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BACHELOR OF HUMAN RESOURCE MANAGEMENT WITH HONOURS

JANUARY / 2022

PRINCIPLES OF MACROECONOMICS

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MATRICULATION NO : 740127105496001

IDENTITY CARD NO. : 740127105496

TELEPHONE NO. : 0133305822

E-MAIL : nahafainah@oum.edu.my

LEARNING CENTRE : SHAH ALAM

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Table of Contents

PART I....................................................................................................................................................1

INTRODUCTION.....................................................................................................................................1

THE BASIC MACROECONOMICS PROBLEM............................................................................................2

MANAGING CHALLENGES WITH MACROECONOMIC POLICY................................................................5

SUGESSION ON CURRENT MACROECONOMIC POLICIES.......................................................................7

CONCLUSION.........................................................................................................................................9

PART II.................................................................................................................................................10

ONLINE FORUM PARTICIPATION.........................................................................................................10

REFERENCE..........................................................................................................................................12
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PART I

INTRODUCTION

Macroeconomic policy is concerned with the economy's overall operation.

Macroeconomic policy's general objective is to establish a stable economic climate favorable
to robust and sustainable economic growth, which is necessary for job creation, wealth
generation, and better living standards. Fiscal policy, monetary policy, and exchange rate
policy are the three main pillars of macroeconomic policy, which is what the government
does.
Malaysia's economy has diversified from an agricultural and commodity-based
economy to one with robust industrial and service sectors. Its economy is one of the world's
most open, with a trade-to-GDP ratio of almost 130% since 2010. Over 40% of jobs in
Malaysia are tied to export activity, so trade and investment openness are crucial for job
creation. However, the COVID-19 (coronavirus) pandemic has harmed Malaysians,
particularly the poor. Following the revision of the national poverty line in July 2020, 5.6%
of Malaysian households are currently poor. The government is focusing on the poorest 40%
of the population ("the bottom 40"). This low-income population is nevertheless subject to
economic shocks, rising costs of living, and accumulating debt.
Malaysia's economic growth has outpaced the top 40's income growth for much of the
last decade. But the absolute gap between the rich and poor has widened, contributing to
widespread perceptions of poverty. It has been moving away from broad-based subsidies and
toward more specific ways to help the poor and vulnerable, one by one. Malaysia's economic
outlook will be affected by the COVID-19 shock and limiting public investment growth.
Longer term, as Malaysia approaches high-income economies, incremental growth will rely
less on factor accumulation and more on productivity growth. Ongoing reform efforts to
address key structural constraints are essential to Malaysia's development.
Malaysia is ranked 55th out of 157 nations in the World Bank's Human Capital Index
and will need to make greater progress in education, health and nutrition. The government
seeks to increase education quality and rethink dietary approaches to minimise childhood
stunting. Families need to have enough social welfare protection so that they can spend
money on human capital to improve their children's learning.

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THE BASIC MACROECONOMICS PROBLEM

In macroeconomics there are also several challenges to be faced. The following are
some of the problems that often occur in macroeconomics:

Unemployment
Unemployment is an economic issue where many employees want to work but cannot
find jobs. It arises due to lack of aggregate expenditure, economic slowdown, industrial
backwardness, automation, and other factors. Loss of resources and capacity to work reduces
income and level of living.
The epidemic has had a significant impact on the Malaysian economy and work market. The
patterns of major labour market variables were examined to see if the labour market structure
changed during the epidemic. This study analyses the periods before and after the March 18,
2020, Movement Control Order (MCO). Initially, MCO authorised only vital services to
operate, while non-essential services were prohibited. Moreover, MCO has been applied in
stages to keep the economy running while maintaining the country's security and health. In
2020, poor corporate performance has increased retrenchments and halted new hires. As a
result, labour demand slowed, and job prospects decreased. Unregistered entrepreneurs are
among those most at danger from the epidemic.

Inflation
Inflation is an unending rise in prices. It is related to excess aggregate expenditure,
increased manufacturing costs, and rising import prices. Inflation reduces real income, buying
power, standard of life, population welfare, balance of payments, and currency value.
Malaysia currently faces several issues and challenges that have influenced efforts to
achieve the country's vision. Such issues include situations that directly affect the people,
such as the permanent impact of the COVID-19 pandemic on household income. This
epidemic has impacted every family in Malaysia, even those in the B40, M40, and top 20%
of income brackets (T20). According to the Malaysia Household Income Budget Report and
the Malaysia Poverty Incident 2020-2021, a total of 12.8 percent of T20 families and 20% of
M40 households are currently classified as low income. Compared to the B40 group, the M1
group, which is in the bottom 10% of the M40, was severely affected during the outbreak due
to excessive financial commitments and family spending.

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The overall impact of a decrease in household income could cause an economic

contraction and have the long-term impact of the epidemic on human lives and livelihoods.

