1 ECONOMIC MANAGEMENT AND PROSPECTS · on optimisation and reprioritisation of operating and ... ,...

ECONOMIC MANAGEMENT AND PROSPECTS

• Overview

• PerformanceReview–2016

• FiscalOperations

• MonetaryandFinancialDevelopments

• Updateonthe2016Budget

• InformationBox1:AffordableHousing

• EconomicManagement–2017

• InformationBox2:TheImpactof1MalaysiaPeople’s AidProgrammeonPrivateConsumption

• FeatureArticle1:TheConnectedEconomy

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2 ECONOMIC REPORT 2016/17

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3ECONOMIC REPORT 2016/17

ECONOMIC MANAGEMENT AND PROSPECTS1

Overview

Malaysia progressed further towards its vision of ahigh-incomeandadvancednationdespiteheightened

uncertainties in the external environment.Global growthremains moderate, weighed down by volatility in thefinancial market, prolonged low commodity prices andslowergrowthinadvancedeconomies.Giventhedegreeofopenness,theseuncertainties,toacertainextent,willimpacttheMalaysianeconomythroughtradeandfinancialchannels. Against this backdrop, on 28 January 2016,theGovernmenttookpre-emptivemeasurestorecalibratethe2016Budget to sustain economicgrowth andmoreimportantly safeguard the wellbeing of the rakyat. Withthe addition of 11 new measures to the 2016 Budget,coupledwiththenation’sstrongeconomicfundamentals,gross domestic product (GDP)will remain on its growthtrajectory, recording 4% – 4.5% in 2016.

The programmes andmeasures introduced in the 2016Budget to address cross-cutting issues have madesignificant progress, resulting in a GDP growth of 4.1%in the first sixmonthsof the year.On thedemandside,privateconsumptionand investmentactivitiessupportedgrowth,whilethesupplysidewasdrivenbytheservicesand manufacturing sectors. With better prospects forglobal growth and international trade, the Malaysianeconomyisprojectedtogrow4%–5%in2017.Growthwillemanatemainly fromdomesticdemandunderpinnedby strong economic fundamentals aswell as supportedby rakyat-centric and pro-growthmeasures in the 2017Budget.

Performance Review – 2016

Malaysia’s4.1%growth in the firsthalfof2016 (January– June 2015: 5.3%) was mainly driven by domesticdemand,whichgrewatasteadypaceof5%(January–June2015:6.3%)onaccountofprivatesectorspending.Private consumption expanded 5.8% (January – June2015: 7.7%), mainly driven by the stable labourmarketandincomegrowth.Grossfixedcapitalformation(GFCF)increased3.2%(January–June2015:3.9%),mainly ledbyprivate investmentactivity,whichgrew4%(January–June2015:7.4%).ThesurplusinthegoodsandservicesaccountofthebalanceofpaymentsnarrowedtoRM31.8billion (January – June 2015: RM42.8 billion) followingweak global demand and declining commodity prices.

Onthesupplyside,allsectorsof theeconomyrecordedpositive growth except agriculture. The services sectorgrew 5.4% (January – June 2015: 5.7%) spurred by

higheractivityinthewholesaleandretailtrade;informationand communication; as well as food & beverages andaccommodation subsectors. The manufacturing sectorgrew4.3%(January–June2015:4.9%),mainlysupportedby electrical and electronics (E&E) and resource-basedproducts subsectors.Theconstructionsectorexpandedfurtherby8.4%(January–June2015:7.6%)underpinnedby higher activity in the civil engineering and residentialsegments.Meanwhile,theminingsectorgrewatamoderatepace of 1.4% (January – June 2015: 7.8%) on accountof lower output of crude oil. In contrast, the agriculturesectordeclined6%(January–June2015:0.3%)due tolower output of crude palm oil (CPO) and rubber.

Fiscal Operations

The Government remains committed to maintaining thefiscaldeficit at3.1%ofGDP in2016.The2016BudgetRecalibrationwasapre-emptivemeasure inresponsetothesignificantdeclineingovernmentrevenuefollowingthesteady drop in oil price. The oil price hit an all-year lowofUSD26.39perbarrelinJanuary2016.TherecalibrationexercisewasnecessarytoensurethattheGovernment’sfiscal target remains on track. The recalibration focusedon optimisation and reprioritisation of operating anddevelopmentexpenditurestoensurethattheGovernment’sfinancial position remains intact without impacting thegrowth target. Various revenue enhancement measureswere also introduced to generate additional income tocushion the loss of revenue. These include optimisingrevenue from the redistribution and bidding process oftelecommunicationspectrum,enhancing foreignworkerslevy, relaxing the income tax penalty and reducing taxleakages at duty-free islands. Also, the recalibratedbudget emphasised on strategic measures to boostexports,attractinvestmentandstimulatetourismineffortsto generate higher economic activity. The recalibrationalso introducedseveralmeasures to increasehouseholddisposable income, especially the low-income group.

The Fiscal Policy Committee (FPC) plays a vital role indetermining theMedium-TermFiscalFramework (MTFF).Inefforts tostrengthen the institutionalcapacityof fiscalmanagement, the FPC during its second meeting inMay 2016 established the Fiscal Risk and ContingentLiability TechnicalCommittee. ThecommitteecomprisesrepresentativesfromMinistryofFinance(MOF),EconomicPlanningUnit(EPU),PublicPrivatePartnershipUnitofthePrimeMinister’s Department andBankNegaraMalaysia(BNM). The committee is responsible for evaluating theGovernment’sfiscalrisksandcontingentliabilitiesaswellas proposing appropriatemeasures.

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Monetary and Financial Developments

Themonetary policy stance remains consistent towardsachievingpricestabilityandsustainablegrowth.Financialintermediationactivitiescontinuetobewell-supportedbysound financial institutions and ample liquidity. Effective1 February 2016, BNM reduced the Statutory ReserveRequirement(SRR)from4.00%to3.50%toensuresufficientliquidity in the domestic financial system. TheOvernightPolicyRate(OPR)wasalsoreducedfrom3.25%to3.00%on 13 July 2016 to ensure the economy continues togrowonasteadypath.Inthefirsteightmonthsof2016,inflation rose 2.3% compared with the correspondingperiod last year, led by an increase in prices of foodand non-alcoholic beverages, housing,water, electricity,gas and other fuels as well as alcoholic beverages andtobacco. During the same period, the ringgit advancedagainstmostmajorandregionalcurrencies,amidmonetaryeasing measures in major economies and improvementin global crude oil prices.

In2015theMalaysiancapitalmarketwasthefourth-largestintheregionintermsofpercentageofGDP.Asatend-July2016, the capitalmarket has grown to RM2.8 trillionwiththe Islamic Capital Market accounting for 60.7%. On 20April2016,theGovernmentsuccessfully issued itsfifthUSdollar-denominated global sovereign sukuk amounting toUSD1.5billion.Theunderlyingassetsofthesukukcomprised100%non-physicalassets, representingabreakthrough inthedevelopmentof innovativeproducts in Islamicfinancialmarket.Malaysiaretaineditspositionastheleaderinglobalsukuk,accountingfor53.4%orUSD180billionoftheglobalsukuk outstanding, as at end-June 2016.

Update on the 2016 Budget

The2016Budgetwiththetheme“ProsperingtheRakyat”prioritised five main strategies, namely strengtheningeconomic resilience; increasing productivity, innovationand green technology; empowering human capital;advancing bumiputera agenda; and easing the costof living of the rakyat. A sum of RM265.2 billion wasallocated for the year with RM215.2 billion (81.1%) foroperatingexpenditure (OE)andRM50billion (18.9%) fordevelopment expenditure (DE). However, in response tothe significant drop in crude oil prices which adverselyaffectedtotalrevenuecollection,theexpenditureenvelopewas revised downwards by RM13.1 billion to RM252.1billion.Ofthis,RM207.1billion(82.2%)wasallocatedforOE and RM45 billion (17.8%) for DE.

First Priority: Strengthening Economic Resilience

Given the nation’s degree of openness, it is imperativefor the economy to withstand the impact of externalshocks. In thisrespect, the2016Budget introducedfive

measurestostrengthenthecountry’seconomicresilience.The measures include boosting domestic investment;invigoratingcapitalmarket;energisingsmallandmediumenterprises (SMEs); improving infrastructure; as well aspromoting and strengthening economic activity.

Measure 1: Boosting Domestic Investment

Several newprojectswere introduced in the2016Budgetto boost domestic investment. Among the projects werethe Malaysia Vision Valley (MVV), KLIA Aeropolis, KedahRubberCityandPalmOilJetty.TheMVVisapublicprivatepartnership (PPP) project covering an area of 152,530hectaresfromNilaitoPortDickson.Asatend-August2016,theComprehensiveDevelopmentPlan for the projectwasfinalised,whiletheMasterConceptPlanisbeingprepared.TheprojectisexpectedtocommenceinOctober2016andwill be completed by 2020. Another project is the KLIAAeropoliscovering526.1hectaresinSepang,Selangor.TheMaster Plan review commenced on 13 March 2016, andthe studywas completed inSeptember 2016.

Kedah Rubber City is a flagship project to create aworld-class integrated city. Located at Ladang BukitKetapang, Kuala Nerang, Kedah, this project will focuson developing core rubber industries producing highvalue-add downstream products from both natural andsynthetic rubber.A sumofRM320millionwasallocatedin 2016 for the project and as at end-August 2016, asum of RM60.5 million was expended. The project isexpected to be completed by 2021. The PalmOil Jettyproject in Sandakan, Sabah involves an allocation ofRM20million.The jettywill facilitateexportsand importsof palm oil-related products. Construction works areexpected to commence in November 2016 and will becompleted by September 2018.

Khazanah Nasional Berhad will invest RM6.7 billion innine high-impact domestic projects in sectors such ashealthcare,education,tourismaswellascommunicationsoftware and infrastructure. Healthcare projects includenew hospitals and extension of existing hospitals underIHHHealthcareBerhadinMediniIskandar,KualaLumpur,Klang,MelakaandKotaKinabaluaswellasanewinpatientrehabilitationhospital inKlangValley.Meanwhile,tourismprojects are theDesaruCoastDestinationResortwhichis expected to be launched by the end of 2016 andthe development of Dataran Muzium and Tugu Park inKualaLumpur. Inaddition,RM90millionwillbe investedin Iskandar Malaysia to attract RM2.2 billion additionalprivate investment in the Business ProcessOutsourcingsubsectorby2020.KhazanahhasalsoestablishedanewTourismVentureFundofRM50millionforqualifiedtourismentrepreneurs insubsectorsofeco-tourism,culturalandheritage tourism as well as Sonneratia Capital, a RM50million co-investment fund, to finance the production oflocal content for exportmarkets.

Otherongoingprojectsunderthepreviousbudgetincludethe Petronas Pengerang Integrated Complex (PIC) andSamalaju IndustrialPark inSarawak.ThePICwill house

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oil refineries, naphtha crackers, petrochemical plantsas well as a liquefied natural gas (LNG) import terminaland a regasification plant. RM28.4 billion was allocatedfor the project in 2016 and as at end-August, a sumof RM13.6 billion was utilised. On completion in 2019,PIChas aplannedcapacity toproduce300,000barrelsof refined petroleum products per day and threemilliontonnes of ethylene, propylene, C4 and C5 olefins peryear.Uponcompletion,theproject isexpectedtocreate4,000 employments.

Samalaju IndustrialPark (SIP) coveringanareaof8,000hectares in Sarawak is being developed with facilitiesand utilities like deep sea port, reliable power supply,coastal trunk road and sewerage treatment plant. As atend-August2016,RM1.7billionwasexpendedontheseprojects and the SIP is expected to be completed by2018.TheSIPfocusesonnewenergy-intensiveindustriesandotherdownstreamactivities.Since2009,theSIPhasattracteda totalofRM70billion investmentandcreatedmore than 50,000 jobs.

