Country Economic Work for Malaysia - Islamic Development Bank

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105. By facilitating private sector resource mobilization, Government is increasingly shifting its role from being a driver of growth towards having a facilitating role and to promote the private sector as the driver of growth. Malaysia has leveraged on the comparative advantage of the public and private sectors through Public Private Partnerships for infrastructure projects. The objective is to optimise on the cost efficiency and sustainability of the financing model, so as to enhance the financial viability of the infrastructure project. This is achieved as risks are transferred to parties that can best manage those risks. Hence, the public sector can provide the regulatory risk guarantees and incentives to ensure adequate demand, whilst the private sector will raise financing as well as technical expertise. This model was successfully implemented for the biggest highway concessionaire in Malaysia. For example, PLUS operates and maintains 973km of expressways in Peninsular Malaysia, stretching from the border of Thailand to Singapore and linking all major cities on the west coast of Peninsular Malaysia. Financing for infrastructure development is equally important as this has implications on the fiscal position. To structure the most competitive and efficient financing for each stage of the infrastructure project schedule, several options can be considered – including direct funding from the budget, the issuance of long-term Government bonds, the issuance of long-term Government-guaranteed bonds, the securitization of works completed, and the issuance of long-term bonds backed by the Government’s undertaking to make deferred payments. The actual funding mix adopted needs to be based on the Government’s fiscal position and on economic conditions. By adopting a mix of strategies over the overall duration of the project, the Government can optimise on the funding costs. Malaysian Experience in Islamic Finance: Sukuk 106. Islamic finance requires financial transactions to be supported by underlying productive economic activities that generate legitimate income and wealth. This gives rise to a close link between financial transactions and productive flows. Therefore, the growth in Islamic financial assets is generally in line with the growth of underlying economic activities, thereby ensuring that the financial system is always grounded to the real economy. Other inherent features arising from risk- sharing also contribute to the stability and integrity of Islamic finance. Thus, Islamic finance, embraced in its entirety, is supportive of sustainable growth. Islamic finance offers an extensive range of innovative financial products and services from consumer financing, asset and wealth management to Islamic insurance and capital markets. The Sukuk market has become a highly competitive fund-raising option for large scale projects and infrastructure development, fast emerging as an attractive new asset class for investors and evolving to become a preferred financing and capital raising option for issuers. 107. The Sukuk market in Malaysia accounts for more than 50% of Malaysia’s bond market and Sukuk, drawing the participation of not only their own corporates but also a wide range of international corporations and multilateral agencies. In Malaysia, a comprehensive Islamic financial system operates in parallel to the conventional financial system. This is now internationalized to enhance their inter-linkages with other emerging economies and traditional markets. 108. Malaysia pioneered the development of the global Sukuk market with the launch of the first sovereign five-year global Sukuk worth $600 million in 2002. Since then the 49
Sukuk market has experienced unprecedented growth with Malaysia firmly established as one of the largest issuers of Sukuk over the years. Facilitative Environment for Sukuk Issuance 22 109. Malaysia provides a facilitative framework for Sukuk issuance; both for local and international issuers. In addition to issuing ringgit Sukuk, the current issuance framework allows for issuers to issue a non-ringgit Sukuk in Malaysia. Malaysia's facilitative environment encompasses a sound infrastructure platform, consisting of the Electronic Trading Platform (ETP) and the Real-time Electronic Transfer of Funds and Securities (RENTAS) system. These systems allow for an efficient platform for the trading of bonds, with a high level of post-trade transparency and market liquidity. For global investments, flexibility is also accorded for foreign investors to leverage on international clearing and settlement systems. 110. Malaysia has an active secondary market, which gives investors the option to either hold Sukuk investments until maturity or to sell the Sukuk prior to maturity. The secondary market enables greater trading activity and attracts more investors including foreign-owned corporations, who are continuously tapping the market for funding. This eventually augments the depth and liquidity of the Sukuk market. Investors will benefit from the wide array and increasing size of Sukuk transactions as they look towards diversifying their asset portfolios. In this aspect, Malaysia offers well-developed value propositions, which enables a dynamic scenario that benefits both issuers and investors. 111. Infrastructure and Utilities Sectors and Financial Services are the highest number of bond issuers in Malaysia with a total outstanding amount of MYR113.2 billion and MYR109.8 billion, respectively (Figure 5.6). The transportation and Figure 5.6: Outstanding Amount for Active Bonds Excluding Public Finance (RM million) Source: Bond Pricing Agency Malaysia (31 October 2011) 22 Malaysia International Islamic Financial Centre (MIFC) (official website) 50
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Acknowledgements Appreciation for s
Page 7 and 8: ISRA : International Shari’ah Res
Page 9 and 10: (v) Foreign Direct Investment……
Page 11 and 12: (2005)), key insights emerged in tw
Page 13 and 14: drain. Further, the Government need
Page 15 and 16: macroeconomic indicators are given
Page 17 and 18: SMEs are concentrated in the servic
Page 19 and 20: easy technology adoption, pro-busin
Page 21 and 22: Kelantan with the lowest per capita
Page 23 and 24: Figure 1.12. General Growth Diagnos
Page 25 and 26: that the Government’s Economic Tr
Page 27 and 28: (ii) Low Returns to Investments app
Page 29 and 30: Figure 1.22. Malaysia's Exports by
Page 31 and 32: 43. Malaysia’s private firms are
Page 33 and 34: over the medium-term. Several initi
Page 35 and 36: growth software compared to its maj
Page 37 and 38: esearchers and technicians in R&D p
Page 39 and 40: 59. Malaysia can further enhance it
Page 41 and 42: Annex Table 1.2. Malaysia: MDGs Ach
Page 43 and 44: 64. The Malaysian experience has al
Page 45 and 46: economic growth. The ETP is expecte
Page 47 and 48: 77. According to the Global Competi
Page 49 and 50: development of infrastructure throu
Page 51 and 52: a. Northern Corridor Economic Regio
Page 53 and 54: The challenge is for financial inst
Page 55 and 56: Original Equipment Manufacturing (O
Page 57: Intensify formalisation to promote
Page 61 and 62: For innovation to become an importa
Page 63 and 64: y the United States (MYR2.3 billion
Page 65 and 66: (vi) (vii) Sharing Eexperience and
Page 67 and 68: institutions as well as Islamic pro
Page 69 and 70: Liberal Foreign Exchange Administra
Page 71 and 72: Issues/Challenges Facing the Islami
Page 73 and 74: Funding from Government of Malaysia
Page 75 and 76: programmes in the country. Initiati
Page 77 and 78: labeling and branding of Halal prod
Page 79 and 80: to over 200 industrial estates or p
Page 81 and 82: member countries can be provided te
Page 83 and 84: Figure 6.5: MATRADE Business Strate
Page 85 and 86: offered by the 35 MTCP training ins
Page 87 and 88: case of the economies in transition
Page 89 and 90: Key Challenges Facing the MTCP
Page 91: iii. Conclusion 185. Above diagnost
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Country Economic Work for Malaysia - Islamic Development Bank

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