents by 2035.
The beleaguered project, a joint venture between the Johor state government and China’s Country Garden Holdings Ltd, was targeted at upper-middle-class citizens from China.
However, sales collapsed after Beijing imposed a policy in August 2017 to restrict outflow of funds.
And sales were further undermined by the anti-China rhetoric of former prime minister Tun Dr Mahathir Mohamad, subsequent political crisis in 2020 to 2022, as well as the Covid-19 pandemic.
Until lately, the project in southern Johor had been described as a “ghost town” with few residents and little activity.
Anwar’s looking to change that.
In his budget speech, he announced that Forest City will be a “Duty-Free Island” to promote tourism and stimulate local economic activities.
A tax incentive package for the Forest City Special Financial Zone had earlier been announced to encourage financial services, global business services and fintech.
Additionally, there will be a Single Family Office Scheme to lure family fund management into the financial zone.
Together with the introduction of the Johor-Singapore Special Economic Zone this year, Malaysia aims to spur more economic activities in Johor and foster closer cooperation with Singapore.
With the strong backing of the government and new measures in place to help it lure investments and foreigners looking to set up a second home in Malaysia, Forest City’s fates might take a turn for the better.
The tourists keep coming
Tourism sector has been a key foreign exchange earner for Malaysia. It has further flourished under Anwar, who has sought to adopt a pragmatic stance in geopolitical conflicts.
The introduction of visa-free short-term stay in Malaysia for travellers from India and China has injected life in tourism.
Malaysia is paying particular attention, of course, on China, given the strong spending power of Chinese nationals.
A report by Maybank Investment Bank released in October projected that Malaysia’s tourism expenditure from Chinese visitors may double to over RM30 billion by 2025.
According to the report, Malaysia is capitalising on the Singapore-Malaysia-Thailand route which brings millions of Chinese to the region annually.
In this multi-destination tour, Chinese tourists normally start their journey from Singapore, and then to Malaysia and Thailand. Indeed, these three countries are among the top 10 destinations for Chinese travellers.
Tourism Malaysia has also set an ambitious target of luring five million Chinese visitors for 2025, a goal that is attainable if Malaysia-China ties remain close. In the first eight months of 2024, Malaysia logged in 2,285,785 Chinese tourists, marking a 160 per cent year-on-year increase.
Challenges ahead
But it may not be all smooth-sailing ahead.
Although Malaysia has succeeded in building up strong economic fundamentals, it faces some major challenges ahead.
Domestically, the government has to manage political risk arising from the gradual removal of fuel and other subsidies as this has major impact on the poor. It also has to ensure all racial groups continue to stay in harmony.
Internationally, the geopolitical uncertainties in Europe and conflicts in the Middle East, as well as the rising tension in the Korean Peninsula could undermine economic dynamics.
Additionally, how the Chinese economy performs and the outcome of the US elections are developments that policy makers must monitor closely, as both superpowers have been Malaysia’s leading trading partners.
Despite all these challenges – some of which are being managed and monitored closely – locals and foreigners are generally positive about Malaysia under the leadership of Anwar.
Hot off the press
Women are finding – and creating – more space and opportunities to make themselves seen, heard and valued in workplace and in society. They’re breaking barriers, shattering glass ceilings, and paving the way for a more equitable society.
In our Aug/Sept 2024 issue, we shine the spotlight on women. We look at how far women’s rights and opportunities have come in Malaysia, and speak to outstanding and accomplished women who have made waves with their grit, hard work and heart.
Malaysia’s Business-friendly Budget Whetting Appetites for Further Growth
Malaysia has tabled its new budget – and there are opportunities galore for investors hoping to enter a country looking to lure more investments and strengthen its economic resilience amid growing geopolitical tensions. The RM421 billion Madani Budget for 2025 strikes a delicate balance between economic recovery and fiscal discipline and there’s much for both locals and foreigners to look forward to.
There’s much to cheer about in the year ahead.
Budget 2025 has re-enforced the narrative that Malaysia is firmly on the path towards achieving higher economic growth, as it introduces innovative measures to widen its revenue base and attract more investments.
Prime Minister Datuk Seri Anwar Ibrahim in Oct 2024 tabled an expansionary Budget of RM421 billion in Parliament, announcing a slew of positive figures.
The government has revised its economic growth forecast to 4.8 to 5.3 per cent for 2024, up from 4.0 to 5.0 per cent projected late last year. This in comparison to the 3.7 per cent gross domestic product (GPD) growth in 2023.
For 2025, the government remains optimistic, forecasting growth of 4.5 per cent to 5.5 per cent.
Indeed, even before the Budget 2025 was tabled, the World Bank had raised its forecast for Malaysia’s growth for 2024 to 4.9 per cent, up from the 4.3 per cent prediction made in April.
