PRINCIPLE OF ECONOMICS

A181 BEEB GROUP W

Lecturer: Dr Anizah Bt Md Ali

Topic: Government spending and economic growth

Malaysia from year 2010 to year 2017

Prepare by: Group 3

No Name Matric Number
1 Nurul Aimi Bt Rahmat 247951
2 Ng Whai Keen 254543
3 Noratika Binti Bukari 253356
4 Nurul Fatriah Bt Yeop Ahmad 255159
5 Nurul Jannah Binti Zahari 265224
6 Nur Zur’ainiza Nasha Binti Md Zaidi 264769
Contents

1.0 Introduction...................................................................................................................................1
2.0 Research Background...................................................................................................................1
3.0 Research Question.........................................................................................................................3
4.0 Research Objective........................................................................................................................4
5.0 Important of Study........................................................................................................................4
6.0 Analytical Review..........................................................................................................................5
6.1 Economic Aspect (Agriculture and Rural Development, Trade and Industry, Transport). 5
Agriculture and Rural Development................................................................................................6
Trade and Industry...........................................................................................................................7
Transportation.................................................................................................................................10
6.2 Social (Education and Training).............................................................................................12
Education and Training..................................................................................................................13
6.3 Security Sector (Defense)........................................................................................................14
Defense..............................................................................................................................................15
6.4 General Administration...........................................................................................................17
6.5 Economic Growth of Malaysia Based on Gross Domestic Product (GDP)..........................19
6.6 The Relationship Between Government Spending and Economic Growth in Malaysia.....21
7.0 Summary and Recommendation................................................................................................22
8.0 Reference......................................................................................................................................23
1.0 Introduction

Government spending can define as the financial resource that use by government to

achieve the goal of a strategic plan to bring benefit to the people and country (Natasha Gilani,

2017). The government spends money on differents aspect such as economic, social, general

administration of the country and so on. Thus, we can notice that government spending is very

important to ensure all sector in the country receives the equal amount of financial source to

proceed the development activity that enhances economic growth. Economic growth is the

increase of the country’s wealth within the increase in time (John L. Cornwall, 2018). The

increase of government spending will enhance economic growth (Tang, 2009). Government

spending is an additional force that increases country output (Loizides and Vamvoukas, 2005).

However, government spending is not guaranteed an increase in economic growth (Tang, 2009).

Therefore, government spending has the potential to affect the economic growth in a country on

a positive or negative side.

2.0 Research Background

As we can see, Malaysia’s government spending is closely related to the growth of the

economy. The government spends the country money through 5 aspects which is the economic

sector, social sector, security sector, the general administration, and other expenditures. In the

economic sector, it contains spending on agriculture and rural development, energy and public

utilities, trade and industry, transport, communications, and the environment. These are the

important sector that can change the condition of the economy in Malaysia. In the social sector,

the government spends money on education and training, health, and housing. In the security

sector, money spends on defense and internal security. Moreover, Malaysia’s government also

spend money in general administration of the country and other expenditures.

1
 Although Malaysia’s government spending increases from year to year, it doesn’t mean

that our country is having an economic growth all the time.

Government Spending and GD P

250000 8.00
219910
7.42
205537 211270
219589 216998 7.00
210173 5.90
200000 182594
5.29 6.01 6.00

Percentage (%)
5.47
Million (RM)

150000 151633 4.69

5.03 5.00
4.22
4.00
100000 3.00
2.00
50000
1.00
0 0.00
2010 2011 2012 2013 2014 2015 2016 2017
Year

Diagram 1
Government spending GDP
Source: (Ministry of Financial Malaysia, 2018)

Based on diagram 1, we can observe that the increase of government spending in from

RM 151 633 Million in year 2010 to RM 182 594 Million in year 2011 fail to increase the

economic growth. This is because the GDP of Malaysia drop from 7.42 % to 5.29 % (Ministry of

Financial Malaysia, 2018). The inflation rate is increase from 1.7 in year 2010 to 3.2 in year

2011. (Index Mundi, 2015). The society are suffering with the negative effect of the inflation.

However, the increase of government spending in year 2016 to year 2017 had successful enhance

the growth of economy in Malaysia. Therefore, the increase of government spending may not

accelerate the economic growth all the time.

