World Bank: Digital technologies can revitalise, raise the quality of economic growth

This is following an expansion in Internet access and usage which accelerated the digitalisation of firms due to the prolonged movement restrictions throughout the Covid-19 crisis

THE World Bank which projects Malaysia’s economy to slow down by 4% in 2023 believes that efforts at harnessing digital technologies can bring returns on growth, productivity, employment and poverty reduction.

“Malaysia needs to revive its potential growth. Greater digital diffusion can support this objective along with higher capital investments. The digitisation challenges identified in the report are therefore important,” said World Bank country director for Brunei, Malaysia, the Philippines and Thailand Ndiame Diop.

The World Bank said the prolonged movement restrictions throughout the Covid-19 crisis caused an expansion in Internet access and usage, and accelerated the digitalisation of firms, particularly in the use of digital platforms and the uptake of digital payments, a key entry point into the digital economy.

While digitalisation expanded rapidly, the trend has been unequal across firms, according to the latest edition of the World Bank Malaysia Economic Monitor: Expanding Malaysia’s Digital Frontier launched today.

According to recent World Bank surveys, more than 80% of medium and large firms invested in digital solutions compared to 54% of small firms.

The lack of financial resources and digital skills have been cited as key constraints towards digitalisation.

Smaller formal firms relied on more traditional methods of payment, especially cash, and vulnerable segments of the population remain unbanked, despite the expansion of digital financial services, it said.

The report recommends reforms to close the digital divide and maximise its development dividends.

It said developing an inclusive, dynamic and safe digital economy involves building solid foundations in five priority policy areas, namely digital infrastructure, digital platforms (public and private), digital financial services, digital literacy and advanced digital skills, and digital safeguards, such as data protection and cybersecurity.

On another note, the World Bank noted that the increase in government spending during the Covid-19 crisis to support the economy has raised debt levels and reduced Malaysia’s fiscal space.

Therefore, it opined that efforts to rebuild fiscal buffers should be driven by higher revenue collection and better spending efficiency.

An effective policy response should enhance the consumption tax framework, broaden the tax base of personal income tax, and streamline reliefs, it remarked.

Meanwhile, it added that a gradual shift towards a targeted subsidy framework would help subsidies work better for lower-income households. – TMR / graphic TMR