Measure 2: Invigorating Capital Market

Towards invigoratingthecapitalmarket,theGovernmentannounced incentives in the form of tax deduction onissuancecostsofSustainableandResponsibleInvestments(SRI)Sukukand20%stampdutyexemptiononShariah-compliant loan instruments to finance the purchase ofhouses.ThetaxdeductionontheissuanceofSRISukukis effective from the year of assessment 2016 to a yearof assessment 2020. Meanwhile, the 20% stamp dutyexemption is effective for housing financing instrumentsexecuted on or after 1 January 2016 but not later than31 December 2017.

Measure 3: Energising Small and Medium Enterprises

TowardsenergisingSMEs, theShariah-ComplianceSMEFinancing Scheme (SSFS) was established in 2012 toprovide financial assistance to Malaysian SMEs. In the2016Budget,anadditionalRM1billionwasallocatedfortheSSFS.Theapplicationperiod for theassistancewasextended to 31 December 2017 with the Governmentsubsidising 2% of the financing profit rate. Since itsinception until July 2016, a total of 1,175 SMEs haveappliedfortheschemeandfinancingamountingtoRM2.2billionwasdisbursed.Atthesametime,rebatesamountingto RM47.3millionwere paid to 822 eligible SMEs.

A total of RM71.3 million was allocated in the 2016BudgetfortheimplementationofHighImpactProgrammes(HIPs)undertheSMEMasterplan.Theseamongothersinclude the Technology Commercialisation Platformwhereby a total of 110SMEswere selected, ofwhichten companies have commercialised their products.At the same time, the bottom 40% households (B40)grouphavealsobenefittedfromtheInclusiveInnovationProgramme. Since its inception in 2015, MalaysianInnovation Foundation has engaged 55 communities,vettedthrough430innovationsandapproved16projects.

In addition, the Go-Export Programme has benefitted127 companies with export sales of RM30.3 milliongenerated. Meanwhile, the Entrepreneur AccelerationScheme under SME Bank was launched in March2016 with an allocation of RM20 million to providefinancing to eligible SMEs to further develop theirbusiness, accelerategrowthand innovation.Currently,SMEBank isengagingwithparticipantstounderstandtheir business challenges.

TheSMETechnologyTransformationFundwaslaunchedinMarch2016withanallocationofRM200milliontoSMEBank toprovidesoft loansat4% interest.The loansaretofacilitateSMEs,toenhancetheirtechnologies,improveprocessefficiencyandcostmanagementaswellaspenetratetheexportmarket.OtherprogrammestoassistSMEsarethe Small Retailer Transformation Programme (TUKAR)and Automotive Workshop Modernisation (ATOM). Bothprogrammes were continued in 2016 with an allocationof RM18 million. TUKAR modernise traditional retailstores, while ATOM transforms the automotive serviceand repair workshops. As at end-August 2016, a totalof2,277shopsweremodernisedunderTUKAR,and806workshopswere transformed under ATOM.

As an additional measure under the 2016 RecalibratedBudget, the Government announced that developmentfinancialinstitutions(DFIs)andGovernment-ownedventurecapitalfundswouldincreasetheirfundsbyRM6billionforSMEsand start-up companies.As at end-August 2016,EXIM Bank has approved RM478.3 million as bankingloansandRM1.7billion in insurancecoverage toSMEs.MAVCAP through GOBI MAVCAP ASEAN SuperseedFund, LPwith a fund size of RM60millionwill invest inearly stageprivateequityandequity-related instrumentsin information technology andmedia telecommunicationin the Association of Southeast AsianNations (ASEAN).As at end-August 2016, seven investee companieswithan investmentsizeofRM12millionhavebenefitted fromthefund.Atthesametime,CradleFundSdnBhd(Cradle)continues the Cradle Investment Programme Catalystand the Cradle Investment Programme 500 to facilitatethe transformation of innovative technology-based ideasinto commercially viable business and to help start-upcompanies with technology-based products or servicesto obtain financing. As at end-August 2016, CradleFund disbursed grants totalling RM89.2million for bothprogrammesandRM1.1millionofequity funding to794entrepreneurs.

Measure 4: Improving Infrastructure

The Government continues to improve transportationinfrastructure, including highways, rail and airports. Toreduce traffic congestion in Kuala Lumpur, work onJalanTunRazakTrafficDispersalProjectcommenced inSeptember 2016.At the same time, constructionworkson Damansara – Shah Alam Elevated Expressway andSungaiBesi–UluKlangElevatedExpresswaycommencedin August 2016 and will be completed by 2020. Theprojects are implemented through a PPP.

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TheMassRapidTransit(MRT)andLightRailTransit(LRT)are among the biggest projects in the nation’s history. ThefirstphaseofMRTSungaiBuloh–KajangLine(MRTLine1SBK),fromSungaiBulohtoSemantanisexpectedto start operations by December 2016. The remainingalignment fromSemantan toKajang is on schedule andwill be operational by July 2017. The MRT Line 1 SBKwill serve as a corridor for a population of more thanonemillion.ConstructionworksonthesecondMRTline,theSungaiBuloh–Serdang–PutrajayaLine (MRTLine2SSP)commenced in thesecondquarterof2016.Thefirst phase of the MRT Line 2 SSP, from Sungai BulohtoKampungBatu is expected to start operations in thesecond quarter of 2021. The remaining alignment fromKampung Batu to Putrajaya Sentral will be operationalin the second quarter of 2022. The MRT Line 2 SSPwill serve as a corridor for a population of around twomillion. Meanwhile, the Ampang and Kelana Jaya LRTLineextensionprojectswerecompletedandoperationalinJune2016.Workon the36kilometre (km)LRT3orLRTBandar Utama – Klang Line is expected to commenceby end 2016 and be operational by 2020.The Kuala Lumpur – Singapore High-Speed Rail (HSR)is an alternative mode of public transport connectingsevenmajor cities and towns inMalaysia to Singapore.TheMemorandumofUnderstandingbetweenSingaporeandMalaysiawassignedon19July2016.ThestationsthathavebeenidentifiedareBandarMalaysia,Putrajaya,Seremban,AyerKeroh,Muar,BatuPahat,IskandarPuteriandwill traverseacrossStraitsof Johor toJurongEast,Singapore. The distance of HSR is approximately 350km and is expected to commence operations by 2026.

Efforts are also underway to upgrade infrastructure andfacilitiesatvariousairports.EarthworksonMukahAirportinSarawakwerecompletedinSeptember2016.Phase2of the project which involves the construction of a newterminal, runway and other related facilities is in pre-construction stage and is expected to be launched inFebruary2017.Similarly,upgradingofSultanIsmailPetraAirport in Kota Bharu is in the pre-construction stage.Meanwhile, a feasibility study for the extension of therunwayatBatuBerendamAirportinMelakacommencedinAugust2016andwillbecompletedbyNovember2016.

Infrastructuredevelopmentinruralareaswillbeaccelerated.Inthisregard,asatend-August2016,asumofRM564.2million was expended to build and upgrade 301 km ofrural roadsnationwide.At thesametime,RM200millionwas allocated for the upgrading of roads and drainagesystem in Federal Land Development Authority (FELDA)settlements.Asatend-August2016,FELDAhascommitteda sum of RM151.6 million for the building of 866.1 kmof roads in the settlement. Another RM742 million wasallocated for theRuralElectrificationProject.Asat end-August2016,asumofRM418.7millionwasexpendedonthisproject,benefitting17,730residents.AnotherRM308.9millionwasallocated for theRuralWaterSupplyProject.As at end-August 2016, a sum of RM184.8millionwasexpended, benefitting 11,105 rural residents.

IneffortstointensifydevelopmentinSabahandSarawak,the Pan Borneo Highway from Teluk Melano to Miri inSarawak which covers a total of 1,089 km is ongoing,and as at end-August 2016, a total of 270 km wascompleted. In Sabah, construction work on the 1,236kmhighwayfromSindumintoTamparuli,TuarantoKudatand Ranau to Tawau is in progress. As at end-August2016, a total 117 kmwas completed.

TheGovernment has allocatedRM1.2 billion for variousprojectsandprogrammesto improve telecommunicationinfrastructure. These include the Suburban Broadband(SUBB)projectwhichincreasedthecoverageandspeedof broadband capacity at suburban areas up to 20megabitspersecond (Mbps).Asatend-August2016,atotalof147,286portswereinstallednationwide.Anotherinitiative to improvebroadbandquality is theFibreOpticNetwork Expansion. As at end-August 2016, a total of432 km of fibre optic backhaul network was upgradednationwide.A total of 13,402portswere installedunderRural Broadband (RBB) to provide fixed coverage withspeed up to 4 Mbps at selected locations. In addition,1MalaysiaPeople’sCableSystem(SKR1M)initiativewhichinvolves the installation of submarine fibre optic cables,the construction of Submarine Cable Landing Centres(SCLC) and other related works to connect PeninsularMalaysia, Sabah and Sarawak began in 2014 and isexpected to be completed by 2017.

Measure 5: Promoting and Strengthening Economic Activity

Thetourismindustryisoneofthekeydriversofeconomicgrowth.Towardsenergisingtheindustry,variousprogrammeswere implemented, including Malaysia Inbound TourismAssociation (MITA) Tourism Fair 2016 and MalaysianAssociation of Tour and Travel Agents (MATTA) Fair2016. As at end-August 2016, a total of RM8.4 millionwas expended on these programmes. Another initiativeto attract tourists is the online visa application systemwhich was implemented on 1 March 2016 at the costof RM600,000. Currently, the electronic visa (e-Visa) isavailable fornationalsofBangladesh,China,HongKong,India,Indonesia,Myanmar,Nepal,PakistanandTaiwan.Asatend-August2016,atotalof113,930e-Visaapplicationswere processed. The Government is targeting to attract30.5million tourists in2016andasat end-June2016,atotal of 13million tourists have visitedMalaysia.

The Government will continue to ensure adequate andaffordable food supply while creating employment andgenerating income for the rakyat. In this regard, varioushigh-impact programmes such as fruit and vegetablecultivationaswellascagefishfarmingwereimplementedinLahadDatu,Sabah;TasikTemenggor,Perak;andKotaTinggi,Johor.Targetedproductionfortheseprogrammesis 67,307metric tonne and creation of 2,038 new jobsby the year 2020 compared with its current productionof 8,493 metric tonne and employment of 466 people.As at end-August 2016, a sum of RM37.3 million wasspent on these programmes.

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TheupgradingofdrainageandirrigationintheIntegratedAgricultural Development Areas (IADAs) is to ensuresufficient water supply for paddy as well as protectagricultureareasagainstcoastalfloods.Itcomprisesseveralprogrammesincludingmodernisationof irrigationsystemforpaddy,developmentofWaterSourceProgrammeandfloodmitigationprogrammesinsevenexistingagricultureareas aswell as four new IADAs inPekan andRompin,Pahang;KotaBelud,Sabah;andBatangLupar,Sarawak.As at end-August 2016, RM114.7million was spent onthese programmes. At the same time, the Governmentcontinues toprovidesubsidies totallingRM70million foragricultural inputs, including fertilisers and pesticides toincrease hill paddy production as well as improve theincomeof farmers inSabahandSarawak.The incentivecovers an area of 71,000 hectares of which 60,000hectaresare inSarawakand11,000hectares inSabah.As at end-August 2016, RM17.6 million was expendedbenefitting 16,154 farmers.

TheGovernmentiscommittedtoimprovingandstrengthenthenation’sexportpromotionprogrammes.Inthisregard,theMalaysiaPromotionProgramme,ServicesExportFundandMarketDevelopmentGrantwereintroducedinthe2016Budgetwith a launching fundofRM80million.MalaysiaPromotionProgrammepromotesMalaysianmanufacturedgoods, services, tourism and investment under oneroof and is currently available in Shanghai, London andMelbourne. Meanwhile, Services Export Fund providesreimbursable grants and soft loans to service providersexpandingandventuringintointernationalmarkets.Asatend-August2016,atotalofRM19.1millionwasdisbursedto 47 service providers.