The World Bank’s lead economist for Malaysia, Dr Apurva Sanghi, remarked at a press briefing: “Overall, the Malaysian economy is in a rather good place. Growth is back — the second quarter growth of 5.9 per cent exceeded expectations. Both approved foreign direct investments (FDI) and domestic investments are on the uptick.”
He noted that Malaysia’s improving political stability, and an increasingly conducive policy environment had boosted investors’ confidence and wooed more investments into the country.
According to the Economic Outlook 2025 report released alongside the Budget, Malaysia posted a growth rate of 5.1 per cent in the first six months, driven by robust domestic demand, a strong recovery in exports, and a thriving tourism sector.
The new Budget, which won approval from many analysts, demonstrated Malaysia’s resolve to improve its fiscal position.
While existing infrastructure projects are allowed to continue, no new big-ticket items were introduced for implementation in 2025.
The Kuala Lumpur-Singapore high speed rail project was not included in the Budget delivery, as the government wants it to be funded by the private sector.
The country’s fiscal deficit was anticipated to narrow to 4.3 per cent of GDP in 2024, from 5.0 per cent in 2023. It is targeted to reduce further to 3.8 per cent in 2025.
“Our commitment to prudent debt management and the transition to targeted subsidies are central to fiscal reform, ensuring a sustainable and strong financial position for Malaysia. This provides a secure foundation for our future economic growth,” said Anwar in his Budget speech.
In response to the Budget, S&P Global Ratings said in a note that Malaysia’s smaller budget deficit for 2025 reflected the government’s continued commitment to gradual fiscal consolidation.
Malaysia’s planned expansion in the sales and services tax to widen revenue growth, as well as the rationalisation in the RON95 petrol subsidy in mid-2025 – which removed subsidies for the rich and upper middle class – would improve its fiscal position, said S&P.
S&P has Malaysia on A-, with a “stable” outlook. Moody’s has given Malaysia’s rating at A3, while Fitch at BBB+.
Ringgit expected to strengthen further
There’s reason for optimism too about the battered ringgit, which experienced new lows in early 2024.
RHB Investment Bank projected the dollar/ringgit rate to strengthen to 1: 4.05 by the end of 2024, and below 4.00 next year, from mid-October’s 4.30.
In fact, the ringgit has been regaining lost strength after Malaysia’s better-than-expected second quarter GDP data. Economic reforms have also boosted investor confidence, and foreign portfolio funds have turned positive on Malaysia.
Other factors have also boosted the ringgit’s performance.
According to Malaysia’s central bank, the move by government-linked companies to repatriate foreign income proceeds has played a significant role. The US Federal Reserve’s 50 basis points rate cut and outlook for further reductions is another factor.
In the third quarter of 2024, the ringgit strengthened 14.4 per cent against the US dollar, according to the central bank.
Promising investment outlook
FDI is expected to continue to stream into Malaysia, particularly in sectors highlighted by Anwar in Budget 2025.
Over the next five years, government-linked companies are set to invest RM120 billion in infrastructure, green energy, and technological innovation.
The Budget also proposes initiatives in rare earth exploration to capitalise on the rising global demand.
And a new paradigm shift to attract FDI that could bring broader economic benefits is being planned, with Anwar’s announcement of a New Investment Incentive Framework focusing on high-value activities.
This new framework is targeted at luring integrated circuit (IC) design services and advanced materials in the electrical and electronics (E&E) sector. It is also directed at sectors that could create high-income jobs, such as in the fields of AI and R&D; and at universities and skills training institutes that develop new courses in AI, robotics, Internet of Things, data sciences, FinTech and sustainable technology.
And amid rising US sanctions on products from China, China-based FDI and investments from China can continue to look to Malaysia as a destination under the China+1 strategy to buffer against US sanctions on China-manufactured goods.
In fact, business-friendly Malaysia is already a top choice for Chinese enterprises due to its strong ties with China, political stability, good infrastructure, competitive labour cost and language advantage, with ethnic Chinese forming 23 per cent of the country’s population.
Penang, in particular, has become a hotspot for Chinese FDI. Penang, which has already developed a high-value semiconductor industry, is emerging to be a manufacturing hub for electric vehicle batteries and other Chinese products.
The selection of Malaysia as a BRICS partner country in Oct 2024 also opens up new trade and investment opportunities with countries in the bloc. The BRICS is a grouping that collectively accounts for a quarter of global trade and 40 per cent of the global population.
As a freshly-minted partner, Malaysia can expect to strengthen bilateral relations with BRICS countries such as Russia, Brazil and South Africa, and expand economic relations with them.
