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COUNTRY REPORT OF

THE ASEAN ASSESSMENT ON


THE SOCIAL IMPACT OF
THE GLOBAL FINANCIAL CRISIS:
MALAYSIA
with the support of:
i
This volume is a product resulting from a project jointly implemented by the staff of the International Bank for Reconstruction and Development/
the World Bank and the ASEAN Secretariat, with fnancial support of the Australian Government. The fndings, interpretations, and conclusions
expressed in this paper do not necessarily refect the views of the Executive Directors of the World Bank, the governments they represent, the ASEAN
Secretariat, the Australian Government and/or ASEAN Member States. The World Bank, the ASEAN Secretariat and the Australian Government do
not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in
this work do not imply any judgment on the part of the World Bank concerning the legal status of any territory or the endorsement or acceptance
of such boundaries.
1
I. The ImpacT of The crIsIs and The GovernmenTs response
malaysia has been hit hard by the global fnancial crisis through the decline in global demand for its exports, but
it has succeeded in containing the negative impact on its overall economy and on the labor market. The greatest
impact on Malaysias economy came through the decline in global demand for Malaysias exported manufactures.
Malaysian exports fell by 33.9 percent year-on-year in January and by 35.9 percent in April 2009 (Figure 1). Real GDP
dropped by 6.2 percent in the frst quarter of 2009, but real activity appeared to stabilize in the second quarter of
2009 (World Bank, 2009). The annual contraction in real GDP moderated to 3.9 percent in the second quarter (Figure
2). The high import content of Malaysias exports provided a buffer and private consumption and fxed investment
were both up by around 3.5 percent quarter-on-quarter, with private consumption making a positive contribution
to annual growth. The contraction in manufacturing continued, albeit at a slower rate of -14.5% year-on-year
compared with -17.9 percent in the frst quarter. The services sector, up by 1.6 percent year-on-year in the second
quarter, played a major role in the stabilization of GDP. The rate of contraction in the mining and quarrying sector
also declined, with agriculture returning to growth and construction continuing its expansion. Monthly industrial
production data also show improved real outputs, with the rate of contraction improving to a rate of -8.4 percent
year-on-year in July.
1

The Social Impact of the Financial Ciisis anu the Social
Piotection Response: Nalaysia

1. The Impact of the Ciisis anu the uoveinment's Response!!

"#$#%&'#!(#&!)**+!(',!(#-.!)%!,(*!/$0)#$!1'+#+2'#$!2-'&'&!,(-03/(!,(*!.*2$'+*!'+!/$0)#$!.*4#+.!
10-!',&!*560-,&7!)3,!',!(#&!&322**.*.!'+!20+,#'+'+/!,(*!+*/#,'8*!'46#2,!0+!',&!08*-#$$!*20+04%!
#+.!0+!,(*!$#)0-!4#-9*,. 1he greaLesL lmpacL on Malaysla's economy came Lhrough Lhe decllne
ln global demand for Malaysla's exporLed manufacLures. Malayslan exporLs fell by 33.9 percenL
year-on-year ln !anuary and by 33.9 percenL ln Aprll 2009 (llgure 1). 8eal Cu dropped by 6.2
percenL ln Lhe flrsL quarLer of 2009, buL real acLlvlLy appeared Lo sLablllze ln Lhe second quarLer
of 2009 (World 8ank, 2009). 1he annual conLracLlon ln real Cu moderaLed Lo 3.9 percenL ln Lhe
second quarLer (llgure 2). 1he hlgh lmporL conLenL of Malaysla's exporLs!provlded a buffer and
prlvaLe consumpLlon and flxed lnvesLmenL were boLh up by around 3.3 percenL quarLer-on-
quarLer, wlLh prlvaLe consumpLlon maklng a poslLlve conLrlbuLlon Lo annual growLh. 1he
conLracLlon ln manufacLurlng conLlnued, albelL aL a slower raLe of -14.3 year-on-year
compared wlLh -17.9 percenL ln Lhe flrsL quarLer. 1he servlces secLor, up by 1.6 percenL year-on-
year ln Lhe second quarLer, played a ma[or role ln Lhe sLablllzaLlon of Cu. 1he raLe of
conLracLlon ln Lhe mlnlng and quarrylng secLor also decllned, wlLh agrlculLure reLurnlng Lo
growLh and consLrucLlon conLlnulng lLs expanslon. MonLhly lndusLrlal producLlon daLa also show
lmproved real ouLpuLs,!wlLh Lhe raLe of conLracLlon lmprovlng Lo a raLe of -8.4 percenL year-on-
year ln !uly.

:'/3-*!;<!=560-,!/-0>,(!6*-!"0+,(!?%*#-@0+@%*#-A!