ToacceleratethecapacityofSMEsandMid-TierCompanies(MTCs)toexportgoodsandservices,particularlyexportreadycompaniesventuringintonewproductsandnewmarkets,theGovernmentcontinueswithseveralprogrammes,includingtheGo-ExportProgrammeaswellasMid-TierCompaniesDevelopmentProgramme.Asatend-August2016,atotalofRM24.3millionwasdisbursedtostakeholders.Furthermore,toenableMalaysiancompanies topenetrate internationalmarketswherecompliance to internationalstandards isaprerequisite,incentivefortheestablishmentofIndependentConformityAssessmentBody(ICAB)wasannouncedinthebudget. ICAB offers independent conformity assessmentservices on conformance to international specificationsor safety standards. The guideline is available from theMalaysian Investment Development Authority’s (MIDA)website from 13May 2016.

In the 2016 Budget Recalibration, the Governmentannounced several additional measures to safeguardthe wellbeing of the rakyat. In this respect, to boosthouseholddisposableincome,theemployees’contributiontotheEmployeesProvidentFund(EPF)wasreducedby3%beginningMarch 2016 until December 2017.As atend-August 2016, 44% of EPF members have optedfor this option.At the same time, to assist themiddle-incomehouseholds, a special tax relief ofRM2,000 forindividual taxpayerswithamonthly incomeofRM8,000

orbelowwasannounced.Thisspecialtaxreliefprovidestwo million taxpayers with savings up to RM475 pertaxpayer.

SeveralmeasureswereintroducedtostrengthenGovernmentfinances.Toreduceleakages,effective1November2016,the selling channel of cigarettes and liquor is limited toduty-freeoutletslicensedbytheRoyalMalaysianCustomsDepartment (RMCD).Meanwhile, free duty treatment onimportedvehiclesinduty-freeislandsofLabuan,LangkawiandTiomanwastightened.Anothermeasuretooptimiserevenueisthroughspectrumreallocationbyredistributionand bidding process. In line with the Government’sprudent spending initiative, the Guideline on MeasurestoOptimiseGovernmentSpendingwas issued inMarch2016 on overseas travel, utilities, event management,office rental, outsourcing and personnelmanagement.

Second Priority: Increasing Productivity, Innovation and Green Technology

Productivity increased during the Tenth Malaysia Plan(10MP) but lags behind many advanced economies.In the next four years, productivity is targeted to grow3.7%. In this respect, three measures were introduced,namely accelerating innovation and entrepreneurship;leveraging advancements in technology; and inculcatinggreen technology.

Measure 1: Accelerating Innovation and Entrepreneurship

The Ministry of Science, Technology and Innovation(MOSTI)wasallocatedRM1.3billiontomakethenationacompetitivetechnologyhubintheregion.Asatend-August2016,asumofRM37.3millionwasexpendedonvariousprogrammes, including theHumanCapital DevelopmentProgramme in Science, Technology and Innovation(STI). In addition, the Commercialisation of eDirectorywhich provides information on research, developmentand commercialisation was introduced. Meanwhile, theScientificCommitteeonAntarcticResearch(SCAR)2016with the theme “Antarctica in the Global Earth System:From the Poles to the Tropics” was successfully heldfrom 20 to 30 August 2016.

To spur commercialisationof research anddevelopment(R&D)productsbylocalresearchinstitutions,theMalaysianInnovationAgency(AIM)throughtheStrategicInvestmentsin Innovative Companies Programme has committedinvestmentamountingtoRM276.7millionin11companies,acrossmultiplesofNationalKeyEconomicAreas(NKEAs).In2016,anadditionalRM50millionwasallocatedtoAIM,andasatend-August2016,RM32millionwascommittedfor investment in fivecompanies.AnotherRM200millionwas allocated byMalaysiaDebt VenturesBerhad (MDV)for the Funding Scheme for Technology and InnovationAcceleration to create regional champions. As at end-August2016,asumofRM30millionwasearmarked forfinancing to four companies.

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IneffortstomakeMalaysiaaleadingregionalentrepreneurshiphub,anallocationofRM35millionwasmadetoMalaysianGlobal Innovation and Creativity Centre (MaGIC). In thisrespect,severalprogrammes,includingASEANCentreofEntrepreneurship (ACE), StartUp Exchange Programme,MaGIC Accelerator Programme, StartupDB and MaGICCentral were implemented. ACE is a one-stop serviceplatform for South-east Asian start-ups for networkingacross the region. As at end-August 2016, ACE hasestablished links with ASEAN and non-ASEAN partnersincludingRehobothBusinessIncubatorintheRepublicofKoreaaswellas theASEANEntrepreneurFoundation inHong Kong. ACEwill also be implementing the StartUpExchange Programme with its regional partners GlobalEntrepreneurship Program Indonesia in Indonesia andc-ASEAN in Thailand. This programme will commencebeginning third quarter 2016.

Atthesametime,MaGICAcademyandSocialEnterpriseAcademy has upskilled and trained more than 13,000entrepreneurs through more than 180 workshops andboot camps held across six cities in the country. Also,an exclusive partnership was established with StanfordUniversity where 90 entrepreneurs have gone throughthe e@Stanford and Stanford Go2Market programmestovalidateandstrengthentheirbusinesses.Furthermore,12 Malaysian university lecturers were sent to StanfordUniversity as part of the Stanford Technology VenturesProgramtoimproveeducationinentrepreneurship.Besidesthat,MaGICAcceleratorProgrammeprovidesaccess toparticipants tomentorshipandworkshops from industryexperts and seasoned entrepreneurs. As at end-August2016,MaGICAcceleratorProgrammeadmitted150start-ups from more than 20 countries. MaGIC also offersa co-working space in MaGIC Cyberjaya campus thathouses more than 150 entrepreneurs to enhance theentrepreneurshipecosystemacrossMalaysiaandisintheprocessoflaunchingBorneo744,acreativeentrepreneurshiphub inKuching.MaGIChasalso launchedStartupDB,acomprehensivedatabaseofstart-upinformationtoprovideglobalvisibilitywithmorethan2,000businessesregistered.A comprehensive resource portal (MaGIC Central) toowassetup toconnectentrepreneurs toagencies.Asatend-August2016,asumofRM29millionwasexpendedon these programmes.

Measure 2: Leveraging Advancement in Technology

SME Bank allocated RM500 million in 2016 for theIndustrialised Building System (IBS) Promotion FundFinancingProgrammetopromoteIBSintheconstructionsector. The programmeprovides soft loans toSMEs forthe purchase of fixed assets, renovation of factory andworking capital. As at end-August 2016, loans totallingRM15millionwas expended.

Measure 3: Inculcating Green Technology

The Government is committed to reducing the intensityof greenhouse gas emission to 40% of GDP by 2020from the 2005 level. Among programmes under this

initiative is the Electricity Mobility Action Plan includingenergy audit process. Energy audit and retrofit on air-conditioningsystemandlightingsystemsonGovernmentbuildingsareongoing.ThetotalallocationfortheprojectwasRM26.1million and as at end-August 2016, a sumof RM5.3millionwas spent.

The Green Technology Financing Scheme (GTFS) wasestablished in 2010 to accelerate the expansion ofgreen technology industrybyprovidingeasier access tofinancing. Under the scheme, the Government provides60% guarantee on loans or financing amount and arebate of 2% on interest or profit rate charged byfinancialinstitutions.ProjectproponentscanbeusersandproducersofgreentechnologyandcanapplyforloansorfinanceuptoRM10millionandRM50million,respectively.Since its implementation, a total of 509 applicationswere processed by GreenTechMalaysia carrying a totalprojectvalueofRM20.8billionwithatotalGreenTechnologycost of RM7.8 billion. The scheme was extended until31 December 2017. As at end-August 2016, a totalo f 226 pro jects were f inanced at a tota l costRM2.4 billion.

Third Priority: Empowering Human Capital

Human capital is an important contributor to economicgrowth. Recognising its importance, the 2016 Budgetintroduced five measures to empower human capital.The measures are improving the quality of education;strengthening higher education; transforming technicalandvocationaleducationandtraining(TVET);empoweringyouth, community and non-government organisations(NGOs); and creating a quality workforce.

Measure 1: Improving Quality of Education

UndertheMalaysianEducationBlueprint2013–2025,asumofRM41.3billionwasallocated in2016tobuild30primary, 27 secondary and five fully residential schools;fourMARA Junior ScienceColleges (MRSM); aswell asto provide basic facilities and infrastructure. As at end-August2016,constructionworks isat thepre-executionstage.AnallocationofRM500millionwasalsoprovidedtonationalschools,national-typeChineseschools,national-type Tamil schools, religious schools, fully residentialschools, national religious assisted schools, registeredSekolah Pondok and national-type Chinese secondaryschools or Conforming schools for the developmentand maintenance of education facilities. At the sametime,variousprogrammesare inprogress inpre-schoolsnationwide. These include the National Key Result Area(NKRA):Education-PreschoolProgrammewhichaspirestoincreasenationalpre-schoolenrolment rateand improvetheoverallqualityofpre-schooleducation.Concurrently,as at end-August 2016, a sum of RM12.9 million wasexpendedonPre-SchoolPer-capitaGrant,whileanotherRM66.6millionandRM3.2millionwasspentonPre-School

CHAPTER 1.indd 8 10/15/16 12:06 AM


Food Aid and Pre-School Curriculum Aid Programmes,respectively.Theseprogrammeshavebenefitted200,699pre-schoolers in 6,048 Government and Government-aided schools.

Severalinitiativeswereintroducedtoincreaseproficiencyin Malay and English languages including curriculumtransformation, capacity building and engagement ofconsultants, experts and assistant teachers. As at end-August 2016, a total of 100 Fulbright English TeachingAssistantsfromAmericanUniversitieswereplacedin100schoolsineightstatesnamelyKedah,Kelantan,Pahang,Perak,Perlis,Sabah,SarawakandTerengganu.Towardsimproving the students’ passing rate in the MalaysianCertificateofEducation(SPM)EnglishPaper,170teachersinuppersecondaryschoolsinallstatesarescheduledtoattend the English Proficiency Enhancement in SchoolsProgramme(PPKBIS).Atthesametime,theDualLanguageProgramme(DLP)andHighlyImmersiveProgramme(HIP)were introduced to improve English proficiency amongstudents.Asatend-August2016,atotalofRM4.6millionwas spent on the DLP involving 296 daily schools, 15religious schools and68 full boarding schools.After theimplementationoftheHIPpilotprogrammein94schoolsin six states, namely Negeri Sembilan, Pahang, Perak,Perlis,SabahandSarawak,theprogrammewasexpandedto an additional 1,106 schools nationwide in July 2016.

TheRM100schoolingassistancetoallstudentswasalsocontinued toease theburdenofschoolingexpenses forhouseholds with monthly income below RM3,000. Asat end-August 2016, RM324.5millionwas disbursed to3.2millionstudentsacrossthecountry.Furthermore,thesupplementary food programme which initially providedmeals during recess time to students from low-incomefamilies was expanded to include breakfast. As at end-August 2016, RM315.7 million was expended on thisprogramme benefitting 547,110 students nationwide. Inaddition,theRM2501MalaysiaBookVoucher(BB1M)wasprovidedto1.2millionstudentsinprivateandpublichighereducationalinstitutions,includingpre-universitystudents.

