Malaysia has achieved high levels of growth, but must do more to address governance and social challenges

Malaysia

Kuala Lumpur, Malaysia (Unsplash)

This article is brought to you in association with OECD.


Malaysia’s economic performance has been very successful, but public policy can do more to address social and governance challenges while making growth stronger, greener and more inclusive, according to a new report from the OECD.

The latest OECD Economic Survey of Malaysia discusses how boosting productivity and implementing new structural reforms can help Malaysia move up global value chains and reach its goal of achieving high-income country status by 2024. The Survey projects the economy will remain resilient, with growth just under 5% this year and next, but cautions that trade tensions, geopolitical uncertainties and weaker advanced economies are downside risks.

The Survey, presented in Putrajaya by OECD Deputy Secretary-General Masamichi Kono and Malaysia’s Deputy Finance Minister Dr. Radzi Jidin, discusses the need to make public finances more sustainable, improve skills acquisition for all, strengthen integrity and boost productivity.

“Malaysia’s economy is doing well, but the march toward high-income status will require further reforms,” Mr Kono said. “The challenge facing policymakers today is not only to boost growth, but to improve the quality of growth. That will mean ensuring greater environmental protection and creating the conditions for the development of a more innovative and dynamic economy that promotes higher living standards for all.”

To ensure sustainability of public finances, Malaysia will need to reform fiscal policy, the Survey said. This should include increasing the currently low level of tax revenue, notably by eliminating numerous tax exemptions, but also through improving efficiency of the tax system, broadening tax bases and increasing indirect tax revenue, in particular consumption-related taxes to reduce reliance on oil-related revenues. Strengthening fiscal accountability and improving budget process transparency and public debt management will also be necessary.

The Survey also underlines the need to further enhance integrity across the public sector. This could include ensuring greater transparency and more competition in public procurement processes, better accountability in the governance of state-owned enterprises, stronger regulatory frameworks for public-private partnerships and enhanced anti-corruption measures.

Malaysia faces substantial labour market imbalances and shortages of workers across the skills spectrum, with further difficulties expected under the impulse of automation and population ageing. Greater investment in education and training will be required to prepare the country for the future of work and help it move up the value chain. Adults need better access to up-skilling and re-skilling opportunities to ensure that their skills remain relevant, the Survey said.

Technological adoption is critical to boost productivity and transition to a high-income economy. Efforts should continue to attract foreign direct investment, promote entrepreneurship and uptake of new technology.

To make growth greener, the Survey says Malaysia can eliminate energy subsidies, in favour of targeted cash transfers. It also highlights the positive impacts of greater coordination of environmental policy at the sub-national level and points out the opportunity for greater use of environmental taxation, notably a carbon tax.

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