!"#$%&: Malaysla ueparLmenL of SLaLlsLlcs


2
on aggregate, the malaysian labor market has held up remarkably well during the crisis. The overall unemployment
rate has increased only slightly since the beginning of the crisis, and overall employment has continued to increase
for all but foreign workers. The unemployment rate dropped to 3.6 percent in the second quarter of 2009 after
reaching 4.0 percent in the frst quarter. This is still close to the 2008 rate of 3.7 percent. The total number of
unemployed individuals increased by 13.2 percent (52,700) year-on-year in the frst quarter of 2009 after increasing
by 5.3 percent (17,600) in the fourth quarter of 2008. Overall employment rose by 2.2 percent in the frst quarter of
2009, very much in line with the 2.6 increase in total labor force.
however, there have been signifcant sectoral shifts within the labor market, with jobs moving away from export-
oriented sectors and into the sectors that have benefted the most from the stimulus measures that the government
has taken in response to the crisis. Data on retrenchments, temporary lay-offs, and salary cuts in large enterprises
1

points in the same direction (Figure 3). This decline in employment in manufacturing and agriculture, however, was
offset by an increase in the number of employees in the retail and service sectors as well as in the public sector.
In those sectors, employment has increased by 6.8 and 10 percent respectively in the frst half of 2009. Employment
in the health and social sectors has increased particularly strongly, with an increase of almost 25 percent year-on-
year.
1 Large enterprises are those with more than 10 employees. The data are administrative data collected by the Ministry of Human Resources, as described
below in the Monitoring subsection.
3
There were also important differences in the effects of the crisis on employment across different segments of the
manufacturing sector. While overall the manufacturing sector shed roughly 5.7 percent more of its employees in the
frst quarter of 2009 and 8.5 percent more in the second quarter than in the equivalent periods in the previous year,
export-oriented manufacturing industries such as the semi-conductor, veneer sheets and plywood, and electronic
valve industries experienced the biggest decline in employment (Figure 6). A notable positive exception from the
3

I|gure 3: ear-on-year Changes |n Lmp|oyment by Sector (1 and 2 2009)

!"#$%&: Malaysla ueparLmenL of SLaLlsLlcs

I|gure 4: ketrenchment by Sector (Cct 1st 2008-Aug 1Sth 2009)

!"#$%&: ueparLmenL of Labor

1here were a|so |mportant d|fferences |n the effects of the cr|s|s on emp|oyment across
d|fferent segments of the manufactur|ng sector. Whlle overall Lhe manufacLurlng secLor shed
roughly 3.7 percenL more of lLs employees ln Lhe flrsL quarLer of 2009 and 8.3 percenL more ln
Lhe second quarLer Lhan ln Lhe equlvalenL perlods ln Lhe prevlous year, exporL-orlenLed
manufacLurlng lndusLrles such as Lhe seml-conducLor, veneer sheeLs and plywood, and
elecLronlc valve lndusLrles experlenced Lhe blggesL decllne ln employmenL (llgure 6). A noLable
poslLlve excepLlon from Lhe downward Lrend was Lhe compuLer and perlpherals lndusLry. 1hls
4
downward trend was the computer and peripherals industry. This was the only major export-oriented industry
that experienced an increase in employment in the frst quarter of 2009 compared with the previous year, though
nominal wages in the industry have declined steadily over the past 18 months.
The labor market adjustment to the crisis also took place through prices, with declines in wages and working
hours. For example, nominal wages in manufacturing industries dropped by 5 percent on average in January 2009
(Figure 6) but returned to pre-crisis levels within six months because of the rapid decline in employment. The
governments stimulus policies (see below) and the tradition of labor dialogue in Malaysia both prompted employers
to respond to the crisis by reducing wages rather than by laying off workers.
5
While the governments stimulus package has played an important role in the labor markets response, the role of
the informal sector has also been important. Through its stimulus measures, the government has been successful
in promoting employment in the public sector. Also, the informal sector has been growing, given that a large share
of jobs in the retail and services sectors tend to be temporary and informal, with retail shops taking advantage of
the increase in labor supply to hire cheap additional labor on an as-needed basis. This is borne out by the fact that
the wage level for the retail sector has remained almost constant despite the increased labor supply.
data from the ministry of human resources on retrenched workers also suggests that migrant workers and
women have been hit disproportionately hard by the fnancial crisis.
2
Migrant workers represent a particularly
vulnerable category during any economic crisis, and this holds true in Malaysia. Foreign workers make up about
10 percent of the total labor force, but they have suffered disproportionately from the impact that the crisis has had
on the labor market. The number of foreign workers employed in Malaysia has decreased steadily starting in the
2 The Ministry of Human Resources collects data on retrenchments from frms with more than 10 employees. This provides only a partial picture because most
frms have fewer than 10 employees and are, therefore, not captured in these data.
3

Wh||e the government's st|mu|us package has p|ayed an |mportant ro|e |n the |abor market's
response, the ro|e of the |nforma| sector has a|so been |mportant. 1hrough lLs sLlmulus
measures, Lhe governmenL has been successful ln promoLlng employmenL ln Lhe publlc secLor.
Also, Lhe lnformal secLor has been growlng, glven LhaL a large share of [obs ln Lhe reLall and
servlces secLors Lend Lo be Lemporary and lnformal, wlLh reLall shops Laklng advanLage of Lhe
lncrease ln labor supply Lo hlre cheap addlLlonal labor on an as-needed basls. 1hls ls borne ouL
by Lhe facL LhaL Lhe wage level for Lhe reLall secLor has remalned almosL consLanL desplLe Lhe
lncreased labor supply.