Measure 2: Strengthening Higher Education

TheGovernmentcontinuedthescholarshipprogrammesthrough several ministries, namely the Public ServiceDepartment(JPA),MinistryofEducation(MOE),Ministryof Higher Education (MOHE) and Ministry of Health(MOH).TheprogrammesunderJPAincludetheNationalScholarshipProgramme,SpecialEngineeringProgramme,BursaryProgramme,Post-BursaryProgramme,DomesticDegree Programme and B40 Bursary Programme. Fullscholarships were provided under the B40 BursaryProgramme, while others are convertible loans. As atend-August2016,RM684millionwasexpendedbenefitting48,830 students. Scholarships under the MOE wereprovided through various programmes including theFederalScholarshipProgramme,BursaryProgrammeandExcellentStudentProgramme.Asat end-August2016,

a sum of RM133.1 million was disbursed benefitting159,483students.Under theMOHE,scholarshipswereprovidedforBumiputeraAcademicTrainingScheme(SLAB),Sub-SpecialisationandPost-Doctoral (SKPD),MyBrainScience,SportsandCommonwealthprogrammes.Asatend-August2016,asumofRM62.2millionwasdisbursedbenefitting 2,307 students.Meanwhile, scholarshipsbytheMOHwereprovidedmainly formedicalofficersandparamedic training. As at end-August 2016, RM153.5million was disbursed to 3,822 MOH personnel and14,884 trainee paramedic.

Measure 3: Transforming Technical and Vocational Education and Training

The Government is committed to transforming TVETto become a key area for improving the quality ofemployees. For this purpose, theGovernment allocateda sumofRM4.8billion to545TVET institutions throughHuman Resources Development Fund (HRDF), SkillsDevelopment FundCorporation (SDFC) andDepartmentof Skills Development (DSD). In this respect, HRDFintroducedtheRecognitionofPriorExperientialLearning(RPEL) in April 2016 for local employees under theB40category.The functionofRPEL is toprovide recognitionand endorsement to the skills and experiences of localemployeesbasedonpredeterminedsetofcriteriabytheMalaysianSkillsCertificate(SKM)Level4oftheDSD.Asatend-August2016,RM515,850wasexpendedbenefitting100employees.Atthesametime,theHRDF’sGraduatesEnhancementProgramme forEmployability (GENERATE)is specifically designed to enhance the employability ofgraduates.Underthisprogramme,graduatesareequippedwithhigh-endskills,competenciesandrelevantexperiencerequired by industries. As at end-August 2016, RM1.7millionwasexpendedonthisprogrammebenefitting160unemployed graduates.

Measure 4: Empowering Youth, Community and NGOs

TheGovernment recognises thecontributionofyouth todevelopment.To furtherencouragetheircontribution,anallocation of RM280millionwasmade for technical andvocationaltraininginNationalYouthSkillsTrainingInstitutes(IKBN)andNationalYouthAdvanceSkillsTrainingInstitutes(IKTBN). As at end-August 2016, RM114.8 million wasexpended on various technical and vocational training.In addition, a sumofRM155.4millionwas allocated forthe preparation of athletes for the 29 SEA Games andthe 9 ASEAN Para Games in Kuala Lumpur in 2017as well as for the Podium Programme (Elite Athletes).The training programmes involve 755 athletes and 105coaches,participating in140 localand478 internationalcompetitions. The Podium Programme is one of eightinitiatives under the High-Performance Framework withthe overall objective of achieving sporting excellencefor the country. The targets of the programme includewinningMalaysia’s firstgoldmedalatTokyoOlympics in2020, restoring top ten standing at 2018 Asian Games

CHAPTER 1.indd 9 10/15/16 12:06 AM


in Jakarta-Palembangand2018CommonwealthGamesin Gold Coast and achieving ten top six world rankingathletes. As at end-August 2016, RM55.7 million wasexpended on these programmes.

TheGovernmentcontinuestoencouragetheinvolvementofNGOsincommunitydevelopmentprogrammesundertheMinistryofWomen,FamilyandCommunityDevelopment(KPWKM).Theprogrammesaredividedintoeightpriorityareas,namelyFamily;Parenting;Fatherhood;Pre-Wedding;StrengtheningMarriage;TeensProgramme;ReproductiveHealth;andHIV/AIDSPrevention.Asatend-August2016,a sum of RM2.1millionwas channelled to 73 NGOs.

Measure 5: Creating a Quality Workforce

To retrain retrenched workers, 30% of the HRDF wasallocated for training programmes and the 1MalaysiaOutplacement Centre was established in March 2016.Thecentreaimstoprovidejobcounsellingandplanning,jobmatchingandtrainingprogrammes.HRDFiscurrentlypartnering with over 40 companies in several sectors,including oil and gas (O&G), manufacturing, informationtechnology, hospitality and retail. A total of 23 trainingcourses were approved and as at end-August 2016, atotal of 564 participants are undergoing training withHRDF registered training providers.The Special Programme Intended for CommunityEnrichment (SPICE) aspires to improve the wellbeing ofpeople in Sabah and Sarawak. Training courses offeredare customised to the needs of local industries. TheprogrammeistargetedatB40households,schoolleaversand potential entrepreneurs. The SPICE commenced inSarawak on 23 April 2016 with 50 trainees, and as atend-August 2016, a total of 15 courseswas conductedbenefitting 4,843 participants.

TheGovernmentthroughitsagencieswilltrainanadditional15,000participantsunderthe1MalaysiaTrainingScheme(SL1M).Theschemeistargetedatgraduateswithdifficultiesinsecuringjobs.Throughthisprogramme,graduatesaretrained up to a period of 12 months with two monthsof soft-skills training and maximum ten months on-jobtraining. At the end of the programme, graduates willbe absorbed as employees in the company or assistedin securing jobs in other companies. From January toAugust2016,government-linkedcompanies(GLCs)havespentRM153milliononthisprogrammebenefittingmorethan 9,000 graduates.

TheWomenDirector’sProgramme(WDP),whichaimstoincrease the number of women in key decision-makingpositions especially in the private sector, was launchedin 2012. Subsequently, the Government launched theAdvancedWomen’sDirector’sTrainingProgramme(AWDTP)in 2015 with the objective of enhancing the knowledgeand skills of women leaders from theWDP. As at end-August 2016, there were 49 placements of women onthe board of public listed companies from the AWDTP.

Fourth Priority: Advancing Bumiputera Agenda

In linewith theGovernment’s inclusive and sustainablegrowth policy, the 2016 Budget introduced severalinitiativestoempowertheBumiputeracommunity,includingin Sabah and Sarawak. Among the targets under thisinitiativearetoincreaseBumiputeraequityownershiptoat least 30% and raise the participation of Bumiputerain skilled occupation to at least 60% by 2020. In thisrespect, Ekuiti Nasional Berhad (EKUINAS) which wasformed on 1 September 2009 has established fivefundstopromoteequitableandsustainableBumiputeraeconomic participation. These include three directinvestment funds and two outsourced funds. In 2016,an additional RM300millionwas allocated to the fund.As at end-August 2016, the fund has a total investedcapital of RM2.9 billion.

An allocation of RM150 mill ion was also made toPelaburan Hartanah Berhad (PHB) to increase equityownership and strengthen Bumiputera entrepreneurshipand business activities. PHB is the sponsor of AmanahHartanah Bumiputera (AHB), the trust fund that seeksto invest primarily in real estates in Malaysia. Currently,AHB receives a steady streamof rental income from15commercialproperties.In2016,thefundsizewasfurtherincreased from 2 billion to 3.5 billion units. In addition,the minimum investment entry has now been reducedfromRM500 to RM100 per person,while themaximuminvestment was raised from RM400,000 to RM500,000per person. As at end-August 2016, PHB has investedall of the RM150million allocated.

BumiputeraAgendaSteeringUnit(TERAJU)wasallocatedRM150milliontoimplementvariousprogrammes,includingHigh-PerformingBumiputeraCompanies(TERAS),NationalEntrepreneurship Institute (INSKEN) and BumiputeraEntrepreneurs Startup Scheme (SUPERB). The mainobjective of TERAS is to facilitate the expansion ofhigh-performing Bumiputera companies. As at end-August 2016, RM3.7 billion was raised from severalbanks for TERAS financing facilities. Of this, RM1.3billion was extended to 302 companies. TERAJU alsocollaborateswithrelevantagencies,includingentrepreneurdevelopmentagencies,incubatorsauthoritiesandfinancialinstitutions to encourage participation of Bumiputera inSabahandSarawakthroughfundprovisionandcapacitydevelopment programmes. In 2016, TERAJU providedfinancial assistance amounting to RM336.2 million to6,476 new and existing Bumiputera entrepreneurs forthe procurement of equipment, packaging machinesandworkingcapital.Meanwhile, the INSKENwhichwasestablished in 2014 is the centre for entrepreneurshipdevelopmentandcapacitybuildingprogrammesdedicatedtoBumiputera-ownedSMEs. INSKENconductedseveraltrainingprogrammesincollaborationwithvariousagenciesand in 2016 is focusing on entrepreneurship trainingprogrammestoTVETgraduates.Asatend-August2016,

CHAPTER 1.indd 10 10/15/16 12:06 AM


a total of 142 programmes were conducted benefitting11,684participants.Meanwhile,theSUPERBprogrammeis an innovative business idea competition held over aquarterly period where winners receive grants of up toRM500,000.Theprogrammeistargetedat200start-upsinvolving participants aged between 18 and 40 yearsold.Asatend-August2016,atotalof111winners fromeight competitions were awarded grants amounting toRM50.5million.

Another RM250 million was allocated to PerbadananUsahawanNasionalBerhad(PUNB)toempowerBumiputeracommunity through entrepreneurial programmes. Theallocation of RM175 million in 2016 was distributed tosevenprogrammes,namelySMEScheme,PROSPERRetail,PROSPER Wholesale, PROSPER Young Entrepreneur,PROSPER Property, Apprentice Graduate and TrainingDevelopment. The SME Scheme aims to increase thenumberofBumiputeraSMEsinmanufacturingandservicessectors, while the Prosper programmes are aimed atdeveloping and assisting Bumiputera entrepreneurs toenhance their competitiveness and participation in thewholesale and retail trade subsectors. The ApprenticeGraduate Programme aspires to produce dynamic andresilient young budding entrepreneurs in the samesubsectors,whiletrainingdevelopmentisaimedatenhancingentrepreneurial knowledge and skills in developing andexpandingbusinesses.Asatend-August2016,asumofRM142.1millionwas expended on these programmes.

ThroughBumiputeraEducationSteeringFoundation, theGovernmentintroducedamultitierBumiputeraeducationschemetoassiststudents frompoorhouseholds.Underthe first tier, Peneraju TunasAzamplaces studentswithpoor academic performance at centralised hostels toattendprimaryandsecondaryschools.Asatend-August2016,323studentshavebenefittedfromthisprogramme.PenerajuTunasGeliga,thesecondtier,placesstudentswithaverageacademicresultsinPrimarySchoolAchievementTest(UPSR)inMRSM,boardingschoolsordailyschools.Enrolment in thisprogrammecommenced inSeptember2016.ThethirdtierisPenerajuTunasPotensiforstudentswith average academic performance in SPM/MalaysianHigher School Certificate (STPM). They are providedwith opportunities to pursue tertiary education at localand foreign universities. The programme commenced inMarch 2016 with 177 students. The total allocation forthe three schemeswas RM51.4million, and as at end-August 2016, a total of RM23.3 million was expended.Meanwhile, Peneraju Skil is a non-academic schemefor youths, including school drop-outs to be trained inindustries such asO&G,business services and tourism.ThetotalallocationforthisprogrammeisRM50.3millionandasatend-August2016,asumofRM10.3millionwasexpended benefitting 993 students. At the same time,PenerajuProfesionalistargetedatupskillingtalentthroughprofessional certification in high impact industries suchas business and financial services. The total allocationfor the programme was RM31.8 million and as at end-August 2016, a sum of RM20.3 million was expendedbenefitting 743 participants.

To further strengthen the Bumiputera community, theGovernment through Majlis Amanah Rakyat (MARA)continues to provide education sponsorship to 72,000Bumiputera students for tertiary education at local andoverseas colleges and universities. For this purpose, atotalofRM1.8billionwasallocated,andasatend-August2016, RM1.7 billionwas spent.