Economic growth
The difficulty of economic organisation reduces economic activity, employment, and
absorption, or social welfare. As the number and quality of production elements rise, so does
the potential national revenue. Because real national income does not grow at the same rate as
potential national income, unemployment persists.
The COVID-19 problem has increased the difficulty of managing public finances, as
well as increased fiscal risk exposure. Several important risk factors include a prolonged
economic slump, a lengthy pandemic, and reduced crude oil prices. This resulted in decreased
tax collection while increased expenditure was necessary to revitalize the economy through
counter-cyclical measures. These obstacles will boost debt levels and may potentially derail
the medium-term fiscal consolidation process.
The country’s economy worsened in 2020, with GDP falling 17.2% in the second
quarter (Refer to Figure 1). This is an effect of the implementation of the Movement Control
Order (MCO) to reduce the spread and level the COVID-19 curve.

Figure 1

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The recession hit all major economic sectors, especially mining and construction,
which had double-digit growth declines (Refer to Figure 2). In particular, the wholesale and
retail commerce, food and beverage, and lodging sectors, as well as transport and storage, are
significantly impacted.

Figure 2

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MANAGING CHALLENGES WITH MACROECONOMIC POLICY

Malaysia's macroeconomic and public financial stability depends on an efficient fiscal

strategy that combines growth demands with budgetary sustainability. To assist the country,
proceed in the right path, the fiscal position has to be more flexible and work with efficient
tax and spending measures.
The Malaysian government has taken many steps to implement changes and
improvements at every level of management based on the country's macroeconomic policies.
The forms of policy in the Malaysian macro economy include:

Fiscal policy
Over the last decade, the government has been effective in reducing the budget
deficit. The huge budget deficit of 6.7 percent of GDP at the start of the Global Financial
Crisis in 2009 has been effectively reduced by more than half to 2.9 percent in 2017. This
success is the outcome of a comprehensive fiscal reform programme that includes steps to
expand and diversify income streams, reduce spending by rationalising subsidies, and
properly manage debt. This measure adds to the government's budgetary flexibility, allowing
it to respond more quickly in times of crisis. These accomplishments also show the
government's capacity to maintain fiscal consolidation measures, enhance public finances,
and manage debt in the current environment until the economy recovers and becomes robust.
As a responsive and compassionate government, several programmes are being
implemented to preserve people's lives and livelihoods, but striking a balance throughout
recovery efforts during this vital moment is tough. To aid the economy, the government has
proposed four economic stimulus packages dubbed PERMAI, PEMERKASA,
PEMERKASA, and PEMULIH in 2021. They comprise fiscal as well as non-fiscal
initiatives.
A country's digital transformation can take several forms. Malaysia is gradually
incorporating digital technology into many aspects of the economy. Digitalization and broad
adoption of long-distance labour will likely alter future employment and job trends. Thus,
businesses must continue to train employees, while employees must continue to enhance their
own abilities. In terms of supply, educational institutions should prioritise digital
programmes. Using analytical thinking and other human abilities in non-IT courses to offer
value to the workforce after graduation. All present programmes should be continued to help
businesses use technology in their daily operations. People in the workforce can shift toward

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automation and digitalization to fulfil future employment demands if they make similar
efforts.
It is a decision made by the government to change the country's revenue and spending
in order to influence the economy's direction.

Monetary policy
It is a government policy that deals with how the central bank makes and distributes
money in the economy. This policy is meant to have an impact on the overall amount of
money in the economy.
Simultaneously, monetary policy remained accommodating in addressing the negative
impacts of the extended economic crisis and promoting economic recovery. The Overnight
Policy Rate (OPR) and Statutory Reserve Requirement (SRR) remain steady, ensuring that
inflationary pressures are kept at bay. Malaysian Government Securities (MGS) and
Malaysian Government Investment Issues (MGII) financial institutions will also have more
flexibility in how they use their funds until 2022.
Such as extending the goals of sustainable development and climate change of the
ASEAN region, ASEAN Member States (AMS) have developed infrastructure projects that
adhere to the principles of sustainable and inclusive green development. These projects are
designed, built and operated according to these principles. In addition, AMS has identified
and utilized ASEAN credit facilities to implement green projects with the assistance of green
development partners to shift to the development of low -carbon, resilient and climate -smart
infrastructure. As a result, ACGF assists AMS in making green infrastructure projects more
viable in the ASEAN region and contributes to the worldwide battle against climate change.
As a result, the banking sector is robust, with adequate liquidity and solid capital
buffers, while market capital remains resilient, with ample domestic liquidity and a
favourable policy environment. The government also unveiled the Capital Market Master
Plan 3, 2021–2025, which aims to keep the capital market relevant, efficient, and diverse in
order to promote long-term, equitable economic growth (Securities Commission Malaysia,
2021). The next monetary policy action will be based on fresh data and information, as well
as how that data and information influences the country's overall inflation and growth
prospects.