I|gure 8: ketrenchment by Sector (Cct 1st 2008-Aug 1Sth 2009)

!"#$%&: Malaysla MlnlsLry of Puman 8esources

Data from the M|n|stry of numan kesources on retrenched workers a|so suggests that m|grant
workers and women have been h|t d|sproport|onate|y hard by the f|nanc|a| cr|s|s.
2
MlgranL
workers represenL a parLlcularly vulnerable caLegory durlng any economlc crlsls, and Lhls hold
Lrue ln Malaysla. lorelgn workers make up abouL 10 percenL of Lhe LoLal labor force, buL Lhey
have suffered dlsproporLlonaLely from Lhe lmpacL LhaL Lhe crlsls has had on Lhe labor markeL.
1he number of forelgn workers employed ln Malaysla has decreased sLeadlly sLarLlng ln Lhe Lhlrd
quarLer 2008 on a year-on-year basls. 8eLween CcLober 1, 2008 and lebruary 18, 2009, 16,611
workers have been permanenLly reLrenched
3
by flrms wlLh more Lhan 10 employees, and 36
percenL of Lhese workers were forelgn workers (llgure 9). 1he same ls Lrue for wage reducLlons
and, Lo a much lesser exLenL, for Lemporary lay-offs. ln Lerms of gender lmpacL, whlle a deeper
analysls ls warranLed Lo capLure Lhe full effecL of Lhe crlsls aL Lhe household level, llgure 10
suggesLs LhaL women may have been more affecLed Lhan men. SlxLy percenL of Lemporary lay-
offs and 37 percenL of all reporLed wage cuLs have been experlenced by women. Also noLable ls
Lhe facL LhaL, ln Lhe case of boLh salary cuLs and lay-offs, Lhls gender dlscrlmlnaLlon ls hlgher
among forelgn workers.

2
1he MlnlsLry of Puman 8esources collecLs daLa on reLrenchmenLs from flrms wlLh more Lhan 10
employees. 1hls provldes only a parLlal plcLure because mosL flrms have fewer Lhan 10 employees and
are, Lherefore, noL capLured ln Lhese daLa.
3
1he ueparLmenL of Labor dlsLlngulshes beLween reLrenchmenLs and lay-offs. 1he former refers Lo
permanenL lay-offs, whereas Lhe laLLer ls a Lemporary measure where workers wlll geL back Lo Lhelr [obs
afLer a whlle.
6
third quarter 2008 on a year-on-year basis. Between October 1, 2008 and February 18, 2009, 16,611 workers have
been permanently retrenched
3
by frms with more than 10 employees, and 36 percent of these workers were foreign
workers (Figure 9). The same is true for wage reductions and, to a much lesser extent, for temporary lay-offs. In
terms of gender impact, while a deeper analysis is warranted to capture the full effect of the crisis at the household
level, Figure 10 suggests that women may have been more affected than men. Sixty percent of temporary lay-offs
and 57 percent of all reported wage cuts have been experienced by women. Also notable is the fact that, in the
case of both salary cuts and lay-offs, this gender discrimination is higher among foreign workers.
data on numbers of registered job seekers, job placements and open vacancies indicate that the labor market
situation will ease somewhat over the coming months. The latest available labor market data as of mid-2009
suggest that there is light at the end of the tunnel (Figures 8 and 9). Although still growing by at about 65 percent
on a year-to-year basis, the growth in registered active job seekers declined considerably in June 2009. The same
is true for the number of newly registered job seekers. After increasing by more than 100 percent on an annual
basis in February and March 2009, this number increased by only 55 percent in June. However, the number of
registered job seekers placed in jobs by JobMalaysia (an automated online job matching service provided by
the Ministry of Human Resources) is still decreasing on an annual basis. The number of registered vacancies is
another green shoot on the Malaysian labor market. Year-on-year, the number of vacancies increased by almost
40,000 positions, with manufacturing industries contributing almost 25,000 of these vacancies.
3 The Department of Labor distinguishes between retrenchments and lay-offs. The former refers to permanent lay-offs, whereas the latter is a temporary
measure where workers will get back to their jobs after a while.
6

I|gures 9:D|str|but|on of ketrenchment by
Cr|g|n
I|gure 10: D|str|but|on of ketrenchment by
Gender

!"#$%&: Malaysla MlnlsLry of Puman 8esources

Data on numbers of reg|stered [ob seekers, [ob p|acements and open vacanc|es |nd|cate that
the |abor market s|tuat|on w||| ease somewhat over the com|ng months. 1he laLesL avallable
labor markeL daLa as of mld-2009 suggesL LhaL Lhere ls llghL aL Lhe end of Lhe Lunnel (llgures 8
and 9). AlLhough sLlll growlng by aL abouL 63 percenL on a year-Lo-year basls, Lhe growLh ln
reglsLered acLlve [ob seekers decllned conslderably ln !une 2009. 1he same ls Lrue for Lhe
number of newly reglsLered [ob seekers. AfLer lncreaslng by more Lhan 100 percenL on an
annual basls ln lebruary and March 2009, Lhls number lncreased by only" 33 percenL ln !une.
Powever, Lhe number of reglsLered [ob seekers placed ln [obs by !obMalaysla (an auLomaLed
onllne [ob maLchlng servlce provlded by Lhe MlnlsLry of Puman 8esources) ls sLlll decreaslng on
an annual basls. 1he number of reglsLered vacancles ls anoLher green shooL" on Lhe Malayslan
labor markeL. ?ear-on-year, Lhe number of vacancles lncreased by almosL 40,000 poslLlons, wlLh
manufacLurlng lndusLrles conLrlbuLlng almosL 23,000 of Lhese vacancles.