Fifth Priority: Easing Cost of Living of the Rakyat

Rising cost of living which refers to the increasingexpenditure in maintaining a certain standard of livingis a concern, particularly among the low-and-middle-income groups. Towards elevating living standards andenhancing the wellbeing of the rakyat, four measureswere introduced in the budget. The four measures areincreasingthequalityoflifeofB40households;providingaffordable houses; providing quality healthcare services,andensuringthewelfareofthelessfortunateandpersonswith disabilities (PWDs).

Measure 1: Increasing Quality of Life of B40 Households

TheGovernmentcontinuestofocuson increasingthequality of life of the B40 households. In this regard,RM500millionwasallocatedtoNationalEntrepreneurialGroup Economic Fund (TEKUN Nasional), of whichRM450millionwasforBumiputeraentrepreneurs,whileRM50millionwas forMalaysian Indianentrepreneurs.TEKUNNasionalprovidesvariousmicrofinancefacilities,including TEKUN Niaga, TEMAN TEKUN and TekunI-Factoring to small-scale Bumiputera entrepreneurs.As at end-August 2016, TEKUN Nasional disbursedRM464 mi l l ion to 36,462 entrepreneurs. At thesame time, to assist Malaysian Indian entrepreneurs,TEKUN Nasional established the Indian EntrepreneurDevelopment Scheme in 2008 and as at end-August2016, a total of RM39.5 mill ion was disbursed to1,785 entrepreneurs.

1Malaysia Hawkers and Petty Traders Foundation(YPPKM)was established in February 2015 tomanageand coordinate soft loans to Chinese hawkers andpetty traders. Effective April 2016, the maximum loanamount was increased from RM15,000 to RM20,000.Asatend-August2016,YPPKMdisbursedRM16millionbenefitting 1,100 hawkers and petty traders. Towardsimprovingthelivelihoodoftherakyat,particularlyin613New Villages, a total of RM58.8 million was allocatedfor764projectsincludingconstructionandupgradingofroadsanddrainagesystem,communityhalls,basketballcourts,recreationalparksandgatewayarches.Apartfrominfrastructure projects, the Government also allocatedRM8.7 million to help poor New Village residents inupgrading their houses. A total of 1,019 householdshas benefitted from this programme. In addition, softloans amounting to RM20 million were approved toNewVillage residents to financebusinessactivitiesandupgrade houses.

CHAPTER 1.indd 11 10/15/16 12:06 AM


In efforts to enhance the well-being of the Orang Aslicommunity,anallocationofRM300millionwasprovidedfor poverty eradication andwelfare programmes. In thisregardasatend-August2016,asumofRM75.7millionwas spent on improving basic infrastructure, includingconstructionofroads,schools,houses,one-stopcentres,public amenities as well as the provision of electricitysupply. Other initiatives include supplementary foodassistance, pocket money and school transport fares,whichbenefitted41,657students.Meanwhile,under theOrangAsliEconomicDevelopmentProject,579.2hectaresof rubberandoilpalmplantationsaswellascashcropswere developed in Orang Asli settlements in Kelantan,Melaka, Negeri Sembilan, Pahang, Perak and Selangor.

To mitigate the rising cost of living of low-incomehouseholds,effective1July2016, thenationalminimumwagewasincreasedfromRM900toRM1,000permonthfor Peninsular Malaysia and from RM800 to RM920 forSabah,SarawakandLabuan.Themeasurehasbenefitted1.7million employees nationwide.

1Malaysia People’s Aid (BR1M) programme is anotherinitiative which provides assistance to low-incomehouseholds, including single individuals. In 2016, theGovernmentincreasedtheBR1MpaymentfromRM1,000toRM1,050 for all participants in the e-Kasihdatabase.BR1Mwas also increased fromRM950 to RM1,000 forhouseholdswithamonthlyincomeofRM3,000andbelow.ForhouseholdsearningbetweenRM3,001andRM4,000BR1M was increased from RM750 to RM800, while forsingle individuals aged 21 and above it was increasedfromRM350toRM400.ThedisbursementofBR1Mwasmadeinfourstages:on28January,28April,15Juneand28September2016.Asatend-September2016,atotalofRM5.4billionwasdisbursedto4.2millionhouseholdsand 3.1million single individuals.Meanwhile, the FamilyBereavement Scheme introduced in 2015which entitlesthe next of kin of BR1M recipients to receive RM1,000was continued in 2016, benefiting 38,620 individuals.

ToenableB40householdstoearnahigherincome,RM50million was allocated for the Career and Skills TrainingProgrammeaswellastheIncomeIncrementProgramme.The Career and Skills Training Programme providesassistance to the targetedgroup toenrol inskills trainingcourses. Meanwhile, the Income Increment Programmeprovides financial assistance for participants to carry outeconomic projects in various sectors. As at end-August2016,RM34.8millionwasexpendedontheseprogrammesbenefitting4,493participants.IntandemwitheffortstoraisetheincomeofB40householdsthroughparticipationinthedigital economy, the Government expanded the eRezekiand eUsahawan programmes nationwide. As at end-August2016,morethan13,404 individualswere involvedin the programme. Consequently, the income of 4,756participants has increased with additional monthly salesofRM2million for TVET students andRM13.3million formicro-entrepreneurs.Furthermore,CapacityandCapabilityEnhancement Programme for Special Group is anotherinitiative to improve the skills of the B40 households,

particularly single mothers, orphans, high-risk youth andschool drop-outs. In this respect, a sumofRM65millionwasallocatedforthisprogramme.Asatend-August2016,RM61.2 million was distributed to related agencies andNGOs for the implementation of the programme.

In recognition of the contribution of civil servants indevelopingthenationaswellasenablingthemtoadjusttotherisingcostofliving,severalmeasureswereintroducedto improvetheremunerationsysteminthepublicsector.Effective 1 July 2016, civil servants were provided witha salary adjustment equivalent to one annual incrementaccordingtograde.OtherinitiativesincludeimprovementstoschemesofserviceaswellassettingaminimumstartingmonthlysalaryofRM1,200andaminimumrateatRM950for pensioners with at least 25 years of service. At thesame time, contract of service officers with at least 15yearsofservicewasofferedpermanentpost.Inaggregate,the Government spent RM1.6 billion on these initiativeswhichbenefitted1.6millioncivilservants,252schemesofservice,50,000pensionersand10,000contractofficers.Inaddition,inJanuary2016,theGovernmentprovidedaspecial cash assistance of RM500 to civil servants anda special paymentofRM250 topensioners,with a totalexpenditure of RM1 billion.

TheGovernmenthasimplementedseveralmeasurestowardsimprovingtheincomeandproductivityofsmallholdersandrubbertappers.ThemeasuresincludeRubberReplantingAreaDevelopmentProgramme,ProductivityImprovementand Smallholders Development Programme, SequentialRubberandOilPalmAidReplantingProgramme,RubbertoOtherCropsReplantingProgramme,OilPalmReplantingSchemeandNewOilPalmPlantingScheme.Asatend-August 2016, a sum of RM665.6million was disbursedto 133,982 smallholders. To mitigate the impact of lowrubberpriceson income, theGovernmenthas improvedtherubberproductionincentive(IPG).Theactivationpriceof IPG for SMR20 was raised to RM5.50 per/kg (f.o.b)or RM2.20 per/kg for farm-gate. Through this initiative,smallholderswithanaverageholdingsizeof2.2hectaresandannualproductionof3,000kg/hectaresofcuplumpscurrently earn amonthly income of RM1,210 comparedwith RM1,100 previously.

Towards improving the income of paddy farmers, theGovernment has implemented a paddy grading initiativeas well as improved the Paddy Price Subsidy Scheme(SSHP). Paddy grading is based on standardisation ofpaddypricesatRM1,200permetrictonne.Tocomplementthis initiative, the Government raised the rate of SSHPfrom RM248.10 to RM300 for every metric tonne.This initiative has enabled farmers to earn an additionalincome of RM296.50 per season. As at end-August2016, a total of 197,789 farmers has benefitted fromthese initiatives.As an extrameasure, the 2016BudgetRecalibration provided paddy farmerswith an additionalcash of RM50 for every metric tonne of cleanedpaddy as an input incentive for paddy production.As at end-August 2016, a total of RM66 million wasdisbursed to 104,610 farmers. In addition, several new

CHAPTER 1.indd 12 10/15/16 12:06 AM


measures were introduced in the recalibrated budgetto mitigate the rising cost of living. These include theestablishment of MyFarm Outlets that offers agriculturalproducesuchasfish,poultry,meat,vegetablesandfruitsat prices between 5% and 20% below market prices.The first outlet commenced operations in Presint 7,Putrajaya in March 2016. The outlet was expanded totwoother locations,namelyRuralTransformationCentre(RTC) Kelantan and Manjung, Perak. As at end-August2016, a total of RM2.4 million was disbursed for thisprogramme.

Measure 2: Providing Affordable Houses

Over the last few years, various house ownershipprogrammeswereintroducedtoenabletherakyattoownaffordablehouses.Amongthe initiatives isthe1MalaysiaPeople’s Housing (PR1MA) programme which providesaffordablehousesforhouseholdswithamonthly incomebetween RM2,500 and RM10,000. As at end-August2016, a total of 96,254 units were under constructionand 10,000 units are expected to be completed by theend of 2016. Furthermore, to ease the burden of first-time house buyers, the Government launched the FirstHouseDepositFinancingScheme(MyDeposit)on7April2016. The scheme provides up to 10% or a maximumofRM30,000,whichever is lower fordownpaymentandis only available for houses priced at RM500,000 andbelow.As at end-August 2016, 1,624buyers benefittedfrom this programme. Furthermore, under the 2016Budget Recalibration, houses priced RM300,000 andbelow are only available to first-time house buyers. Inefforts to encourage the construction of such houses,effective 2016, the 3% deposit on total developmentcost with theMinistry of UrbanWellbeing, Housing andLocal Government (KPKT) was exempted.

Forthelow-incomegroup,the1MalaysiaPeople-FriendlyHouses (RMR1M)was introducedtoenable landownerstobuildhouseson their land.Since thecommencementof the programme in 2002, a total of 36,316 houseswere completed, and as at end-August 2016, a total of1,626 houses were under construction mostly in Johor(325), Terengganu (299), Perak (209) and Kedah (132).At thesametime, toresolvesquatters’ resettlementandhouseownership issuesamong low-incomeearners, theGovernmentimplementedthePeople’sHousingProgramme(PPR)nationwide.In2016,theGovernmentaimstobuild13,130apartmentunitsand5,542unitsofterracehousesforsquattersandlow-incomehouseholdswithamonthlyincome of less than RM2,500. Since the programmestartedin2002,atotalof80,252houseswerecompletedand as at end-August 2016, 8,928 unit apartments and2,452 units of terrace houses were under construction.Meanwhile, 4,202 unit apartments and 3,090 units ofterrace houses are in the planning stage.

TheGovernmentremainscommittedtoresolvingabandonedhousing projects, particularly low and medium-costprivate housingprojects. TheGovernment embarkedonthis initiative in 2009 and as at end-August 2016, 182

or 80% of the total abandoned housing projects wereresolved, benefitting 32,641 buyers. Meanwhile, a totalof 20 projects involving 4,610 buyers are in variousstages of construction, while another two projects withan allocation of RM20million are being revived.

Toprovideaconduciveandcomfortablelivingenvironmentforresidentsinlow-andmedium-costhouses,theGovernmentcontinues to allocate funds to 1Malaysia MaintenanceFund(TP1M)formaintenanceandrefurbishmentofpublichousesandHousingMaintenanceProgrammeforprivatehouses.Asat end-August2016,a sumofRM45millionwasutilisedtofund88projectsbenefittingstrataresidents,whileRM21.6millionwasdisbursedformaintenanceandrefurbishment of 62 strata residential areas.