Thus, government of Malaysia spends the budget of Malaysia wisely through the 5

important sectors in the country. This is because these sectors can bring negative or positive

effect to Malaysia. They must spend country money according to the budget plan of the year to
2
ensure all sector has enough money to develop. The development of all these sectors will bring a

huge revenue to Malaysia. This is very important to achieve the “Vision 2020” that introduce by

the current prime minister of Malaysia, Tun Dr. Mahathir bin Mohamad. His vision is to lead

Malaysia to be a high-income receiver country at year 2020.

3.0 Research Question

There is an argument on the statement “increase of government spending will enhance

economic growth” (Tang, 2009). In year 2010 and year 2011, the government spending is

increasing by 30 961 (20.42 %). However, the GDP rate of by 2.13%. Malaysia also having the

increase of deficit which is RM 51 512 Million to RM 91 555 Million (Ministry of Financial

Malaysia, 2018). The issue come from the data is the increase of government spending do not

increase the growth of economy. Moreover, it increases the deficit of Malaysia. This means that

our country is having a condition of revenue produced is less the expenditure or spending of the

company (Mariam-Webster 1828). Therefore, the inflation rate for Malaysia increases from 1.7

in year 2010 to 3.2 in year 2011 (Index Mundi, 2015).

When the inflation occurs, Malaysia society is having hardship. This is because the

product that sells in the market increases. It is a big trouble for them because the income does not

increase. (Sarita Harbour, 2017). Besides that, the currency of Malaysia also decreases due to

inflation. Thus, the increase of government spending may fail to increase economic growth and

enhance the inflation occurs in the country.

3
4.0 Research Objective

There are two objectives of this research:

1) To determine the whether the Malaysia’s government spending in the 4 aspect which is

economic, social, sector, security sector, and the general administration from year 2010 to

year 2017.

2) To determine the economic growth of Malaysia based on Gross Domestic Product (GDP)

growth rate in Malaysia from year 2010 to year 2017.

3) To determine the effect of government spending on economic growth in Malaysia from

year 2010 to year 2017.

5.0 Important of Study

1) Observe the relationship between government spending and economic growth.

2) To determine whether the exist policy of Malaysia government good enough to develop

our country in all sector to bring benefit to the citizen of Malaysia.

1)

4
6.0 Analytical Review

6.1 Economic Aspect (Agriculture and Rural Development, Trade and Industry,

Transport)
PERBELANJAAN MENGURUS KERAJAAN PERSEKUTUAN (MENGIKUT SEKTOR) 1970-2013 (RM JUTA)
FEDERAL GOVERNMENT OPERATING EXPENDITURE (BY SECTOR) 1970-2013 (RM MILLION)

DIKEMASKINI PADA DISEMBER 2016 2010 2011 2012 2013

EKONOMI/ECONOMIC (TOTAL) 14,527 19,555 16,450 18,848

Pertanian dan pembangunan luar bandar

Agriculture and rural development 3,470 4,791 4,392 4,925
Kemudahan awam/Public utilities 126 125 130 135
Perdagangan dan perindustrian/Trade and industry 6,525 7,866 7,486 8,621
Pengangkutan/Transport 4,296 6,582 4,303 5,020
Perhubungan/Communications 57.7 133 81 85
Lain-lain/Others 53 58 59 63

Table 1 Source: (Ministry of Financial Malaysia, 2018)

PERBELANJAAN MENGURUS KERAJAAN PERSEKUTUAN MENGIKUT SEKTOR 2014-2018 (RM JUTA)

FEDERAL GOVERNMENT OPERATING EXPENDITURE BY SECTOR 2014-2018 (RM MILLION)

UPDATED AS AT NOVEMBER 2017 2014 2015 2016 2017 3 2018 4

EKONOMI / ECONOMIC (TOTAL) 19,310 20,157 18,861 16,639 20,494

Pertanian dan pembangunan luar bandar / 5,415 4,777 4,286 3,823 4,247
Agriculture and rural development
Tenaga dan kemudahan awam / Energy and public utilities 125 246 119 99 329
Perdagangan dan perindustrian / Trade and industry 6,689 6,865 5,466 3,194 6,243
Pengangkutan / Transport 5,355 5,518 6,128 6,516 6,563
Perhubungan / Communications 77 140 93 98 102
Alam sekitar / Environment 118 134 130 94 132
Lain-lain / Others 1,531 2,477 2,639 2,815 2,878

Table 2 Source: (Ministry of Financial Malaysia, 2018)

Table 1 and 2 show the data of government spending on economic aspect from year 2010 to year

2017.

