World Bank: Malaysia still in need of structural reform
FOR Malaysia to emerge stronger and more resilient, it is important to maintain focus and prioritise on the key areas of structural reforms.
According to the World Bank, Malaysia needs an underlying structural economic transformation to increase productivity growth, according to the World Bank.
East Asia and Pacific regional vice president Manuela V Ferro highlighted that while the country has done relatively well compared to its regional peers, it has lagged its global aspirational peers that have nearly three times the productivity levels.
Further, there are significant variations in productivity levels among firms within Malaysia. The pandemic has further exacerbated these differences,” she was quoted as saying by Bernama.
In recent years, spending on research and development (R&D) activities in Malaysia has decreased after a steady increase until 2016 while gross public expenditure on R&D has dropped from 1.4 per cent of gross domestic product (GDP) in 2016 to one per cent of GDP in 2018.
This falls short of Malaysia’s envisaged goal of 2.0 per cent of GDP and the Organisation for Economic Co-operation and Development (OECD) average of 2.6 per cent.”
The World Bank also found that Malaysian firms are also less likely to spend on R&D compared to their regional peers.
Our engagement with the government has provided us opportunities to look at relevant policy areas to assist in charting a path forward.
One aspect of this which we focus on in our recent work relates to increasing small and medium enterprises’ (SMEs) contribution to Malaysia’s economic growth,” Ferro said.
Based on analysis undertaken in the ‘SME Programme Review’, the World Bank said Malaysia could consider realigning its public support for SMEs to not only enable a private sector-led recovery from the pandemic but also support firm-level innovation.
Another World Bank study titled ‘Assessment of the Malaysian Start-Up Financing Ecosystem’ revealed that Malaysia’s venture capital activities are relatively low compared to the region, in relation to its level of economic development.
Thus funding activities are performing below potential, affecting investible deal flow down the line. We also find that public support is concentrated on the more advanced stages of innovative activities, calling for a possible need to rebalance this to earlier and hence the riskier stages of the innovation cycle,” she added.
The World Bank recommended the government to enhance evidence-based policymaking for SME development by increasing monitoring and evaluation of government programmes and coordination among agencies, to recalibrate SME programmes to support needs on digitalisation and skills upgrading, and to rebalance the policy mix towards the ideation stage with programmes that crowd in private investments.
Meanwhile, BNM recommended that the shift towards higher quality investments is essential and must be done in tandem with the development of a future-ready workforce, acceleration of social protection reforms, and rapid adoption of automation and digitalisation.
The continued push to adopt the Environmental, Social and Governance (ESG) agenda is also critical, particularly to ensure Malaysia remains globally competitive, whilst building a more sustainable and resilient future.
It is commendable that the Government has initiated efforts on these fronts, particularly in the Twelfth Malaysia Plan (12th MP) and 2022 Budget.
We welcome these efforts and see strong potential to accelerate the implementation of these reforms in the immediate horizon,” it said.
As Malaysia continues to respond and recover from the effects of the pandemic, it is vital to nudge the process of creative destruction as businesses seek to pivot and reconfigure in these post-pandemic times.
The existing approach of adopting blanket measures could potentially result in a loss of future growth in years to come. Such risks could become imminent if we do not stay focused and expedite our efforts on these reforms,” it highlighted.
In carrying out structural reforms, BNM acknowledges the realities confronting domestic policymakers. The challenge lies in balancing the need to continue providing policy support amid an uneven economic recovery, and rebuild policy buffers, while expediting structural reforms that require strong commitments from all stakeholders.
Given this, Malaysia urgently needs a comprehensive roadmap on the prioritisation, sequencing and execution of reforms that cuts across both public and private sectors.
The bank’s role in supporting these structural reforms is to ensure that the financial system can facilitate the intermediation needs of transformation, which has been reflected in the recently announced Financial Sector Blueprint 2022-2026,” it said.