Toincreasehomeownershipamongthesecondgenerationsettlers of FELDA, Federal Land Consolidation andRehabilitation Authority (FELCRA) and Rubber IndustrySmallholders Development Authority (RISDA), theGovernment continues to implement various initiatives.These include the FELDA Next Generation HousingProject (PGBF), FELCRA Second Generation HousingProject andRISDASecondGenerationHousingProject.As at end-August 2016, a total of 8,470 housesunder PGBF are under construction mainly in WilayahKuantan, Pahang (1,904); Wilayah Raja Alias, NegeriSembilan (1,683); Wilayah Johor Bahru, Johor (1,499)and Wilayah Jengka, Pahang (1,270). With regardto FELCRA, as at end-August 2016, a sum of RM4million was spent on the development of 1,183 housesmainly in Tembeling Tengah, Pahang (230), Tembangau,Pahang (216), Bukit Sedanan, Melaka (106) and Lekir,Perak(102).Meanwhile,RISDASecondGenerationHousingProjectwaslaunchedinAugust2016,andtheconstructionof 100 houses commenced in September 2016.

ToenabletheOrangAslicommunitytoliveincomfortablehouses, the Government has introduced the HousingAssistanceProgramme(PBR).Undertheprogramme,512units of houses will be built in Orang Asli settlements.ConstructionworkinKelantan,NegeriSembilan,Pahang,Perak and Selangor commenced in May 2016 and isexpected to be completed byNovember 2016.BesidesthePBRprogrammeforOrangAsli,theGovernmentalsoprovides financial and management assistance throughthe same programme for rural poor and hardcore poorhouseholds.Theinitiativefocusesonbuildingorrepairinghousesforseniorcitizens,infirmanddisabled,andsinglemothers. As at end-August 2016, RM123.3 million wasdisbursed benefitting 5,972 participants.

For civil servants, the 1Malaysia Civil Servants Housing(PPA1M)projectwasintroducedin2013.Asatend-August2016, a total of 18,162 units were under construction,and499unitshaveobtainedtheCertificateofCompletionandCompliance.Meanwhile, 17,665unitswere grantedthe Development Order approval and 6,045 units theBuildingPlanapproval.TheGovernment targets tobuild100,000 units by 2018 with prices ranging betweenRM90,000 and RM300,000.

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InfoBox1

Affordable Housing

Introduction

Over the years, thedemand for houses remains strongunderpinnedby risingnumberof households,whichincreased to 7.4million in 2015 (2010: 6.6million) and a highproportion of youngworking agepopulation1(25.7%).Inaddition,rapidurbanisationandeconomicopportunitieshaveattractedthelow-andmiddle-incomegroupstomove intocities, thuscreatinghigherdemandforaffordablehouses,especially in theurbanareas.Since affordability is a function of income and prices, many low-income households, especially from theurbanareas, areunable toownhousesdue to low income2 coupledwithhighhouseprices.Between2009and2014,averagehouseprices roseat acompoundedannualgrowth rate (CAGR)of7.9%,exceeding thegrowth in average household income of 7.3% during the same period (BNM, 2015).

Theimbalancedgrowthbetweenhousepricesandincomehasaffectedtheaffordabilityofhouses,especiallyamong the low- andmiddle-income earners. According to the International Housing Affordability Survey anaffordablehousingmarket isonewithamedianmultiple3of3.0andbelow.With themedianmultipleat4.4,onaggregatehouses inMalaysiaareconsideredasseriouslyunaffordable,whileacross thekeystates therehas been an uneven pace of growth between house prices and income as shown below:

124–39yearsold.2Malaysian’smedianmonthlyincomeisRM4,585,whileB40’smedianmonthlyincomeisRM2,629(HIS,2014).3Medianmultipleisalsoknownasthehouse-price-to-incomeratio,definedastheratioofmedianpricesforthehousingmarkettothemediangrossannualhouseholdincome. ThismeansthattoownahousepricedatRM540,000,householdincomeshouldbeatleastRM15,000amonth.

Housing Affordability

Median Multiple Affordability(2014)

AffordabilityRating

Kuala Lumpur 5.4 5.1 & aboveSeverely unaffordablePulau Pinang 5.2

Johor 4.2 4.1 to 5.0Seriously unaffordableMalaysia 4.4

Selangor 4.03.1 to 4.0

Moderately unaffordable

Melaka 3.03.0 & belowAffordable

Source: Bank Negara Malaysia 2015 and Khazanah Research Institute 2015.

TABLE1

Measures to Address the Increasing Demand for Affordable Housing

Towards addressing the increasing demand for affordable housing, the Government has implemented theNationalHousingPolicy and established theNationalHousingCouncil. Theobjectives are to provide a highquality and environmentally sustainable housing scheme, streamlining the delivery system and cultivating avibrant housing industry.

TheGovernmenthasembarkedonseveralmeasures toaddress themismatchbetweendemandandsupplyin the housing market. On the demand side, the Government has introduced several measures to providebetteraccesstohousefinancingandsubsidyschemessuchasMyFirstHome,MyDeposit,MyHome,YouthHome, Housing Credit Guarantee and withdrawal from Account 2 of Employees Provident Fund (EPF). Onthesupplyside, theGovernmenthas taken initiatives to increase theprovisionofaffordablehousing throughvarious programmes.

As of December 2015, a total of 183,755 units (17%) of affordable houses has been completed, while214,011 units (19.3%)were under construction and 309,571 units (27.8%) still at the planning stage.

CHAPTER 1.indd 14 10/15/16 12:06 AM


Affordable Housing Programmes

Projects Description Implementing Agencies

People’s HousingProgramme (PPR)

Provide houses ranging between RM30,000 andRM35,000 in Peninsular Malaysia and RM42,000inSabah andSarawak for low-incomeearners andsquatters with income below RM2,500.

Ministry of UrbanWellbeing, Housing andLocal Government

HousingAssistanceProgramme (PBR)

Provide financial and management assistance tobuild new or repair existing houses. The allocationfor a new house is from RM21,000 to RM50,000,while to repairdilapidatedordamagedhouse isupto RM12,000. The target groups are the hardcorepoor registered with the e-Kasih system.

Ministry of Rural andRegional Development

1MalaysiaPeople-FriendlyHouses (RMR1M)

Enablelow-incomeindividuals(withmonthlyincomebetween RM750 and RM3,000) to build housespriced at RM65,000 (Peninsular Malaysia) andRM79,000 (Sabah and Sarawak) on their landwiththe Government subsidising RM20,000.

Syarikat PerumahanNegara Berhad

Federal TerritoriesAffordableHousing(RUMAWIP)

Provide and develop affordable houses belowRM300,000 per unit for households with incomebelow RM15,000 and below RM10,000 for singleinviduals in Federal Territories. The projects aremanagedby local authoritiesnamelyKualaLumpurCity Hall, Perbadanan Putrajaya and PerbadananLabuan.

Ministry of FederalTerritories

People’s DreamHouses

DevelopaffordablehouseswithpricesnotexceedingRM350,000.Householdswith incomeofRM10,000and below are among those eligible to apply.

Syarikat PerumahanNegara Berhad

1MalaysiaPeople’s Housing(PR1MA)

Plan, develop and construct affordable housesranging between RM100,000 and RM400,000 inkeyurbancentres.Targetedbuyersarehouseholdswith income between RM2,500 and RM10,000.

Perbadanan PR1MAMalaysia

1Malaysia CivilServants Housing(PPA1M)

Provideaffordablehousespriced20%to30%lowerthanthemarketvalueforcivilservantswithmonthlyincome of less than RM10,000.

PPA1M Unit,Prime Minister’s Department

TABLE2

Meanwhile, to deter speculative activities, the Government has abolished the Developer Interest BearingScheme (DIBS), which causes house prices to be higher as developers absorb the loan interest of housebuyers during the construction period and subsequently factor it in the house prices. Instead, the Govern-ment encourages build-then-sell (BTS) concept where the financing loans do not commence until proper-ties are completed. In this regard, home buyers are not liable for any losses should property projects beabandoned during the construction period since the loans are not disbursed. The Government has alsointroducedmeasuressuchas the10-yearmoratoriumperiod toallPR1MAandPPA1Mhomeowners,whichrestraint homeowners from selling, renting out or transferring ownership of their homes. In addition, theGovernment has revised upwards the Real Property Gains Tax (RPGT) as a tax chargeable on the profitgained from thedisposalof aproperty less than5-yearsand imposedmaximum loan-to-value (LTV) ratioof70% for the thirdhouse financing tocurbspeculativeactivities.Tostrengthen themanagementanddeliveryof affordable housing, severalmeasureswere introduced, such as establishingNationalHousingDataBank(TEDUH) under theNational HousingDepartment (JPN) as an integrated database on housing, acceleratingthe adoption of industrialised building system (IBS) and increasing efficiency through consolidation of smallcompanies and firms.

Conclusion

There are several challenges in ensuring sufficient affordable houses for the rakyat following overwhelmingdemand,scarcityofsuitablelandandescalationofconstructionmaterialprices.Nevertheless,theGovernmentwill continue to provide affordable housing by introducing strategies that benefit home buyers as well asstakeholders, which include developers and financial institutions.

CHAPTER 1.indd 15 10/15/16 12:06 AM


Measure 3: Providing Quality Healthcare Services

TheGovernment remainscommitted toprovidingqualityhealthcare services and facilities to the rakyat. In thisregard, RM1.6 billionwas allocated for the constructionof health facilities throughout the country, including theKuala Lumpur Women and Children’s Hospital, newhospitals in Pasir Gudang, Kemaman, Pendang, Maranand Cyberjaya and redevelopment of Hospital Kajang.Concurrently,theGovernmentisalsocommittedtobuildingand upgrading rural clinics, health clinics, dental clinicsas well as quarters nationwide. Seven new 1Malaysiaclinics commenced operations in RTC Sungai Rambaiand Batu Berendam in Melaka, Urban TransformationCentre(UTC)SungaiPetaniinKedah,UTCMiriandUTCSibu in Sarawak, PPR Muhibbah in Kuala Lumpur andRTCSimpangAmpat inPulauPinang.Asatend-August2016, there were 145 hospitals, 1,806 rural clinics,966 health clinics, 56 dental clinics and 341 1MalaysiaClinics in operation. A sum of RM5.7 billion was spenton medicines, consumables, vaccines and reagents forall Government hospitals and clinics nationwide.

Measure 4: Ensuring Welfare of the Less Fortunate and Persons with Disabilities

Severalwelfareprogrammeswerecontinued toenhancethe wellbeing of the poor, children, elderly and PWDs.The monthly allowance of RM350 for employed PWDswas disbursed to 75,999 recipients, while the RM200assistance for unemployed PWDs wasmade to 50,892recipients. In addition, the assistance of RM300 for thecareofbedriddenPWDswasmadeto25,629recipients.Asat end-August2016, theseassistancesamounted toRM391.9 million. At the same time, a sum of RM94.1millionwasallocatedtotheCommunityBasedRehabilitation(CBR)Centres.TheallocationfacilitatesPWDstomaximisetheirphysicalandmentalabilities,gainaccesstoregularservicesandopportunitiestointegratewithsociety.Asatend-August 2016, a total of 21,204 PWDs in 527 CBRnationwide have benefitted from this programme.UnderChildren Assistance Scheme, a monthly assistance ofRM100 to RM450 was provided to children from low-incomefamilies,whilepoorseniorcitizensreceivedasumofRM300underSeniorCitizensAssistanceScheme.Asatend-August2016,theGovernmenthasspentRM550.1millionontheseschemes,benefitting78,887householdsand 138,029 poor senior citizens.