5
Agriculture and Rural Development

Agriculture is a main sector that product the food resource in society of Malaysia. There

are several sub-sectors such as oil palm, rubber, livestock, other agriculture, forestry, and fishing.

In Malaysia, the oil plum is the most import in agriculture sector compare to the other (Economic

Report, 2018). For example, in year 2017, the share of agriculture sectors shows that oil palm

(45.6%), rubber (7.5 %), livestock (11.4 %), other agriculture (18.9 %), forestry (5.8 %), and

fishing (10.9 %). Therefore, government spending money in agriculture but more focus on the oil

plum sector in the agriculture. Malaysia is the country who can provide good quality of oil plum

and export to other country. Thus, government is making a continuously spending on agriculture

of Malaysia to gain profit and accelerate the economic growth.

Government Spending on A griculture and R ural D evelopment

6,000
5,415
4,791 4,925 4,777
5,000
4,392 4,286
4,000 3,823
Million (RM)

3,470
3,000

2,000

1,000

0
2010 2011 2012 2013 2014 2015 2016 2017
Agriculture and Year
Rural Development

Diagram 2
Source: (Ministry of Financial Malaysia, 2018)

Based on diagram 2, we can observe that in year 2010 to year 2011. The government

spending in agriculture and rural development is increase from RM 3 470 Million to RM 4 791

6
Million. There is an increase of RM 1 321 Million or 38.07 %. However, the sending of

government has decline from RM 4 791 Million in year 2011 to RM 4 392 Million in year 2012.

It shows the decrease of RM 399 Million or 8.33 %. In year 2012 to year 2014, the government

spending in agriculture and rural development has increase by RM 1 023 Million (23.29 %) from

RM 4 392 Million in year 2012 to RM 5 415 Million in year 2014. After year 2014, the

government spending has decrease to RM 3 823 Million in year 2017. There is a decrease of

29.40 % or RM 1 592 Million (Ministry of Financial Malaysia, 2018).

In year 2012 to year 2014, there is an increase in Malaysia’s government spending in

agriculture and rural development. This is because the government conducts some development

plan on this sector during year 2012 to year 2014. In year 2012, Malaysia government has

spending money to develop the oil plum subsector in the agriculture through the development of

Palm Oil Industrial Cluster (POIC). Thus, government spending increased due to the huge

expensive need to develop the POIC in order to increase the quality of oil palm in Malaysia

(Economic report 2013/2014).

Besides that, government Malaysia also increases the expense in year 2012 to year 2014

because of the National Agrofood Policy (NAP4). This policy is a 10 years plan by Malaysia

government. National Agrofood policy main function is to increase the quality of agriculture

product and infrastructure. This policy had force government to invest more money in the

agriculture sector to make a continuous development. This will bring benefit to Malaysia farmer

and the society (The Sun Day, 2012).

Trade and Industry

Malaysia has a mixed economic system which includes a variety of private combined

with centralized economic planning and government regulation. Malaysian have three Regional

7
Trade Blocs which is APEC, ASEAN and TRANS PACIFIC PARTNERSHIP(TPP). The top

three partners in Malaysian in 2016 are China, Singapore, and United States. When the top three

exported goods are Electrical Machinery, Oil and Mineral Fuels, and Industrial Machinery. The

biggest industry in Malaysia is Electronic, automotive, and construction industry. (World atlas,

2018).

Government Spending on Trade and Industry

10000
9000 8621
7866
8000 7486
6525 6689 6865
7000
Million (RM)

6000 5466
5000
4000 3194
3000
2000
1000
0
2010 2011 2012 2013 2014 2015 2016 2017
Year
Column2

Diagram 3

Source: (Ministry of Financial Malaysia, 2018)

Based on diagram 3 the spending of government in trade and industry in year 2010 to

year 2012 is RM 6 525 Million, RM 7 866 Million and RM7 486 Million. Therefore, government

spending on trade and industry is increase RM 1 341 Million (20.55 %) in year 2011 and

decrease RM 380 Million (4.83 %) in smallest value in year 2012. However, the government

become increase to RM 8 621 Million in year 2013 and decrease again to RM6 689 Million

which decrease about RM 1 932 Million (22.41 %) in year 2014. In year 2015, the spending on

trade and industry also increase with smallest value which increase to RM 6 865 Million. But,

8
the spending on trade and industry was decrease again until 2017. The spending decrease from

RM 6 865 Million in year 2016 to RM 3 194 Million in year 2017. The amount of spending

decrease for 53.47 % or RM 3 671 Million (Ministry of Financial Malaysia, 2018).