I|gure 11: ear-on-year Change |n the Number of Act|ve and New|y keg|stered Iob Seekers
and |acements
7
monitoring
The malaysian government produces good quarterly labor statistics as part of its regular data system and has
implemented additional measures to track the impact of the crisis on the labor market. The Labor Force Survey
(LFS) is conducted quarterly and collects standard data on employment and wages. The survey makes it possible to
monitor in depth important sectors such as manufacturing and retail and wholesale trade with a very fne degree of
granulation. Ministry of Human Resources (MoHR) collects data on jobseekers, open vacancies, and job matching
on a regular basis, and these fgures are made available with only a short time lag. At the onset of the fnancial
crisis, the MoHR established an Operations Room in which to track retrenchments, temporary lay-offs, and wage
cuts. When employers wish to retrench any of their workers, they have to fle a report with the MoHR explaining
6

I|gures 9:D|str|but|on of ketrenchment by
Cr|g|n
I|gure 10: D|str|but|on of ketrenchment by
Gender

!"#$%&: Malaysla MlnlsLry of Puman 8esources

Data on numbers of reg|stered [ob seekers, [ob p|acements and open vacanc|es |nd|cate that
the |abor market s|tuat|on w||| ease somewhat over the com|ng months. 1he laLesL avallable
labor markeL daLa as of mld-2009 suggesL LhaL Lhere ls llghL aL Lhe end of Lhe Lunnel (llgures 8
and 9). AlLhough sLlll growlng by aL abouL 63 percenL on a year-Lo-year basls, Lhe growLh ln
reglsLered acLlve [ob seekers decllned conslderably ln !une 2009. 1he same ls Lrue for Lhe
number of newly reglsLered [ob seekers. AfLer lncreaslng by more Lhan 100 percenL on an
annual basls ln lebruary and March 2009, Lhls number lncreased by only" 33 percenL ln !une.
Powever, Lhe number of reglsLered [ob seekers placed ln [obs by !obMalaysla (an auLomaLed
onllne [ob maLchlng servlce provlded by Lhe MlnlsLry of Puman 8esources) ls sLlll decreaslng on
an annual basls. 1he number of reglsLered vacancles ls anoLher green shooL" on Lhe Malayslan
labor markeL. ?ear-on-year, Lhe number of vacancles lncreased by almosL 40,000 poslLlons, wlLh
manufacLurlng lndusLrles conLrlbuLlng almosL 23,000 of Lhese vacancles.

I|gure 11: ear-on-year Change |n the Number of Act|ve and New|y keg|stered Iob Seekers
and |acements
8
why the worker needs to be retrenched, the type of work he or she did, the frms employment strategy, and the
amount of unemployment compensation that the worker will receive. Following that, the MoHR will visit the place
of employment & discuss with employer and workers on measures can be taken to avoid retrenchment.
4
These
reports generate administrative information that can be tracked for the purposes of monitoring lay-offs in the
economy as a whole.
The Governments response
The governments policy response to the economic crisis has been robust and has consisted of an expansionary
fscal policy and an accommodating monetary policy. Two separate stimulus packages were announced in
November 2008 and March 2009 consisting of 1 and 9 percent of GDP respectively over two years (the direct fscal
injection is estimated to be about 3.5 percent of GDP over two years). The frst stimulus package (SP1) of RM 7
billion focused on infrastructure development and public investment. SP1 allocated resources mainly to building
public infrastructure (police quarters, schools, roads, hospitals, public transport systems, abandoned housing
projects, and micro-enterprises). Also included in the package were: (i) an extension of housing loans from 25 to 30
years and an increase in home loan amounts for civil servants; (ii) the opportunity for Employment Provident Fund
members to reduce their contributions; and (iii) an allowance for foreigners (and companies) to buy commercial
real estate without seeking the approval of the Foreign Investment Committee.
5
The second stimulus package
(SP2) of RM 60 billion over two years was more comprehensive. SP2 aims to increase employment by providing
training programmes and by supporting private sector investment and the development of small and medium-sized
enterprises (SMEs) that will build Malaysias economic capacity for the future. It includes spending measures
(RM 15 billion), guarantee funds (RM 25 billion), equity investments (RM 10 billion), private fnance and off-budget
initiatives (RM 7 billion), and tax incentives (RM 3 billion).
4 Presentation of the MoHR: Management of Retrenchment of Workers,
http://www.mohr.gov.my/pemberhentian/managing_retrenchment.pdf
5 ADBI Working paper 148, p14
9
9