Economic Management – 2017

Economic management in 2017 will continue to focuson promoting growth and strengthening the country’seconomic fundamentals to enable the nation to benefitfrom improvingglobalgrowthand trade. In this respect,throughaprocessofextensiveengagement,theGovernmenthas identified several issues that are of concern to therakyatandbusinesscommunity.At thesametime, thereis also a need to unshackle the economy from variousstructuralissueswhichmayhamperMalaysia’slong-term

growthpotential.Fromabroaderperspective,theseissuesare alsoopportunities for theGovernment to strengthendomestic demand as the engine of economic growthandunleashthetruepotentialofthedomesticeconomy.

Issues and Challenges

External Environment

The global economy is expected to improve in 2017,mainly attributed to better growth in the United States(US) as well as stronger performance in the emergingmarketanddevelopingeconomies.Meanwhile,worldtradeis expected to expand in line with the improvement inglobaldemand.However,downsiderisksremainincludingthe possibility of a sharper slowdown inChina, volatilityintheglobalfinancialmarkets,continuedlowcommodityprices,prolongedlowglobalinflationaswellasescalatinggeopolitical tensions.

Domestic Economy

Privateconsumptionisthebiggestcomponentofdomesticdemandcontributing3.1percentagepoints to realGDPgrowth during the first half of 2016. At the same time,householddebtasatend-June2016stoodat88.9%ofGDP.Theriskstemmingfromelevatedhouseholdindebtednessis that private consumption could come under pressureat a timewhen there is aneed fordomesticdemand todrive growth in the face of moderate external demand.In2015,private investmentwasatRM198.8billion.Thepositive trend continued in the first sixmonths of 2016,withprivateinvestmentreachingRM114.8billion.Despitetheachievement,thereareseveralchallengesinattractinginvestment. These include rising global competition forforeign direct investment (FDI) as well as the lack ofinnovation capabilities, business sophistication and lowlabourproductivityinthedomesticeconomy.Concerningproductivity,Malaysiastill lagsbehindmanyhigh-incomecountries.ReportssuggestthatMalaysia’slabourproductivitywas 32% that of the US and 56% that of Republic ofKorea.Malaysia’sabilitytoincreaseitslabourproductivitydependsonhowwellitcanobtaingreaterefficiencyfrominternal resources, particularly humancapital, innovationand operational efficiency.

The export sector has made considerable progress inexpandingtheproductandmarketmix.AlthoughMalaysia’sinvolvementintheGlobalValueChains(GVCs)isrelativelyhigh, domestic value-added in high-tech exports is low.Furthermore,exportsofserviceshavenotreacheditsfullpotential.Atthesametime,risingimportbills,particularlyfor consumption and capital goods may lead to thenarrowing of trade balance.

On the supply side, the services sector remains thekey driver of the economy and leading generator ofjob opportunities. In 2015, the sector accounted for53.5% of GDP, 11.7% of country’s total exports andprovided 8.3million jobs. The sector is being geared to

CHAPTER 1.indd 16 10/15/16 12:06 AM


AlthoughMalaysia has achieved a commendable statusin theprovisionofhealthservicesand facilities,changesin circumstances pose new challenges in improving theservicestotherakyat.Particularly,theincreasingprevalenceofnon-communicabledisease (NCD),ageingpopulation,ineffectiveandinefficientprivatespendingwithimplicationson financial protection are issues of concern. Also, taxcollection is the main source of finance of the healthsystem.With low oil prices, the Government has lost asignificantamountofoil-relatedrevenue.Theshareofoil-related revenue to total revenuedeclined from35.8% in2011 to 21.5% in 2015 and is expected to drop furtherto 14.6% in 2016. While the timely introduction of theGoodsandServicesTax (GST) inApril2015 isexpectedtogenerateRM38.5billionin2016andcushionthedropin oil-related revenue of RM30.9 billion, the provision ofa world-class healthcare service and facilities require anew businessmodel to ensure fiscal sustainability.

Strategic Initiatives - 2017 Budget

The wellbeing of the rakyat is the main priority of the2017 Budget while sustaining economic growth. GiventheGovernment’sinclusiveandsustainablegrowthpolicy,the budget will unveil measures to stimulate economicactivities to generate benefits for the rakyat as well asthe economy as a whole. Furthermore, efforts will beintensified to strengthen human capital, the knowledgeandskillsembodiedinindividuals,toenabletherakyattocontributeandshare in therewardsofeconomicgrowthand prosperity. At the same time, efforts in improvingpublic service delivery will remain a priority. Collectivelythese initiatives will strengthen the nation’s economicfundamentalsandcompetitivenessbringingfurtherbenefitsto the rakyat.

Rakyat First

TheultimateobjectiveoftheGovernmentistoenhancethelivingstandardsoftherakyat.Inthisregard,the2017Budgetadoptsatwo-prongedapproachbyintroducingmeasurestoincreaseincomeandmanagetherisingcostofliving.Fromthe income perspective, the budget will focus on raisingthe disposable income of the rakyat, particularly the B40andmiddle40%households (M40).TheBR1M introducedin 2012 will be continued while allocations will also bemadeforupskilling,reskillingandentrepreneurshiptraining.About mitigating the rising cost of living, the Governmentwillfocusonrakyat-centricprogrammes.Inthisrespect,theexisting subsidy programmes including for paddy farmersand fishermenaswell as for cookingoil and toll rateswillbecontinued. Inresponsetotheoverwhelmingrequestbytherakyattomakehousesaffordable,theexistingbusinessmodelsofhousingprogrammeswillbeenhancedtoeliminateinefficiencies in the housing subsector. At the same time,fundswill also be allocated for themaintenance of publicand private houses. Allocations will also be made for theprovision of quality healthcare services to the rakyat. Inaggregate,thesemeasureswillelevatethelivingstandardsof the rakyat.

account for56.5%ofGDP,11%of exports andprovide9.6 million jobs by 2020. However, several importantissues including the low adoption of information andcommunications technology (ICT), particularly amongSMEshavetobeaddressedtoachievethesetargets.Onthemanufacturing sector, themajority of manufacturerscontinuetofacestiffcompetitionfromlow-costproducersand inefficiencies associatedwith low-skilled and cheaplabour. At the same time, the biggest challenge for thehigh-end manufacturing subsector is to produce new,complex and skill-intensive products.

Human Capital

Humancapitalisanimportantenablerofeconomicgrowth.However, about72.6%of theworkforce isSPM level orbelowqualified.Overtheyears,variousprogrammeshavebeenimplementedtoacceleratehumancapitaldevelopment.A key initiative in this respect is TVET. However, TVETprogrammes are fragmented, lack specialisation and nounifiedratingsystemforperformance.Furthermore,mostofthetrainersatvariousTVETcentreslackthenecessaryskill and industry experience. Other issues concerninghuman capital include dependency on foreign workers,shortages of skilled workers, youth unemployment andlow female labour participation rate.

Wellbeing of the Rakyat

TheGovernmentcontinuestopursuetheinclusivegrowthpolicy by providing equitable access and opportunitiesfor all Malaysians to partake in economic development.Consequently, the rakyat today enjoy a higher qualityof life through better access to education, healthcare,infrastructure and social services. To further enhancethewellbeingoftherakyat,theGovernmentwill intensifyits efforts in addressing several issues and challenges.

Although the living costs in major Malaysian cities arelow comparedwith othermain cities in the region, themain concern of the rakyat, particularly the B40 is therising cost of living. On the one hand, the increase inpricesofessentialgoodsandsluggishgrowthinincomearethemainchallengesforthelowerincomegroup.Onthe other hand, global economic uncertainties and lowlabour productivity weight in pressure on producers inthe form of higher production costs and less revenue.Furthermore, profiteering by irresponsible firms alongthesupplychainaddsunnecessarycost toconsumers.Together, these factors contribute to the rising cost ofliving.

Affordablehousingisanothermajorconcernoftherakyat.Thereareseveralunderlyingfactorsdrivingthemismatchbetween demand and supply of affordable houses inMalaysia.Theseincludetherisingnumberofhouseholds,rapid urbanisation, speculative activities aswell as poormanagementresultingindelaysandabandonedprojects.If themismatch is leftunattended, itmay leadtodeeperimbalancesinthepropertymarket,withnegativespilloversto other sectors of the economy.

CHAPTER 1.indd 17 10/15/16 12:06 AM


The Impact of 1Malaysia People’s Aid Programme on Private Consumption

Introduction

1Malays ia People’s A id (BR1M) was int roduced in 2012. BR1M is a form of condi t iona l casht ransfer as cash payment is prov ided to those households and ind iv iduals earn ing month lyincome below RM3,000 and RM2,000, respect ive ly. In 2014, BR1M ass istance was extendedto households wi th a month ly income between RM3,000 and RM4,000. The purpose of BR1Mis to ease the burden of r is ing cost of l i v ing by offer ing ass istance to households that fa l l in tothe low- income group. The d i rect impact of BR1M is the increase in household d isposableincome,which in turn, creates sp i l lover e ffect on pr ivate consumpt ion and output of industr iesthat produce consumer goods.

DIAGRAM 1

Spillover Effect of BR1M on the Economy

BR1M HigherIncome

Higher PrivateConsumption

Higher Output ofConsumer Products

Impact on Household Income

The implementation of BR1M has partly contributed to the reduction in the share of household withlow-income. In 2014, the share of households earning below RM3,000 nearly halved to 24.3% (2009:52.7%), while households earning between RM3,000 and RM5,000 has increased significantly to 30.6%(2009: 23.1%). With the rising household income, incidence of poverty had been reduced to 0.6 in 2014,whileGiniCoefficient improved further to 0.401during the sameperiod, indicating the narrowing of incomeinequality(2009:3.8;0.441).Thisisinlinewiththenation’ssocio-economicdevelopmentagendatoenhanceinclusivity.

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

0

1

2

3

4

5

6

7

8

9

2015201420132012

500 523 719427

4.2

6.8 7.07.4

CHART 1

Total BR1M Disbursed and Number of Recipients2012 – 2015RM million

Source: Ministry of Finance, Malaysia.

Total BR1M disbursed (million)

Number of recipients (right scale)Average per recipient

InfoBox2

CHAPTER 1.indd 18 10/15/16 12:07 AM


0

10

20

30

40

50

4,000 - 4,999

3,500 - 3,999

3,000 - 3,499

2,500 - 2,999

2,000 - 2,499

1,500 - 1,999

1,000 - 1,499

500 - 999

201420122009

CHART 2

Household by Income Share (RM)

% share

Source: Economic Planning Unit, Malaysia.

5,000 and above

499 and below

%

0

2

4

6

8

10

20142012200920072004200219990.38

0.39

0.40

0.41

0.42

0.43

0.44

0.45

0.46

0.47

0.48

0.6

1.7

3.83.6

5.76.0

8.5

0.443

0.461 0.462

0.4410.441

0.431

0.401

CHART 3

Incidence of Poverty and Gini Coefficient

Coefficient

Source: Economic Planning Unit, Malaysia.

Incidence of PovertyGini Coefficient (right scale)

0

1

2

3

4

5

6

7

8

9

10

2015201420132012

8.3 8.2

7.26.9 7.0

6.6

6.0

5.5

CHART 4

Without BR1MWith BR1M

The Impact of BR1M on PrivateConsumption Growth(at constant prices)

% change

Source: Ministry of Finance, Malaysia estimates.

Impact on Private Consumption

Householddisposableincomeisthemaindeterminantofprivateconsumption,accountingforanaverageof67.4%ofgrowthinprivateconsumption.Theincreaseinearningsofthelower-incomehouseholds,willlikelycontribute to thegrowth inprivateconsumptionastheyhaveahighermarginalpropensitytoconsume.A study by Bank Negara Malaysia1, indicates thathouseholds earning less than RM1,000 permonthwill, on average, spend RM0.81 out of RM1.00 ofadditional income,which ismuchhighercomparedto the RM0.18 for households earning more thanRM10,000permonth.Assuch,between2012and2015 BR1M has resulted in an increase in privateconsumption by 7.1% on average compared with6.8%without the cash transfer.