Based on the table above, we can see that the trend of government spending on trade and

industry are not stable from 2010 to 2017 that are up and down situation. In year 2010,

Malaysia’s is committed to contribute to the maintenance of international peace and security and

they have enacted the Strategic Trade Act 2010 (STA 2010), which provides control over the

export, transshipment, transit and brokering of strategic items (products and technology). In year

2012, the trend of government spending is increase. This increase because of the global business

environment a tepid recovery due to less favorable macroeconomic and financial conditions.

International trade continues to face challenges in the form of barriers to trade, including tariffs,

quotas and non-tariff barriers (Ministry of International Trade and Industry Malaysia 2012).

Besides that, in year 2015 to 2016 government spending and growth of trade and industry

is decrease. This because in year 2015 is due to uncertainty and financial volatility. Oil prices

plunged by more than 60.0 %. Commodity prices for agricultural commodities, metals and food

plummeted, with primary commodity prices shrinking more than 50.0 % on average since

January 2014, metals sliding by 30.0 % and food and beverages by 20.0 %. The US Dollar

appreciated around 20.0 % and PRC’ s economy slowed, affecting global demand, exports,

imports, commodity consumptions hence creating financial upheavals (Ministry of International

Trade and Industry Malaysia, 2015).

9
Transportation

Transportation is one of the sectors in economic Malaysia. Transportation sector can

divide into 4 types which is land transport, water transport, air transport, and ware housing

activities. Malaysia government spends some money in the transportation sector.

Government Spendinng on Transport

7000
6582 6516
6000 6128
5355 5518
5000 5020
Million (RM)

4296
4000 4303
3000
2000
1000
0
2010 2011 2012 2013 2014 2015 2016 2017
Year

Transport
Diagram 4
Source: (Ministry of Financial Malaysia, 2018)

Based on Diagram 4 the spending of government in transportation in year 2010 to year

2017. Government spending on transportation is increase RM 2 286 Million (53.21 %) from RM

4 296 Million in year 2010 to RM 6 582 Million in year 2011 and decrease RM 2 279 Million

(34.62 %) to RM4 303 Million in year 2012. However, the government spending of

transportation increase from RM 5 020 Million in year 2013 to RM 6 516 Million in year 2017.

The data show that government spending form year 2013 to year 2017 has increase by 29.80 %

or RM 1 496 Million (Ministry of Financial Malaysia, 2018).

10
 The reason why the spending of Malaysia government increases from RM 4 296 Million

in year 2010 to RM 4 296 Million in year 2011 is because of Malaysia government is developing

the Land Public Transport Act 2010. This policy encourages the government to spend more

money to improve the quality of taxi industry. They had organized the enforcement program to

the taxi driver to improve the quality of taxi service in Malaysia. The government also review the

existing policy about the license of taxi driver to make sure that all taxi driver in Malaysia were

qualified. Therefore, these several actions that government take had increased the government

spending in year 2010 to year 2011.

As we can see, the trend of government spending in year 2013 to 2017 was increased.

This scenario happens because Land Public Transport Commission (SPAD) in Malaysia had

developed the National Land Public Transport Master Plan (SPAD, 2015). Parliament Malaysia

had approved the Land Public Transport Master Plan on 16 October 2013. This is a systematic

plan that can improve the quality, capability, and efficiency of public transport in Malaysia. The

vision of National Land Public Transport Master Plan is to achieve a reliable, accessible, safe,

efficient, responsive, planned, affordable, integrated, and sustainable land public transport

system. This is very important to engage the development in socio-economic to increase the

quality of life among society Malaysia. SPAD also develop the Greater KL/Klang Valley Land

Public Transport Master Plan as the first of the Regional Land Public Transport Master Plans.

This plan creates a blueprint that helps to develop the land public transport such as bus and taxi

based on region. Therefore, the spending of government in transport sector increases from year

2013 to year 2017 due to the development of new plan to enhance the evolution on land public

transport. Although the spending is high from year 2013 to year 2017, it seen that the society had

get the benefit from Malaysia government’s plan to develop and enhance the transportation

11
sector in our country. This is a good new to all people in Malaysia because an effectiveness of

transportation will make them easier to travel from place to place. The limitation of

transportation had been solved through the National Land Public Transport Master Plan that

introduce by Land Public Transport Commission (SPAD). Thus, government spending in

transportation had successful increase the society’s life quality.