J#)$*!;<!O,'43$3&!G#29#/*!;!#+.!O,'43$3&!G#29#/*!B!@!"#'+!"*#&3-*&!
"*#&3-*&! U4,!
\+8*&,4*+,!'+!63)$'2!'+1-#&,-32,3-*!#+.!,*2(+0$0/%!
ubllc lnfrasLrucLure (schools, hosplLals, roads, publlc LransporLaLlon, eLc) - 8M 2 bllllon
AcceleraLe lmplemenLaLlon of broadband lnLerneL - 8M 400 mllllon
AddlLlonal low and medlum cosL houses and enhanced houslng schemes, 8M 1.4 bllllon
Small malnLenance pro[ecLs, 600 mllllon
8M 4.4
bllllon
(63)
=.32#,'0+!#+.!,-#'+'+/!
Lnhanced youLh programs and Lralnlng, preschool educaLlon, sklll Lralnlng funds.
8M 1
bllllon
(14)
S 1
8M 7
8llllon
G-'8#,*!'+8*&,4*+,!
lncrease prlvaLe lnvesLmenL and aLLracL buslness opporLunlLles for SMLs (8M 100 mllllon)
8M 1.6
bllllon
(23)
=46$0%4*+,!!
'(#%)*+",-),(-.#/0+%-1&%*"$-&2.0"32&,*4-Skllls Lralnlng and [ob creaLlon (30,000 vacanL
posLs and 13,000 conLracL posLs ln Lhe publlc secLor)
5&*$&,%6&(-7"$8&$1-),(-.$+9)*&-1&%*"$-+,%&,*+9&1: lncenLlves Lo employers Lo hlre
reLrenched workers: employers who employ workers reLrenched from !uly 2008 are
glven double Lax deducLlon on Lhe amounL of remuneraLlon pald.
:#1+,&11-),(-&,*$&.$&,&#$-".."$*#,+*+&14-Lxpanslon of Lhe 8CSL8 CraduaLe rogram
LhaL offers flnanclng Lo develop young enLrepreneurs
;$+"$+*3-<+9&,-*"-0"%)0-7"$8&$1-
8M 2
bllllon
(3)
O3660-,'+/!83$+*-#)$*!/-036&!!
!#/1+(+&14- lood subsldles of 8M 674 mllllon, consLrucLlon of affordable houslng,
lncenLlves Lo banks Lo allow borrowers Lo defer repaymenL of houslng loans.
5#$)0- =)$2&$1- ),(- &,*$&.$&,&#$14- *o lncrease households' dlsposable lncome,
CovernmenL Savlngs bonds are avallable, plus mlcrocredlL programs for rural farmers
and flsherman.
5&*$&,%6&(- 7"$8&$1: 1ax rellef on unemploymenL beneflLs for reLrenched workers (8M
60,000-8M 10,000 for each year of servlce)
8M 10
bllllon
(17)
U&&'&,'+/!,(*!6-'8#,*!&*2,0-!!
>"$8+,<- ?).+*)0- @$),*- !%6&2&, Lo provlde SMLs wlLh guaranLeed worklng caplLal ln Lhe
raLlo of 80:20 (CovernmenL: flnanclal lnsLlLuLlons). CLher measures and fundlng schemes
have been lmplemenLed Lo lncrease flnanclal sLablllLy and lnvesLmenL ln Lhe fuLure, and
reduce rellance on unskllled labour ln Lhe fuLure (8M 3 bllllon)
SupporL Lo auLomoLlve and avlaLlon secLors, 30 percenL rebaLe on landlng charges for Lhe
nexL Lwo years has been applled Lo alr carrlers Lo promoLe Lourlsm.
8M 29
bllllon
(30)
S 2
8M 60
8llllon
c3'$.'+/!2#6#2',%!10-!,(*!13,3-*!
1elecommunlcaLlons (8M 2.4 bllllon), alrporL (8M 230 mllllon) and consLrucLlon of sky
brldges and walkways beLween bulldlngs (8M 100).
rlvaLe flnance lnlLlaLlve Lo lncrease publlc-prlvaLe parLnershlps ln sLraLeglc secLors such
as educaLlon, healLh and Lourlsm (8M 2 bllllon).
LlberallzaLlon of Lhe servlces secLor, wlLh Lhe ob[ecLlve of lncreaslng lLs conLrlbuLlon Lo
Cu from 33 percenL Lo 70 percenL.
8M 19
bllllon
(30)
10
II. socIal proTecTIon proGrammes aT The onseT of The crIsIs
malaysia has a low poverty rate but grapples with the problems of relatively high inequality and pockets of
poverty for which social assistance is an important tool. Its social services are generous, and it has numerous
social assistance programmes. In 2009, the Malaysian Federal Governments budgeted current expenditure was at
21.3 percent of GDP, up from 20.4 percent in 2008. In 2009, budgeted development expenditure (economic services,
social services, security, and general administration) accounted for 7.8 percent of GDP, a signifcant increase from
the 5.7 percent in 2008.
6
Within social expenditure, spending on education and health constitutes over 60 percent
of total spending. Welfare services received less than 1 percent of social expenditure between 2001 and 2010.
7