Impact on Consumption-Related Industries

BR1Malsoindirectlypromotesthegrowthofindustriesthatproduceconsumergoods.This isevidentwiththeincreaseinoutputofconsumer-relatedindustriessuchasresidential,food&beverages,motorvehicles,ownershipofdwellings,accommodation,electricity& gas aswell as finance & insurance.

1Bank NegaraMalaysia, 2013.

CHAPTER 1.indd 19 10/15/16 12:07 AM


Conclusion

BR1Mcash transferswere intended tomitigate the impactofhighcostof livingonbottom40%households(B40). The immediate impact of BR1M is reflected by an increase in household disposable income of theB40, which in turn translates into higher purchase of essential items such as food and housing. This canindirectly spur the domestic economic activities through an increase in production of consumer goods.

0

3

6

9

12

15

18

14.915.2

6.77.0

4.34.63.23.4 3.03.2 3.84.0 4.95.0

CHART 5

Without BR1MWith BR1M

Finance & insuranceElectricity & gasAccommodationOwnership of dwellingsMotor vehiclesFood & beveragesResidential

Impact of BR1M on Output(average increase, 2012 – 2015)% change

Source: Ministry of Finance, Malaysia estimates.

Accelerating Economic Growth

Theroleofdomesticdemand,inthecontextofmoderateglobal growth, is critical to sustaining the momentumof economic growth. In this respect, measures tostrengthenthenation’seconomicfundamentalswillfeatureprominently in thebudgetasanavenue to furtherboostinvestor sentiment and attract domestic and foreigndirect investment. At the same time, allocations will bemade to accelerate investment, provide infrastructureand review corridor development plans. Also,measureswill be introduced to invigorate the capital market aswell as empower exporters to scale up their operationsby looking beyond traditional markets. On the supplyside, the focus of the budget will be in areas with highmultipliereffectssuchastourism,digitaleconomy,SMEs,entrepreneurship aswell as R&D.

Empowering Human Capital

The Government will continue to allocate funds to theeducationsectortoequipstudentsfrompreschooltotertiarylevels, including TVET with the necessary knowledge andskills to enable them to excel in their chosen profession.In this regard, the focus of the 2017 Budget will be onbringing better outcomes by strengthening the teachingprofession and school performance, improving educationfacilitiesand transformingTVET tomeet industrydemand.At the same time, to leverage the social and economicbenefits of the Connected Economy, the Government willallocate funds forcodingprogrammesacrossschoolsandinstitutions nationwide. Concerning TVET, theGovernmentwillintensifycollaborationwithindustrytoincreasestudents’

intake, improve thequalityofprogrammesand institutionsaswellasimprovetheoverallbrandingandprofileofTVET.Toenhancetheemployabilityofgraduates,theBudgetwillplacegreateremphasisonimprovingsoftandentrepreneurialskillssuchasproblem-solving,analyticalthinking,innovationand creativity, aswell as English languageproficiency.

Strengthening Inclusive Development

The Government will continue to focus on enhancinginclusivenesstoensureallcitizensenjoythefruitsofgrowthand development regardless of gender, ethnicity, socio-economic status and geographic location. Accordingly,the Budget will allocate funds for the construction ofnewroadsandupgradingofexistingroads includingex-loggingroads,particularly inSabahandSarawakaswellasOrangAsli settlements inPeninsularMalaysia. Fundswill also be provided to expand the rural water supplyand rural electricity supply programmes. At the sametime,toenablethesafe,efficientandfastflowofpeopleandgoodswithinMalaysia,theBudgetwillallocatefundsfor the provision of sufficient and affordable access totransportation. In tandemwith the Government’s effortsin creating safer living spaces and environments for therakyat, funds will be allocated to enable enforcementagencies,privateplayersandthepublictoenhancecrimepreventionprogrammes.Atthesametime,toencourageMalaysians to adopt a healthy and active lifestyle, theBudget will allocate funds for various sporting activitiesnationwide.Also, theBudgetwill focusonstrengtheningthenation’sresilienceagainstclimatechangeandnaturaldisasters,promoting renewableenergyandencouragingthe use of energy-efficient vehicles.

CHAPTER 1.indd 20 10/15/16 12:07 AM


The Connected Economy

Introduction

The advancement in information and communications technology (ICT) as well as the availability of a widerange of digital devices have allowed for greater participation in the economy. In particular, the internet,oneof theplatformsof virtualconnectivity is themostpowerfulmechanism thatcanperfectlymatchbuyersand sellers. Its economic impact is highly significant driven by growing number of users, high speed andubiquitous access.

Globally, therewere3.4billion internet users in2015and thenumber is expected to increase to9billion inthe next 10 years.Meanwhile, the numberof connecteddeviceson the Internet of Things (IoT) is expectedto reach 200 billion by 2020. The number of mobile phone subscriptions worldwide has reached 93% ofthe world’s population. In Malaysia there are about 21 million internet users while the mobile penetrationrate has reached 143.8% of the population. The large subscription base is supported by higher demandfor connected devices such as smartphones and tablets.

What is Connected Economy?

TheriseofapplicationssuchasFacebook,AirbnbandUberhascreatedvirtualcommunitieslargerthansomenations. As at end-June 2016, there were 1.7 billion Facebook users, surpassing the 1.4 billion populationin China and 1.3 billion in India. The data flows from these applications are important to trade, innovation,entrepreneurship, economic growth and prosperity. The benefits of these data flows will spur innovationin fields such as artificial intelligence, robotics, IoT, autonomous vehicles, 3-D printing, nanotechnology,biotechnology, material science, energy storage and quantum computing. These digital forces shape theConnected Economy, defined as the economic value creation spurred by the hyper-connectivity of people,businesses and government.

Digital Innovation and Disruption

The expansion of digital technologies has transformed business landscapes. Mobile devices, socialnetworking,CloudComputing and other technologies are transforming the relationship between businessesandcustomers.Advancement in technology facilitatesbusinesses,with the internetbeing themostpowerfulsource of information and marketing tool. Furthermore, businesses are forced to innovate due to thechallenges from technology, globalisation and urbanisation among emerging economies. The competitionbetween brands is not only confined to products or service quality but mainly on the customer interface.Attracting future customers would depend on the ability of businesses to predict, adapt and service theirneeds. Disruptive innovations such as Uber, Skype, Spotify and Alibaba are appearing across the globe,making traditional business models irrelevant.

Government Initiatives

TheGovernmentrecognisestheimportanceofdigitaltechnologiesasanenablertoachievehighergrowth.Inthis regard, theGovernment is stepping up efforts to ensure that public agencies and businesses embraceandcapitaliseonthedigitaldisruptions.Emphasis isgivenon fourareasnamely, IoT,BigDataandAnalytics(BDA),CloudComputingandeCommerceaswellasnicheareaswhereMalaysiahascomparativeadvantage.

Broadband access and adoption are crucial to seize the full benefits of the Connected Economy.Broadband will enable greater use of ICT, which in turn will boost productivity and raise a nation’s overallcompetitiveness. The Government is aware that affordable and fast broadband access can provide newopportunities for businesses, especially small and medium enterprises (SMEs) and the rakyat. Towardsachieving this objective, the National Broadband Initiative (NBI) was launched in 2010 to ensure accessibleand affordable high speed internet for the rakyat, focusing on rural areas, schools and low-income groups.As of 2015, 77.3% of households in Malaysia have access to broadband services.

FeatureArticle1

CHAPTER 1.indd 21 10/15/16 12:07 AM


To further strengthen rural connectivity, the following initiatives have been implemented:

• 1Malaysia Internet Centres, which provide internet access to underserved communities. Each centre isequipped with broadband connection and computers to allow rural communities to enjoy the benefitsof internet. In 2015, therewere 657 such centres throughoutMalaysia;

• Mini Community Broadband Centres, a project under Universal Service Provision (USP) located within120 Information Department offices all over the country; and

• eRezekiandeUsahawanprogrammestouplift thebottom40%households (B40)communityandmicro-entrepreneurs.

The most critical component to remain competitive in the Connected Economy is to build a sustainablepool of talent. Realising this,Malaysia is investing heavily in building, attracting and retaining talent throughvarious initiatives such as:

• Digital.Tech@Schools, a curriculum embedded in public schools to teach digital competency skills;

• DigitalMakerMovement in schools to encourage digital innovation at an early age;

• enhancementofanalyticscurriculumin institutionsofhigher learning incollaborationwith industry,whichtargets to produce 2,000 data scientists and 20,000 data professionals by 2020;

• upskilling programmes in targeted technology areas in collaboration with globally renowned providerssuch as Coursera and Johns Hopkins University; and

• Multimedia Super Corridor (MSC) Malaysia programme, facilitating the hiring of foreign expatriates toattract global talents to be based inMalaysia.

These talents will naturally evolve from digital consumers to digital producers, hence contributing towardseconomic growth driven by digital technology.

The Way Forward

Various initiatives have been undertaken to transform the nation into a Connected Economy. However,Malaysia is still facing key challenges such as low technology adoption among SMEs; digital disparitybetween urban and rural areas as well as between Peninsular Malaysia and Sabah and Sarawak; andhigh cost and slow internet speed. Amid the rapid advances in digital technology, rakyat must leveragethe social and economic benefits from the Connected Economy to improve their wellbeing and simplifytheir daily transactions. The Government will constantly formulate and refine policies as well asregulations to meet challenges and opportunities brought about by the Connected Economy. In addition,focus will also be given on shifting the society from being content consumers to content producers togeneratemore income.

CHAPTER 1.indd 22 10/15/16 12:07 AM


Improving Public Service Delivery

Undertheinclusiveandsustainablegrowthpolicy,astrongfiscal position is a prerequisite for the Government toelevatethequalityoflifeoftherakyat.TheGovernmentiscommittedtostayingonitsfiscalconsolidationmodeandachieveanear-balancedbudgetby2020. In this regard,aligningoperatinganddevelopmentexpendituretorevenueiskeytothe2017andconsecutivebudgets.Accordingly,thebudgetwillintensifyeffortstoenhancerevenuecollectionandoptimiseexpenditure.Revenueenhancementinitiativeswill include increasing the tax buoyancy by promotinghighvalue-addactivitiesandgeneratinghigh-incomejobs,broadeningthetaxbase,andreducing leakagesandtaxevasion.Atthesametime,outlayswillbetargetedtomeetpriority objectives and expenditures efficiently executed.Furthermore, to ensure higher returns on investment,developmentexpenditurewillbelimitedtorakyat-centricandhigh-impactprojects.ThesemeasureswillbecarriedoutwithoutcompromisingonthequantityandqualityofservicesrenderedbytheGovernment.Concurrently,initiativeswillbeintroducedtoprovideseamlessdeliveryofservicesaswell as achieve increased customer satisfaction.

Prospects for 2017

Giventhenation’sstrongeconomicfundamentalscoupledwith the 2017 Budget strategies and programmes, theeconomy is expected to expand between 4% and 5%in 2017. The expansion translates into gross nationalincome (GNI) per capita growth of 5% from RM37,812toRM39,699.Onthedemandside,growthwillemanatefromdomesticdemand,particularlyprivateconsumptionandprivate investmentexpenditureswhichareexpectedto expand6.3%and 5.8%, respectively. In tandemwithhigher investment activities, the savings-investmentgap is expected to narrow to 0.5% – 1.5% of GNI(2016:1%–1.5%).Inflationwillremainmanageable,whiletheeconomycontinuestooperateunderfullemployment.All sectors of the economy are expected to contributeto growth, with the services andmanufacturing sectorsspearheading the expansion. With the Government’scommitmenttoenhancingrevenueandreininexpenditure,the fiscaldeficit isexpected to improve further to3%ofGDP. These developmentswill strengthen the economicfundamentalsandaugurswellforanationintransitionfromanupper-middle toahigh-incomeandadvancednation.

CHAPTER 1.indd 23 10/15/16 12:07 AM

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