6.2 Social (Education and Training)

Table 3 Source: (Ministry of Financial Malaysia, 2018)

Table 4 Source: (Ministry of Financial Malaysia, 2018)

Table 3 and 4 show the data of government spending on social aspect from year 2010 to year

2017.

12
Education and Training

Education is divided into two: formal education and informal education. Formal

education has a clear institutional structure and is provided according to age covering primary,

secondary (lower and upper) education and tertiary education. Informal education has a wider

character and refers to the educational process as an endless activity.

G o v e r nme nt Spe nding o n E duc a t io n a nd T r a ining

60000

52059 51887 53770

50000 51699
47040 47973

40000 41741
37821
Million (RM)

30000

20000

10000

0
2010 2011 2012 2013 2014 2015 2016 2017
Year
Education and Training
Diagram 5
Source: (Ministry of Financial Malaysia, 2018)

Based on Diagram 5 the spending of government in education and training increase from

RM 37 821 Million in year 2010 to RM 52 059 Million in year 2015. There is an increase of RM

14 238 Million (37.65 %). However, from year 2015 to year 2016, the government spending on

education and training has decrease form RM 52 059 Million to RM 51 887 Million. There is a

decrease of 0.33 % or RM 172 Million (Ministry of Financial Malaysia, 2018).

13
 As you can see, the overall trend of government spending from year 2010 to year 2017 is

increase. In year 2010, Educational Development Master Plan (PIPP) with was published by the

government in 2006 until 2010 increases government spending on education. Besides that, the

government spending also increases from year 2011 to year 2015 due to the Tenth Malaysia Plan

2011-2015 which need a huge budget to make it work. In year 2013, the government spending on

education also increase because of Globalization and technology have completely transformed

sectors such as finance, services, and telecommunications and the higher education sector will

likely face the same transformation or as a matter of fact is already experiencing disruption from

new models such as Massive Open Online Courses (Mansor, Latifah & Amina 2015). Malaysia

government had published the Malaysia Higher Education Blueprint (2015-2025) to enhance

Malaysia’s education systems and increase Malaysia competitive advantages of education in the

global economy (Malini Ganapathy, 2016). Therefore, the government spending on education is

increasing in from year 2016 to year 2017 due to the development of new plan to enhance the

evolution on education.

6.3 Security Sector (Defense)

Malaysia government spends money in the security sector. The security sector was

divided into two main part which is in defense and internal security. The spending in there two

part is important to ensure that Malaysia has a high quality of military team to protect and

prevent our country form any harm that come from other country. The defense of in Malaysia is

very important to ensure economic stability besides for military purpose. Thus, Malaysia

government spend money in defense of security sector to increase ability of Malaysia’s army and

maintain the stable of economic in Malaysia.

14
 Year Total Government Spending on Security Sector (Defense), Million (RM)

2010 9 749
2011 11 079
2012 11 156
2013 12 209
2014 13 079
2015 13 398
2016 10 843
2017 11 684
Table 5

Source: (Ministry of Financial Malaysia, 2018)

Gorvenment Spending In D efense Of Security Sector

16000
14000 13079 13398
12209 11684
12000 11079 11156 10843
Million (RM)

9749
10000
8000
6000
4000
2000
0
2010 2011 2012 2013 2014 2015 2016 2017
Year

Defense

Diagram 6

Source: (Ministry of Financial Malaysia, 2018)

Defense
Based on Diagram 6, the spending of government on defense in year 2010 to year 2015 is

RM 9 749 Million, RM 11 079 Million, RM 11 156 Million, RM 12 209 Million, RM13 079

Million, RM 13 398 Million respectively. Therefore, government spending on defense is increase

15
by RM 3 649 Million (37.43 %) from RM 9 749 Million in year 2010 to RM 13 398 Million in

year 2015. However, the government spending in defense of Malaysia in year 2015 is decrease

RM 2 555 Million (19.07 %) to RM 10 843 Million in year 2016. The government spending

from RM 10 843 Million in year 2016 to RM 11 684 Million in year 2017 has increase by 7.76

% or RM 841 Million after a drop from year 2015 to year 2016 (Ministry of Financial Malaysia,

2018).