social protection programmes and policies in malaysia can be divided into three broad categories: (i) universal
health and education services; (ii) welfare assistance schemes and social safety nets that are predicated on income
levels and targeted toward specifc groups; and (iii) a mixed social security system for members of employment-
based insurance and savings schemes.
Universal health and education
The government provides free access to primary and secondary education, as well as to primary health care. While
these are not social protection programmes per se, they protect the human capital of the vulnerable population
and, therefore, play an important role in the broader social protection system. Public expenditures on education,
in particular, have been consistently high over the years in an effort to expand education, increase skills, and,
ultimately, enhance productivity. While a number of small targeted programmes exist to support education and
are described below, the largest support programmes in education are not specifcally targeted to the poor.
8
The
government also heavily subsidizes access to tertiary education. Access to health care is provided on a universal
basis fnanced from general government revenues. Yet, despite the availability of free or near-free services in
the public sector, around 40 percent of total health expenditures are fnanced by out-of-pocket payments. This is
because many patients, even among the poor, are using private providers, in most cases to get swifter access to
services or due to their dissatisfaction with the public sector. Private health insurance is expanding rapidly, but it
is also important for policymakers to consider other approaches to this problem, for example, by reforming public
fnancing and service delivery (and improve the quality of public service) and/or establishing supplementary social
health insurance.
safety nets and Welfare
The government supports a large number of safety nets. The majority of these are general consumer or producer
subsidies (some of which are better targeted than others) and smaller social assistance programmes, of which
some are targeted to the poor and others are targeted based on criteria other than poverty. The government has
also put in place a variety of programmes to promote employment and entrepreneurship among welfare recipients
6 Economic Planning Unit, 2009 key fgures, Public Sector Accounts.
7 9th Malaysia Plan 2006 2010, Development Allocation, p529,
http://www.epu.gov.my/html/themes/epu/html/rm9/english/allocation1.pdf
8 For example, a meals programme for students living in hostels, administered by the MOE, accounts for almost one-third of the total allocation for support
programmes.
11
with the aim of reducing poverty and preventing welfare dependency. However, little information is available on
how well these programmes are working.
spending on safety nets is substantial, but a large share goes to un-targeted subsidies. The Government of
Malaysia subsidizes the consumers (or producers) of several products in order to guarantee access to food and
other essential commodities at affordable prices. In the past, the greatest share of these subsidies has gone to
keeping the prices for oil products and rice low. However, the prices of palm oil, sugar, four, and bread are also
controlled. Because they are universal, subsidies are not the most appropriate instrument to assist the most
vulnerable populations. While the subsidy on low-quality rice can reasonably be expected to beneft these groups,
subsidies such as fuel subsidies tend to favor higher-income groups who have larger energy needs. Some of the
programmes for example, the one-off subsidy to car owners and some of the food subsidies are being reduced
or phased out in the current budget. The IMF estimates that fuel subsidies in Malaysia will amount to 1.2 percent of
GDP in 2009, down from 2.2 percent in 2008.
9
several ministries (the ministries of Women, family, and community development, of regional and rural
development, of health, of housing and local Government, and of education) administer a large number of small
targeted social assistance programmes. The Department of Social Welfare Malaysia (DSWM) manages many
small programmes aimed at supporting specifc vulnerable groups such as poor children, the elderly, widows, and
the disabled, mostly by providing them with cash transfers (Annex 1). These programmes tend to use simple means
testing as their targeting mechanism, with social workers checking households self-reported against the national
poverty line. A mobile unit, the Khidmat Penyayang, was established in 2002 to visit local communities, provide
appropriate services and information, and register those needing assistance, particularly disabled people. The
Ministry of Education manages school feeding programmes, tuition aid, federal scholarships, and the poor students
trust fund among others. In the health sector, a medical assistance fund has been established to subsidize the use
of health services by the poor, but it has only limited funding. Targeting is managed separately by each respective
ministry, which means that there is a signifcant risk that programmes overlap each other in terms of benefciaries
and spending.
To improve targeting and reduce overlaps, the government has recently developed a centralized database to
identify and manage a list of poor and hardcore-poor households. The new system, e-Kasih, was launched in
November 2007 and is maintained by the Implementation and Coordination Unit in the Prime Ministers Department.
This system represents a step in the right direction but some challenges remain. Some critics question the reliability
of the data and the robustness of the data collection process. Partly due to these problems, agencies such as
the Social Welfare Department of the Ministry of Women, Family, and Community still maintain a large cadre of
local social workers who have been trained to assess household conditions according to a broader set of criteria
(including identifying the disabled and other target groups that may include some non-poor households). Moreover,
9 IMF Article IV (2009) p.32
12
the measures taken to date have failed to address some of the more fundamental challenges associated with the
current targeting system, in particular the diffculty of verifying households cash income, the risk of mis-targeting
due to the high variability of cash income, and the failure to capture non-cash income.
social Insurance/social security
Both contributory and non-contributory social security schemes exist in malaysia, but they only cover those
employed in the formal sector, which comprises approximately 60 percent of the total labor force. Public sector
employees are covered by the governments Civil Service Pension, which is a non-contributory scheme funded
by the government through tax revenues. The Civil Service pension is comprehensive and provides benefts for
employment injury, disability, superannuation, and dependants pension in the case of the death of the policyholder.
Formal private sector employees contribute to the Employees Provident Fund (EPF), which is a mandatory retirement
saving scheme in which benefts are accrued from contributions from both the employer and employee.
10
The
EPF provides retirement benefts
11
but no invalidity, injury, or death benefts. In 2008, there were around 12 million
members of the EPF, with a total of 5.7 million active members. The EPF estimates that it covers around 50 percent
of the workforce (almost exclusively in the formal sector), leaving many workers uncovered by formal pension
arrangements. Moreover, due to gaps in the contribution periods of some workers (during which they may have
been working in the informal sector) and the early retirement age in Malaysia (55-60 years in the private and 58
years in the public sector), the accumulated savings can often be inadequate to fnance a workers retirement.
Finally, there are three government unit trusts that offer guaranteed savings schemes
12
targeted to different
groups. In particular, in an effort to increase the contributions of the very poor to savings schemes, the government
established the Bumiputera Unit Trust loan scheme in 1992 to provide interest-free loans to households earning
less than RM 5,000.
13

