Political will needed to quicken pace of structural reforms, economists say

According to the BNM governor, Malaysia is capable of achieving higher growth rates than the current ones with more structural reforms

By NG MIN SHEN / Pic By TMR File

MALAYSIA’S economic conditions are supportive for structural reforms, but a strong political will is needed to raise the country’s potential, said economists.

The need for structural reforms — which have been long called for by various analysts over the years — was highlighted by Bank Negara Malaysia (BNM) governor Datuk Nor Shamsiah Mohd Yunus in a recent interview with Bernama.

Nor Shamsiah said Malaysia is capable of achieving higher growth rates than the current ones with more structural reforms that will generate new growth areas and higher income jobs.

Among the areas that need urgent attention are foreign labour policies, skills required to take advantage of the technological revolution, education system reforms and the cost of living.

Socio-Economic Research Centre Sdn Bhd ED Lee Heng Guie concurred with the governor’s stance, adding that Malaysia’s initial conditions remain supportive for the government to undertake structural reforms.

“But that also depends on how strong the political will is. Malaysia must have a strong political will to undertake structural reforms in order to raise the country’s potential. If there’s a slowdown in the pace of reforms, that could undermine the confidence of investors and also slow growth in investment,” he told The Malaysian Reserve (TMR).

Lee said a gradual and pragmatic approach to structural reforms would be best for Malaysia based on current conditions, with consideration given to the complexity of the markets and policies.

Lee recommended the labour market, reforming the market economy, the role of government-linked companies, product competitiveness and market access as areas of immediate focus in implementing structural reforms.

“You (also) have to consistently undertake these reforms, not just do them when you’re under pressure — that way, investors would feel that there’s no full commitment. It’s an ongoing process, and you must prioritise which areas to focus on first.

“Most importantly, when carrying out these reforms, there must be buffers to minimise the impact on vulnerable groups. For example, in the case of subsidies, there will be effects on the lower income group,” Lee cautioned.

Sunway University Business School economics Prof Dr Yeah Kim Leng (picture) said in order to increase Malaysia’s growth potential, the country needs economic reforms that will remove all inefficiencies, impediments, leakages and wastages.

Improved resource allocation is also a must as this would entail encouraging investors to invest more capital in high-value economic activities.

“In labour-intensive manufacturing, this would mean moving them up the value chain to technology-driven industries that have high value-added and employ more skilled labour and technological capabilities that, in turn, produce high-value goods and services,” he told TMR.

“Raising the knowledge and skill levels of our workers would increase their productivity and capacity, which means they can produce more complex and sophisticated products and services. That’s what we want — the ability to grow at a faster rate due to increased capacity, which is in turn due to greater skills and more efficient utilisation of our resources,” Yeah added.

He believes Malaysia must strengthen the policy environment with greater clarity and more conducive policies in order to accelerate the pace of implementation.

Easy access to cheap foreign labour has also made industries over-reliant on unskilled foreign workers, as they have not been pressured enough to move up the value chain and to move more aggressively into automation.

“We’ve reached a point where we have to accelerate the transition from being labour-dependent to being a more technology-based economy. This is timely, given that Industry 4.0 is being promoted aggressively,” Yeah said.