There is a huge increase of government spending in year 2010 to year 2015 based on the

data above. This is because in year 2010, Malaysia’s government had published a new policy for

defense in our country. The main purpose of this policy is to increase the capability of Malaysia

against the territorial forces. Besides that, this new defense policy also protects the safety of the

South China Sea Economic Exclusion Zone, sea and air lanes between East Malaysia and the

Malaysian Peninsular and the Malacca and Singapore Straits. The other reason why spending of

government Malaysia is increasing in a huge quantity due to the 2013 Lahad Datu standoff

(Astro Awani, 2013). This standoff has force government Malaysia to send some army team to

solve this problem. They need a high spending of money to ensure the safety of Sabah citizen.

Other than that, government of Malaysia is participating in the United Nation peacekeeping

missions continuously start form year 2013 (export.gov, 2018). This also increases the

government spending on defense in the period from year 2013 to year 2015.

The spending of government Malaysia decreases in a small quantity in from year 2015 to

year 2016 due to the volatility in the financial markets of Malaysia and the increase value of the

US dollar currency (The Star, 2015). However, the spending of government had increased in

year 2017 due to the continuously participate in United Nation peacekeeping mission.

16
6.4 General Administration

The expenditure to be used by a government is to protect the society welfare. Government

need more money to maintenance and protect the society’s welfare in the country. In general

administration, government spend on general services, refund and reinburstment, and foreign

affairs services. It also includes expenditure of Council of Ministers, Various Ministers, District

Administration Office, Police Force, Jail Administration.

Year Total Government Spending on general

Administration, Million (RM)
2010 15 342
2011 16 480
2012 19 092
2013 17 846
2014 16 240
2015 16 712
2016 15 755
2017 11 470
Table 6

Source: (Ministry of Financial Malaysia, 2018)

17
 G o v e r nme nt Spe nding I n G e ne r a l A dminis tr a tio n
25000

20000 19092
17846
16480 16240 16712 15755
15342
Million (RM)

15000
11470
10000

5000

0
2010 2011 2012 2013 2014 2015 2016 2017
Year

General Administration
Diagram 7
Source: (Ministry of Financial Malaysia, 2018)

Based on the diagram 7 and table 6, in year 2010 until year 2012 increased steadily in

spending from RM 15 342 Million in year 2010 to RM 19 092 Million in year 2012. There is an

increase of RM 3 750 Million (24.44 %). In year 2012 until year 2014 the government spending

in general administration is declined RM 2 852 Million (14.94 %) which in year 2012

government spending is RM 19 092 Million and in 2014 is RM 16 240 Million. The government

spending on general administration is increase to RM 16 712 Million in year 2015. However, the

spending of government in year 2015 has decline about RM 5 242 Million or 31.37 % to RM 11

470 Million in year 2017 (Ministry of Financial Malaysia, 2018).

In year 2010 to year 2012, the government spending in general administration is

increasing because of the Government Transformation Program (GTP). The main function of this

program is to increase to transform the government to be more effective to serve the citizen of

Malaysia. (Wikipedia, 2018). For example, the GTP can reduce the corruption rate in Malaysia.

18
This will increase the efficiency of government service on the citizen. Therefore, the government

has to spend more money to make the GTP work as a tool to change the weakness of

government.

The government spending in general administration has decline form year 2015 to year

2017. This is because of the fall of the currency in year 2015 to 2017. This happen because of

Federal government of Malaysia had dominated in government spending. The Federal

government expenditure has been over 80 % of total government expenditure of the Federal and

State governments (Department of statistic, Malaysia). Therefore, the spending of government in

general administration had decreased due to this reason.

6.5 Economic Growth of Malaysia Based on Gross Domestic Product (GDP)

Economic growth in Malaysia can be observe through the Gross Domestic Product

(GDP) rate. The growth or decline of an economic in a country may cause by several reason not

just simply because of the government spending.

Year GDP Rate of Malaysia (%)

2010 7.42
2011 5.29
2012 5.47
2013 4.69
2014 6.01
2015 5.03
2016 4.22
2017 5.90
Table 7
Source: (World Bank, 2018)

19
 GD P R ate of Malaysia
8.007.42
7.00
6.01 5.90
6.00 5.29 5.47
Percentage (%)

5.03
5.00 4.69
4.22
4.00
3.00
2.00
1.00
0.00
2010 2011 2012 2013 2014 2015 2016 2017

Year

GDP
Diagram 8 Source: (World Bank, 2018)
Based on diagram 8, we can observe that the GDP rate of Malaysia in decrease from 7.42

% in year 2010 to 5.29 % in year 2011. There is a decrease of 2.13 %. Malaysia GDP rate has

increase by 0.18 % to year 2012 that show 5.47 % of GDP rate in Malaysia. This GDP rate is

reducing again from 5.47 % to 4.69 % from year 2012 to year 2013. However, the GDP has

increase to 6.01 % at year 2014. The GDP rate do not keep increase in the next year after 2014.