accident and invalidity benefts and invalidity pensions for employees and their families are provided by the
social security organization (socso), the main social insurance scheme for private sector workers who earn
less than rm 3,000 a month.
14
contributions are 1.25 percent and 1 percent respectively by the employer and
employee.
15
The most recent data for the SOCSO are for 2006, when there were 5.5 million active employee members
and around 269,000 beneft recipients. Foreign workers are not allowed to participate in the SOCSO or to take part
in the Workmens Compensation Scheme, which was established in 1993.
10 Between 2004 and 2008, the total contribution rate was 23 percent of employees wages, of which 11 percent is by the employee and 12 percent by the
employer.
11 In the past, most withdrawals (95 percent) from the fund have been in the form of lump sums, but since 2007, members have been able to take funds in
installments and on an ad hoc basis from the age of 55 years.
12 The National Unit Trust and the Amanah Saham Bumiputera (ASB), which are only open to Bumiputera, the Amanah Wawasan 2020, which is open to all
Malaysians between the ages of 12 and 29, and the Amanah Saham Malaysia, which is open to all Malaysians.
13 Ragayah Haji Mat Zin, East Asia Development Network, p30
14 The SOCSO consists of an Employment Injury Insurance scheme for medical benefts, a temporary disability beneft, a permanent disability beneft, a
dependents beneft, a death beneft, and a rehabilitation beneft and of an Invalidity Pensions scheme that provides coverage against invalidity or death due to
any cause.
15 Ragayah Haji Mat Zin, East Asia Development Network
13
III. adjUsTmenTs made To socIal proTecTIon proGrammes In response To The crIsIs
The governments response to the crisis was strong and multifaceted. Through the stimulus packages, the
government focused on creating employment and on providing the kind of training necessary to accompany the
sectoral shift in the labor market. As previously described, the government was able to contain the extent of the
negative impact of the crisis on the labor market by creating a signifcant number of jobs. However, the jobs that
were created were in the construction, services, and public sectors, while jobs that were lost came from the
manufacturing sector. The stimulus packages included fnancing for training and skills development, as well as
incentives for employers to retain/rehire employees. Apart from the direct incremental stimulus measures that
gave employers incentives to retain their employees, the government also encouraged mediation and consultation
among employers, employees, and the MoHR as a way to minimize retrenchments and save jobs. In this process, if
retrenchment turns out to be inevitable, then the government [check] provides the worker with additional education
and vocational training in order to increase his or her skills and to bring him or her back into the labor market.
The safety net response of the malaysian government was not large in fscal terms but was nonetheless
notable. The government focused on expanding cash transfers, accompanied by additional measures to increase
households disposable income. The interesting question with respect to these measures is the extent to which
they will be only short term or whether they will be retained as part of a longer-term strengthening of the social
protection system in Malaysia.
The malaysia social safety net, or jaringan Keselamatan sosial malaysia (jKsm), a cash transfer programme,
was relaunched in february 2009 with expanded eligibility criteria for fnancial assistance. Annual funding for the
programme was increased to RM 850 million from RM 350 million in 2008. for receiving social safety net funds were
raised from RM 400 to RM 720 (per month) for Peninsular Malaysia and from RM 830 to RM 960 for other regions.
It is expected that these reforms will extend benefts to at least 110,000 families, which will be 50,000 more than
in 2008.
16
The existence of e-Kasih is likely to have helped to identify and target assistance to the most vulnerable
households.
additional measures have been implemented to increase households disposable income and facilitate access
to housing. The employee contribution rate to the EPF was reduced to 8 percent in February 2009 to continue until
December 2010, so that the total contribution rate is currently 20 percent. However, approximately half of the active
members chose to maintain the original 11 percent contribution rate. Rm 5.6 billion was allocated to increase
food production for 2008 to 2010 on unused land. In addition, marginal tax rates were reduced for high and middle
income groups, and the tax deduction was increased for travel expensed to and from the workplace. Also, a new
childcare allowance for children of employees earning up to RM 2,400 per year was implemented. To facilitate
access to housing, the government enhanced the Housing Programme by introducing a 50 percent stamp duty
exemption on loans that fnance the purchase of medium-cost houses. Also, the existing Housing Credit Guarantee
16 Liza Wong, Help for the needy, the star online, http://thestar.com.my/lifestyle/story.asp?fle=/2009/3/30/lifefocus/3355711&sec=lifefocus
14
Scheme (SJKP), which assists those with no fxed income to own affordable houses, was increased.
