Analysis: 12MP set to be a game-changer for M’sia
KUCHING: As the Eleventh Malaysia Plan (11MP) comes to an end and the 12MP is expected to be announced soon, analysts are optimistic that it could be a game-changer for Malaysia as it is expected to capitalise on the global digital transformation to sharpen its fundamentals.
In a report, the research team at Public Investment Bank Bhd (PublicInvest Research) said: “12MP is set to be a gamechanging plan as Malaysia is expected to capitalise on the global digital transformation initiatives to sharpen its fundamentals.
“Digital transformation will get a front row seat with multipronged reforms expected on education, labour, public and private sectors consistent with the long-term target under MyDigital where Malaysia is set to become the regional leader in digital business by 2030.”
It pointed out that the digital transformation focus will simultaneously address the productivity issue as automation and digital adoption will reduce the need for semi-skilled workers, additional impetus that could boost labour productivity growth.
“The government is also expected to lay down a clear fiscal consolidation plan more so when the current deficit remains elevated by historical standards.
“The government could also boldly reform its revenue base, improve tax administration especially when there are still sizeable revenue leakages apart from reprioritisation and efficiency in spending,” it said, noting that fiscal consolidation effort is expected to gain traction once output growth normalises where this is set to take place post pandemic.
Aside from that, the government is also expected to accelerate institutional reforms which has stalled since the start of Covid-19 pandemic, one of the pull factors that could bring foreign investors back into our economy.
“The government is also expected to recalibrate on our engine of growth particularly where services sector could deliver a smaller share to the economy, no thanks to the negative impact of the pandemic which may push a strict SOPs on contact-sensitive sub-sectors (tourism, accommodation, leisure) to continue,” it added.
The government may also opt to pump-prime the economy, through private-public initiatives to reduce cost and borrowing, as a fast-track measure to revive economic growth.
“The government should also be cognizant and take into account the spillover from advanced economies monetary steps post-pandemic, including tapering and rapid interest rate normalisation where this may affect the ringgit exchange rate, inflation, forex reserves as well as the financial markets.
“The government may also set a new high-income target given these headwinds,” PublicInvest Research added.
Meanwhile, on the performance of the 11MP so far, the research team noted that the 11MP started on a strong footing thanks to buoyant external conditions and strong domestic demand.
“A three-year GDP average of 4.9 per cent (2016 to 2018) was broadly in line with the government’s 11MP target (five to six per cent) though it could have been much higher if not for the headwinds facing the financial markets (2018 equity outflow: RM11.5 billion, bond outflow: RM21.8 billion),” it said.
However, the installation of a new US president in 2016, Donald Trump, sparked a protectionist movements which took a toll on the manufacturing sector.
12MP is set to be a game-changing plan as Malaysia is expected to capitalise on the global digital transformation initiatives to sharpen its fundamentals.
PublicInvest Research
Aside from that, the unexpected emergence of a global health pandemic, Covid-19, which started in December 2019 was an even bigger headwind for the global economy.
“The services sector, given their contact-sensitive nature, was the biggest casualty of the pandemic which has yet to recover even after almost two years since the start.
“The disruptions as a result of the need to close the economy to protect lives inflicted severe damage on the economy, more so when services sector contributes the largest share to the economic pie (circa 58 per cent of GDP).
In sum, the 11MP GDP target (4.5 to 5.5 per cent) was severely compromised by these two unexpected black swan events (average GDP 2016 to 2020: 2.7 per cent) which could otherwise be achieved under a normal scenario especially when the government was reaping the fruits of its reforms (2015 Economic Transformation Plan, Government Transformation Plan).
This could also be possible thanks to the strong development expenditure (DE) which was 12.2 per cent and 16.5 per cent above the government target under the 11MP’s MTR and 10MP respectively.
“12MP is set to lay the path on Malaysia’s fiscal consolidation strategy, delicately balancing that with the need to produce a convincing and sustainable economic growth while concurrently addressing the negative impact of the pandemic (disposable income, labour market, education),” PublicInvest Research said.
“12MP is also set to push for greater Digital Transformation initiatives (IR 4.0; MyDigital) particularly when we lag on labour productivity growth since the last few years, an urgent solution needed to pull investors back in droves.
“The government is also expected to accelerate on its Sustainable and Development Goals (SDGs) in line with its commitment under the Sustainable Development Agenda 2030 (2030 Agenda).
“It is imperative to give this commitment a strong push after it slowed down since the start of Covid-19,” it added.