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SUGESSION ON CURRENT MACROECONOMIC POLICIES

Global growth is expected to rebound in 2021 after a large decline in 2020, before
slowing in 2022. The global COVID-19 epidemic is mostly to blame for the 2020 drop. In
other words, bad news affects other countries, especially those in transition, like Malaysia.
The COVID-19 epidemic will cause a 5.6 percent decrease in Malaysia's real GDP in 2020.
There are hints of economic recovery towards the end of 2020, and a large growth of 16.1%
in the second quarter of 2021, compared to a 17.2% decrease in the same period last year.
To boost the country's economic growth, the government should immediately
implement the following policies and measures:

Digitalization Transformation
Malaysia needs to accelerate the comprehensive digitization of the economy in order to
increase resilience and inclusion in the new norms. It can be done by: Accelerating the use of
digital technology in the management of daily life, increasing access to information and
making it easier for people to stay at home when there is an outbreak It can be done with the
following suggestions:
i. The lack of internet infrastructure has given birth to digital illiteracy, especially in
rural areas. Without internet access, community involvement in the digital economy
will be limited and increasingly left behind. There should be a way for the
government to provide facilities and regulate service providers. This is part of the
government's macroeconomic plan to improve the quality of internet access.
ii. Affordable internet access, especially by vulnerable groups such as B40, also hinders
community involvement in the digital economy. The government needs to increase
the allocation of telecommunication credit or existing smart devices to a higher value
according to the percentage of household income to the B40 group.
iii. The government needs to reduce the retirement age or maintain it at 60 to prevent an
increase in unemployment and replace low-skilled workers with digital workers.
Training fund plans for graduates also need to be implemented at the employer level
to produce more skilled workers. While digitization can create innovative and
productive employment opportunities, it can also lead to job losses.

Promoting Quality Investment to Achieve Development Sustainable

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Malaysia needs to change its investment policy in line with sustainable structural growth.
The government also needs to attract quality investment that can drive sustainable and
environmentally friendly economic growth. There is a need for the involvement of the private
sector and government-linked companies (GLICs) to promote quality investment.
i. To achieve the country's high economic development potential, both the private and
GLIC sectors must retake economic growth leadership. Increase existing investments
and explore new investment opportunities. A significant amount of foreign direct
investment (FDI) has been made in the country's industrial sector. However,
governments must increasingly emphasize domestic investment in light of declining
foreign capital flows and increased rivalry for FDI flows.
ii. To stimulate fresh growth, revive the private sector, better prepare the GLIC for the
future via enhanced governance and capability, and increase the GLIC's social
protection and budgetary resilience, immediate action is required to improve the
investment climate. It must continue to support their expansion through programmes
such as the Malaysian Economic and People's Protection Assistance Package
(PERMAI), the Strategic Program to Empower People and the Economy
(PEMERKASA), PEMERKASA Tambahan, and the Malaysian Economic and
People's Protection Package and Economic Recovery (PEMULIH). Flexible
repayment schedules such as mentorship systems will be used when appropriate to
ensure borrowers make daily, weekly, or monthly repayments according on financial
flow. This can assist avoid illegal lending.

Strengthen competitiveness
To strengthen the country's competitiveness, tax incentives must be evaluated and
enhanced in accordance with the Cabinet Committee on Improving National
Competitiveness's recommendations. It is possible to accomplish this with:
i. Extending the period of investment tax allowance—the period of 100 percent tax
exemption has been extended from 5 to 10 years.
ii. Extend the duration of Self - employed persons to include full tax exemption, rather
than the current 70%, and increase the period from 10 to 15 years beginning with the
first year the business earns a profit.
iii. Malaysia's Human Resource Development Department needs to further expand the
field for training in manufacturing-related services. The period of use of funds by the

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company can also be extended from 3 to 5 years. Skills Development Fund needs to
be redesigned to help technical and vocational students get loans more easily.
iv. Initiatives and platforms for more efficient marketing and sale of local goods, such as
e-commerce, are required. Dedicated channels for marketing Malaysian-made items
on several key internet platforms should be established. This aims to assist
entrepreneurs and indigenous products in the home market.

CONCLUSION

Malaysia must accelerate its transformation in order to maintain its position as a

desirable investment location. Qualitative investment activities can contribute to the creation
of high-value-added jobs, the strengthening of the skill base, and the facilitation of
technology, knowledge, and expertise transfer. To promote high-quality investment,
regulatory reforms and targeted incentives must be implemented swiftly and efficiently.
The use of digital technologies such as e-commerce, online learning, and distance
work has created new opportunities for businesses to thrive and enabled citizens to improve
their well-being. Malaysia needs to speed up the complete digitization of the economy so that
it can be more resilient and inclusion in the new norms.
The decreasing trend of private investment in Malaysia is associated with low-cost
labor-intensive industries, which are no longer the best factors to attract productive
investment. There is a need to promote quality investments, especially in high-tech as well as
skills- and knowledge-intensive investments. Services and manufacturing sectors need to
continue to grow and move up the value chain by exploring high-value-added activities,
innovation, and R&D. The transition is a key element in pushing Malaysia out of the trap of
being a middle-income country.
Every change for the better will feel most difficult at the beginning of the journey
(Former Malaysia's Prime Minister Najib Razak). The government will certainly continue to
closely monitor the implementation of the economic framework to ensure that all measures
are implemented quickly and effectively. With diligent implementation and with strong
support from all parties, the Malaysian economy will certainly succeed in maintaining strong,
growing and consistent economic growth for the universal good.

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PART II

ONLINE FORUM PARTICIPATION

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