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PETALING JAYA: The time has come for Malaysia to undertake economic reforms to ensure that the country remains on track to become a high-income economy amid structural problems compounded by the devastating Covid-19 pandemic.
Economists urge the government to reset its economic strategy and policies to ensure that the nation’s aspiration to become a high-income economy is achievable.
They are confident that the country could achieve this goal if structural problems could be addressed and certain reforms could be carried out.
The senior economist and executive director of the Center for Socio-Economic Research, Lee Heng Guie (photo below), told StarBiz that the country has not reached the economic growth target.
For example, he said, Wawasan (Vision) 2020’s economic growth target was 7.1% per year for the period 1991-2020, but it had achieved 5.6% annual growth between 1991 and 2019.
The economy contracted dramatically by 7.3% in the 1997-98 Asian Financial Crisis (AFC) and by less than 1.5% in 2009 during the global financial crisis.
For this year, he said that it is estimated that the economy will contract 5.5% due to the pandemic.
Economists project GDP growth of 6% to 7.3% next year. In the third quarter, GDP improved with a slower contraction of 2.7% year-on-year (year-on-year) versus a contraction of 17.1% year-on-year in the second quarter.
For the full year, the Finance Ministry predicted that the economy would contract 4.5% year-on-year due to the adverse effects of the Covid-19 pandemic.
Commenting on structural problems, Lee said these include a lack of bold and decisive economic reforms, inadequate regulatory reforms to improve the investment climate, and a lack of labor productivity and capital efficiency (technology investment) to fuel growth.
He said that investment is currently more focused on physical structures than machinery and equipment, which is crucial to boost the productive capacity of the economy.
AmBank Group chief economist Anthony Dass, (pictured below) who is also a member of the secretariat of the Economic Action Council, said the chances of Malaysia becoming a high-income economy over the next decade are still up for grabs. view.
To achieve high-income nation status, he said, the country needed to readjust part of its strategy.
“The reason is that both the gross domestic product (GDP) and the GDP per capita have lost some dynamics, especially after 1997 AFC.
“Part of that drop seems to come from the drop in the share of exports in GDP. As a trading nation, the drop in this share implies that the country is under heavy pressure on its global competitiveness rather than saying that domestic demand is contributing more to GDP.
“This would mean there are big challenges to productivity,” he said.
Dass said some of the medium- and long-term policies need to be reviewed to ensure the economy is on the right track to a high-income nation.
Achieving this status requires well-designed, broad-based and sustainable pro-growth policies. It can address some of the structural issues driven by Covid and the ones that have been there for a period of time to increase the growth of the economy.
“Emphasis should be placed on forward-looking measures that promote productivity, reduce household economic insecurity, better align national and international growth impulses, and counter the growing disconnect between the financial system and the real economy. It should be beyond the focus of the growth objective of the economy, ”he said.
While short-term measures are important to ensure that growth remains at a sustainable level, Dass said it is necessary not to lose sight of what is important.
These include areas in human capital, education, health, social protection, infrastructure, bureaucratic efficiency, ease of doing business, inclusion, social environment and governance (ESG) and participation of women, he said.
Lee said that for the country to achieve high-income status, it critically depends on the need for major reforms, including a well-paid workforce.
He said the government must plug the loopholes in affirmative action policy to ensure that the most vulnerable are prioritized in terms of a new approach to social security protection systems.
Lee said that due to digital and disruptive technologies, there is also a need for skills transformation that is critical to current and future development progress.
Skilled labor currently represents 29.1% of total employment in the third quarter of the year against the 11th Malaysia Plan (MP11) target of at least 30.1%.
“The digital experience must be improved in terms of speed, reliability and coverage to reduce the urban-rural digital divide.
“The current e-government system is probably between 30% and 40%, which means that the digitization process of public service delivery services must be more complete and accelerated.
“Malaysia needs to improve global and regional collaboration and linkages in trade, services, investment, technology, as well as finance and capital.
“Clearly, there is still room for Malaysia to improve the World Bank’s ease of doing business ranking (12th in 2020) and further simplify the impediments to investment in Malaysia,” Lee said.
OCBC Bank economist Wellian Wiranto (photo below) said there is technically nothing to stop Malaysia from achieving high-income status.
As of now, it is already in the upper echelon of middle-income countries and just 10% below the nominal threshold for the high-income group.
The problem, however, is that the threshold itself can be a moving target that occasionally adjusts upward, he said.
The challenges of the ongoing pandemic have made that goal more difficult to achieve, but if Malaysia can prove itself to come out of it stronger, he said, then any positive momentum can turn into a renewed call to arms to further push the increase.
“Within that, attracting more foreign direct investment (FDI) would be key. While the country has already shown signs of being a beneficiary of the China + 1 FDI strategy followed by multinational companies, especially in the tech cluster, more needs to be done to consolidate that, including providing better policy continuity. “
Furthermore, Wellian said that as long as political uncertainty prevails, Malaysia may not be able to adopt a longer-term strategy that puts it even more on the radar screen of FDI investors.
“Still, ultimately, with or without achieving high-income status, at the end of the day it’s just a tag. What matters more than number, which is average GDP per capita, as long as Malaysia can pursue not only higher but more equitable growth, it will be an achievement in itself over the next decade, “he said.
Meanwhile, Juwai IQI chief economist Shan Saeed (pictured below) said Malaysia could achieve high-income status if it embarked on three broad strategies: effective skill set enhancement, market-driven economic policies, and focus on growth. technology.
With economic and financial fragilities growing by the day, he said agility and speed are the key to achieving the growth potential envisioned by policy makers in the next decade.
The technology would make the workforce economically and financially empowered in the long run, Shan said.
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