17
Finally, the
fscal stimulus contained RM 50 million to build and repair houses.
Iv. polIcy IssUes for fUrTher consIderaTIon
The global fnancial crisis has highlighted a number of policy issues that need to be addressed in malaysias
social protection system. Even in the absence of the crisis, the government of Malaysia would have had to confront
these issues soon as Malaysia social protection needs are changing now that it is becoming a middle-income
country. Social protection policies have an important role to play as the government strives to maintain a fexible
and competitive economy without exposing the population to serious poverty risk. Some of the issues on which
the government is focusing and on which it will need to continue focusing as Malaysia consolidates its post-crisis
recovery include:
ExpandingcoverageoftheSPsystemtoincludevariousgroupswhocurrentlyhavelittleornocoverage,in
some cases under social assistance programmes and in others under social insurance. This includes workers
in the informal sector, elderly people, and foreign workers in the case of social insurance. The coverage of
social assistance for a country of Malaysias income level and administrative sophistication is particularly low
by international standards. An important policy question is the extent to which the government intends the
recent crisis-related expansions in coverage to be the beginning of wider reform of the SP sector or whether
these expansions are meant to be temporary.
DevelopingacommontargetingmechanismforSPprogrammesthatiscoordinatedacrossagencies. Resources
and programmes to protect the poor are available, though transfers and benefts do not always reach the most
vulnerable households because a large share of these programmes is untargeted. More accurate identifcation
of vulnerable households would make these programmes more effective and help policymakers to prioritize
resources, which will be particularly necessary given the fscal impact of implementing two large stimulus
packages. There may also be some scope to shift the policy emphasis away from generalized subsidies and
towarbds new and more accurate targeting mechanisms, which would increase the effectiveness of individual
programmes and reduce leakage.
RationalizingtheadministrationofthewiderangeofinstitutionsinvolvedintheSPsysteminMalaysia. Many
different ministries and agencies are involved in providing social protection, and the many SP programmes
differ widely in terms of their targeting mechanisms (and sometimes criteria), benefts, and administrative
arrangements. For example, the Ministry of Women, Family, and Community Development, the Ministry of Regional
and Rural Development, the Ministry of Health, the Ministry of Housing and Local Government, and the Ministry
of Education all operate programmes to assist the poor. This fragmentation at the national level is compounded
by fragmentation between levels of government (states also provide social assistance in coordination with the
Ministry of Women, Family, and Community Development). This fragmentation is likely to result in signifcant
17 Economic Planning Unit, 2009 Budget, http://www.epu.gov.my/html/themes/epu/images/common/pdf/bajet/Budget2009-theme_and_strategies.pdf
15
ineffciencies. The lack of coordination contributes to two possible problems. First, the fact that each agency
has their own institutional mechanism for identifying benefciaries increases the possibility that the selection of
benefciaries is not uniform across programmes, even if the same income criteria are applied. Second, there is
currently no system in place to fnd out which programmes are servicing which household and whether there
are any overlaps. The centralized database, e-Kasih, may become a useful monitoring tool for this purpose, but
it still suffers from several programmes, as discussed in the previous section.
16
references
Asian Development Bank Institute (2009). Working paper 148, Malaysia and the Global Crisis: Impact, Response, Rebalancing
Strategies
Department of Statistics, Malaysia: Labor Market report Q1 2009
Department of Statistics, Malaysia: Labor Market report Q4 2008
Department of Statistics, Malaysia: Labor Market report Q3 2008
Department of Statistics, Malaysia: Labor Market report Q2 2008
Department of Statistics, Malaysia: Labor Market report Q1 2008
Economic Planning Unit, 2009 Budget, http://www.epu.gov.my/html/themes/epu/images/common/pdf/bajet/Budget2009-theme_
and_strategies.pdf
Economic Planning Unit, 2009 key fgures, Public Sector Accounts
9th Malaysia Plan 2006 2010, Development Allocation, http://www.epu.gov.my/html/themes/epu/html/rm9/english/allocation1.
pdf
IMF Article IV (2009)
International Labour Organization (2009) The effect of the Global Economic Crisis on Asian Migrant Workers and Governments
responses, February
Ministry of Human Resources, Presentation: Management of Retrenchment of Workers, http://www.mohr.gov.my/pemberhentian/
managing_retrenchment.pdf
World Bank (2009), Malaysia Real Sector Update September 2009
Ragayah Haji Mat Zin, East Asia Development Network
Liza Wong, Help for the needy, the star online,
http://thestar.com.my/lifestyle/story.asp?fle=/2009/3/30/lifefocus/3355711&sec=lifefocus
17
17



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