Tackling structural issues to enhance long-term potential

THE government has recognised the need to unshackle the economy from various structural issues which may hamper its long-term potential.

According to the Economic Report 2016/2017, the issues are also opportunities for the government to strengthen domestic demand as the engine of economic growth.

Even if the global economy improves next year due to better growth in the United States and stronger performance in emerging markets and developing economies, the report warned that downside risks remain, including the possibility of a sharper slowdown in China.

On the domestic front, the report warned that private consumption could come under pressure from the high household indebtedness, which stood at 88.9 per cent of gross domestic product (GDP) as at endJune.

This is the time for domestic demand to drive growth in the face of moderate external demand.

There are also challenges in attracting investments from rising global competition for foreign direct investments as well as the lack of innovation capabilities, business sophistication and low labour productivity in the domestic economy.

Exports of services have not reached the full potential while rising import bills for consumption and capital goods may lead to the narrowing of trade balance.

The services sector remains the key driver of the economy and leading guarantor of job opportunities but several issues must be addressed for it to reach the targeted contribution of 56.5 per cent of GDP, 11 per cent of exports and 9.6 million jobs by 2020.

These include the low adoption of information and communications technology, particularly among small and medium enterprises.

Human capital, as an important enabler of economic growth, is faced with issues such as dependency on foreign workers, shortage of skilled workers, youth unemployment and low female labour participation rate.

On the wellbeing of the people, the report said the rising cost of living is one of the main challenges in the pursuit of inclusive growth policy.

Affordable housing is another major concern, the report said, adding that the mismatch between demand and supply must be attended to, otherwise it may lead to deeper imbalances in the property market, with negative spillovers to other sectors of the economy.

On improving health services, the report said providing a world-class healthcare service and facilities required a new business model to ensure fiscal sustainability.