Malaysia must be prepared for the transition to ensure it does not lag behind other developed and high-income nations
by S BIRRUNTHA / pic by MUHD AMIN NAHARUL
MALAYSIA is expected to transit from its current upper-middle-income economy to a high-income economy between 2024 and 2028, despite the impact caused by the Covid-19 pandemic.
World Bank Group regional VP Victoria Kwakwa (picture) said Malaysia must be prepared for the transition to ensure it does not lag behind other developed and high-income countries.
She said the World Bank saw six key areas that needed reform to ensure the transition for the country is successful.
“First, Malaysia needs to revive its long-term growth drivers by investing more in human capital and increasing the participation rate of the female workforce.
“Second, in an increasingly competitive landscape, Malaysia needs to double its reforms to increase the competitiveness and productivity of the private sector in all areas of the economy,” she noted.
Kwakwa said the other key area that needs to be focused on is investments, which includes increasing technological human capital starting in early school education, besides investing in reskilling programmes to generate high quality jobs in the future.
She said Malaysia will also need to look into the quality of public sector institutions and services, which can be improved in line with development expectations of the middle class.
“Another key area to focus on is there should be a clear need to drive inclusive growth through social contracts by increasing equality in terms of opportunity and meritocracy in education, employment and business.
“The last one will be investment for the transition to become a high-income nation which will require better efforts to increase public sector’s income, as well as to use resources in a targeted approach and more efficiently,” she added.
Kwakwa added that Malaysia has always had the necessary capabilities and qualities to continue to leap forward and achieve its ambition to become a high-income country and a developed economy.
Nevertheless, she said to succeed in moving to the next level of development, the country will need a high level of courage and forward-looking reforms.
She added that it is the right time for the country to implement policy reforms to achieve development goals, as the country is looking towards economic recovery beyond the Covid-19 pandemic.
According to the World Bank’s flagship report “Aiming High — Navigating the Next Stage of Malaysia’s Development” launched yesterday, the country also needs to improve its competitiveness, inclusiveness, efficiency and increase women participation in the workforce, in order to achieve the status.
The report added that the transition is not an easy one for the country and in the past 30 years, only 33 countries have transitioned to high-income status.
“Malaysia’s gross national income per capita is at US$11,200 (RM45,920) according to the latest estimates, which is only US$1,335 short of the current threshold level that defines a high-income economy.
“However, gearing up for a high-income transition will require different solutions to thrive. The development model that worked in the past is no longer enough to help Malaysia navigate through the next stage of its development,” it stated.
The report also noted that the country requires a different set of policies and institutions that will be needed to improve the quality, inclusiveness, and sustainability of economic growth in the future.
Meanwhile, at a press conference after the launch of the World Bank report, World Bank Group chief economist Richard Record said Malaysia needs to provide policies with high standards to enhance the country’s capabilities in the future.
He said Malaysia has strong hopes in various aspects, including the economy, apart from having the ability to drive growth in the future based on openness in the economy.
“Malaysia’s economic performance has also been positive over the past few decades. However, policy reforms will help drive the economy in the future and ensure it grows more sustainably,” he added.
On that note, World Bank Group representative to Malaysia and country manager Firas Raad said Malaysia is currently in the best position to recover the economy after being affected by the Covid-19 outbreak.
He said Malaysia’s economy today is significantly different from its transitional and aspirational peers.
“Growth has become slower, inequality is higher and high-skilled jobs make up a lower share of employment compared to other countries that have achieved high-income status in recent decades.
“Labour compensation, tax collection, spending on social protection, environmental management and control of corruption all lag behind high-income Organisations for Economic Cooperation and Development countries.
“Domestically, there is a growing sense that the aspirations of the country’s middle class are not being met — that the economy isn’t producing enough well-paying jobs and that the proceeds of growth have not been equitably shared,” he added.
Raad said for Malaysia to compete with other high-income countries, factor accumulation is no longer sufficient to maintain growth.
Instead, he said broader economic development, focusing on the quality, rather than quantity of the economic growth is needed.
“Malaysia needs to learn from other economies that have succeeded in achieving the status of high-income countries such as Chile, the Czech Republic, Estonia, Hungary and South Korea, besides being prepared to remain in the right alignment to achieve this target,” Raad said.