Policy shift on data centre investment
The rakyat (people) won’t be left behind as Malaysia forges ahead with its digital transformation.
On the back of its policy to develop the AI sector and data centres, the country has secured investments totalling US$16.9 billion for the period up to 2038 from global technology giants such as Amazon Web Services (AWS), Microsoft, Google and Oracle, said Anwar in his Budget speech.
But to ensure local firms and Malaysians benefit from these projects, Anwar’s government is modifying its policy.
“Investments in data centres should not be pursued unless they bring tangible added value to the rakyat (people), such as high-paying job opportunities and knowledge transfer. A fresh shift in focus is now essential, ensuring that the support provided yields a multiplier effect that directly benefits the rakyat and the nation,” Anwar told Parliament.
Under Anwar’s premiership, Malaysia has emerged a top destination for data centre investors as it offers four key advantages: cheaper electricity prices, availability of water, tax exemptions, and legal certainty.
Data centre intelligence firm, DC Byte, has predicted that Johor Baru will soon surpass Singapore to become the largest data centre market in the region, growing from virtually zero two years ago.
Revitalisation of Forest City
There’s also a concerted push to re-invigorate Forest City, a mixed property project launched in 2016 with the hopes of housing 700,000 residents by 2035.
The beleaguered project, a joint venture between the Johor state government and China’s Country Garden Holdings Ltd, was targeted at upper-middle-class citizens from China.
However, sales collapsed after Beijing imposed a policy in August 2017 to restrict outflow of funds.
And sales were further undermined by the anti-China rhetoric of former prime minister Tun Dr Mahathir Mohamad, subsequent political crisis in 2020 to 2022, as well as the Covid-19 pandemic.
Until lately, the project in southern Johor had been described as a “ghost town” with few residents and little activity.
Anwar’s looking to change that.
In his budget speech, he announced that Forest City will be a “Duty-Free Island” to promote tourism and stimulate local economic activities.
A tax incentive package for the Forest City Special Financial Zone had earlier been announced to encourage financial services, global business services and fintech.
Additionally, there will be a Single Family Office Scheme to lure family fund management into the financial zone.
Together with the introduction of the Johor-Singapore Special Economic Zone this year, Malaysia aims to spur more economic activities in Johor and foster closer cooperation with Singapore.
With the strong backing of the government and new measures in place to help it lure investments and foreigners looking to set up a second home in Malaysia, Forest City’s fates might take a turn for the better.
The tourists keep coming
Tourism sector has been a key foreign exchange earner for Malaysia. It has further flourished under Anwar, who has sought to adopt a pragmatic stance in geopolitical conflicts.
The introduction of visa-free short-term stay in Malaysia for travellers from India and China has injected life in tourism.
Malaysia is paying particular attention, of course, on China, given the strong spending power of Chinese nationals.
A report by Maybank Investment Bank released in October projected that Malaysia’s tourism expenditure from Chinese visitors may double to over RM30 billion by 2025.
According to the report, Malaysia is capitalising on the Singapore-Malaysia-Thailand route which brings millions of Chinese to the region annually.
In this multi-destination tour, Chinese tourists normally start their journey from Singapore, and then to Malaysia and Thailand. Indeed, these three countries are among the top 10 destinations for Chinese travellers.
Tourism Malaysia has also set an ambitious target of luring five million Chinese visitors for 2025, a goal that is attainable if Malaysia-China ties remain close. In the first eight months of 2024, Malaysia logged in 2,285,785 Chinese tourists, marking a 160 per cent year-on-year increase.
Challenges ahead
But it may not be all smooth-sailing ahead.
Although Malaysia has succeeded in building up strong economic fundamentals, it faces some major challenges ahead.
Domestically, the government has to manage political risk arising from the gradual removal of fuel and other subsidies as this has major impact on the poor. It also has to ensure all racial groups continue to stay in harmony.
Internationally, the geopolitical uncertainties in Europe and conflicts in the Middle East, as well as the rising tension in the Korean Peninsula could undermine economic dynamics.
Additionally, how the Chinese economy performs and the outcome of the US elections are developments that policy makers must monitor closely, as both superpowers have been Malaysia’s leading trading partners.
Despite all these challenges – some of which are being managed and monitored closely – locals and foreigners are generally positive about Malaysia under the leadership of Anwar.
Hot off the press
Women are finding – and creating – more space and opportunities to make themselves seen, heard and valued in workplace and in society. They’re breaking barriers, shattering glass ceilings, and paving the way for a more equitable society.
In our Aug/Sept 2024 issue, we shine the spotlight on women. We look at how far women’s rights and opportunities have come in Malaysia, and speak to outstanding and accomplished women who have made waves with their grit, hard work and heart.
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