The data show that the GDP of Malaysia had decline form 6.01 % in year 2014 to 4.22 % in year

2016. There is a small increase 1.68 % of GDP from 4.22 % in year 2016 to 5.90 % in year 2017

(World Bank, 2018).

As we can see, the economic growth of Malaysia is very unstable form year 2010 to year

2017. This is because of several reasons. In year 2010 to year 2011, Malaysia economic is

decline due to the increase of debt government (New Straits Times, 2016). The debt of

government will reduce economic growth because government doesn’t have enough money to

invest in some important sector in the country. The investment from foreign investor will reduce

20
and decrease the GDP growth of economy in Malaysia. In year 2013 to 2014 the GDP of

Malaysia is growing. This is because the government of Malaysia uses the subsidy system as an

alternative to increase the economic growth in Malaysia. The subsidy is giving to fuel and sugar

to reduce the cost of seller and living cost of the citizen. However, this subsidy system has been

stopped since 2014. Thus, the GDP of Malaysia start decline from year 2014 to 2016.

6.6 The Relationship Between Government Spending and Economic Growth in

Malaysia

There is a statement which is “increase of government spending will enhance economic

growth” (Tang, 2009). However, this theory doesn’t match to the condition in Malaysia.

Government Spending and GD P

250000 8.00
219910
7.42
205537 211270
219589 216998 7.00
210173 5.90
200000 182594
5.29 6.01 6.00

Percentage (%)
5.47
Million (RM)

150000 151633 4.69

5.03 5.00
4.22
4.00
100000 3.00
2.00
50000
1.00
0 0.00
2010 2011 2012 2013 2014 2015 2016 2017
Year

Government spending GDP

Diagram 9

Source: (Ministry of Financial Malaysia, 2018)

Based on Diagram 9. There is a period where the government spending increase and the

GDP rate of Malaysia is decrease. For example, in the total spending of government in year 2010

is RM 151 633 Million increase to RM 182 594 Million in year 2011. However, in the same

21
period the GDP of Malaysia has decrease from 7.42 % to 5.29 %. This shown there is a conflict

in Tang, (2009) who say that the increase of government spending is will enhance the economic

growth in a country. Although the theory may be mistrust, it still had its own value to prove that

it can be use as an economic theory for the economist. For example, there is an increase of

government spending in year 2016 to year 2017 which is RM 210 173 Million to RM 219 910

Million. This improvement of economic spending has successfully increased the GDP rate of

Malaysia in the same period. The GDP has increase from 4.22 % in year 2016 to 5.90 % in year

2017.

Thus, we can conclude that the government spending and economic growth in Malaysia

don’t have a specific relationship. It can be directly relationship in several period or indirectly

relationships in several period. Therefore, the economic trend in Malaysia is very dynamic from

year 2010 to 2017. The government spending is not the only reason that leads to the unstable

economic condition in Malaysia.

7.0 Summary and Recommendation

In conclusion, Malaysia government spends a lot of money in 4 aspect which is

economic, social, sector, security sector, and the general administration from year 2010 to year

2017. There are several policy and plan that has be launch during these years. National Land

Public Transport Master Plan is one of a successful plan by SPAD Malaysia that cost a high

spending of government and successful increase the economic growth in Malaysia through

transportation in the economic sector. Thus, Malaysia’s government should build a strategic plan

and policy that bring long-term benefit to society and the country. They should stand in the side

of the citizen before published any plan and policy to ensure that Malaysia’s citizen can receive

the maximum benefit. Although the government spending may not accuracy increase the

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economic growth, it still can bring benefit to the citizen through the aspect of welfare, health,

education, and so on. When the government is spending money, it is always related to the

development plan that increases the quality life of the citizen. The economic growth is important,

but the humanities welfare in Malaysia also important because of the is the asset for the country

to continuously enhance the economic growth. Thus, the government of Malaysia should think

more about making any decision about their spending in other to protect citizen welfare and

achieve the “2020 vision” in year 2020.

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