Has target date for high-income status been postponed?

THE World Bank’s latest Malaysia Economic Monitor had some good and some disappointing news. The good news is that Malaysia’s economic growth has exceeded all expectations. It is now estimated to achieve the highest growth of 5.8% this year since 2014; and to keep a steady pace to attain about 5.2% growth next year. The latest International Monetary Fund report is more optimistic and projects growth from 5% to 5.5 % for next year.

However the sad news is that these high growth rates have not been sufficient to ensure that Malaysia will achieve its target of becoming a developed country or reaching high-income nation status by the 2020 target date.

Instead, we might acquire development economy status only by 2024. But the World Bank (WB) has a caveat. To make this vital breakthrough, we have to undertake some more major reforms or undertake greater socio-economic transformation.

These proposed reforms have been stated before. We have adopted some reforms, but they have not been adequate, to move the economy forward strongly enough, to become a developed country by 2020.

The WB has urged us to enhance productivity, raise our lack of competition in key markets and reduce critical skills deficits.

It recognises the heart of our socioeconomic and even political problems, but seems constrained or reluctant to provide the particular prescription to treat our major underlying economic structural weaknesses.

That is why perhaps, the WB also has not highlighted the major complaints and concerns of most Malaysians. These pertain to rising inflation, the weak ringgit, the high unemployment rates especially among graduates, the low international ratings for our education standards in general. All this has caused some decline in the standards of living and quality of life.

WB should also measure our socioeconomic performance against more wealthy former developing countries, that were once upon a time weaker than us. What reforms did they introduce and implement that we failed to do or did somewhat slowly and even weakly.

What has gone wrong that has caused us to miss our target to achieve developed nation status by 2020?

Moody’s has cautioned “Malaysia’s reserves at current levels are insufficient to meet maturing external long-term debt repayments and short-term debt“. Moody’s, however, consoles us that our economic growth and other factors, “could mitigate this vulnerability to sudden shocks”. But the message is clear. We need to build larger reserves and stronger economic resilience.

The WB expects private consumption to remain the main driver of economic growth. However, household debt is also high and not very healthy. We are also disturbed to learn the new trend of our youth (25 to 44) forming the largest group of about 60% of the 94,408 bankrupts reported from 2013 to August 2017. So we can ask whether our private consumption and economic growth are to some extent being pushed up by the rising number of young bankrupts? Their wasteful consumption must be discouraged or we will have more problems.

I believe Prime Minister Datuk Seri Najib Razak is right when he says that the WB and IMF international reports are “proof that we are heading in the right direction”. However they also warn that our successes may not be sustainable unless we reform more strongly and at a faster pace.

Greater public confidence can stimulate faster economic growth, a stronger ringgit, higher productivity, lower inflation and higher wages and incomes, especially for the lower-income groups.

There is also no doubt that much more racial and religious understanding and tougher action against extremism, will help raise domestic and foreign confidence in our national capacity to sustain our progress to prevent postponing out target date of 2020 developed country. Hence we cannot be complacent. We have to reform more and faster, before and especially after GE 14, when the politicking has settled down.

Tan Sri Ramon Navaratnam Chairman Asli Centre for Public Policy Studies