World Bank: Malaysia can be high-income nation within 10 years
The World Bank said that Malaysia could graduate from being a middle-income nation to a high-income country within 10 years’, but would need to carry out six major reforms, including by creating high-paying jobs and having more women join the workforce.
In its June edition of the Malaysia Economic Monitor report released Thursday, the World Bank said this was achievable, despite the effects of the Covid-19 pandemic. “Despite the Covid-19 crisis, Malaysia is expected to transition from an upper middle-income economy to a high-income economy within this decade,” it said.
But despite this positive outlook on Malaysia’s prospects of finally achieving high-income nation status, the World Bank pointed out how Malaysia was lagging in certain aspects when compared to other countries that have become high-income nations in recent years. In contrast to those nations, the World Bank noted that Malaysia was growing more slowly, and had greater income inequality, and had a lower share of high-skilled employment. “In particular, there is a growing sense among Malaysia’s middle-class that the proceeds of growth have not been equitably shared between the richest and the poorest, and that increases in the cost of living are outstripping incomes, especially in urban areas,” it said.
To ensure the maintenance of growth to drive Malaysia to high-income status, the World Bank said the country needs to apply a different set of policies to have knowledge-intensive growth and growth based on higher productivity. “To compete with other high-income countries, Malaysia needs to use its resources more efficiently, to produce new ideas and products, to expand markets, and to increase productivity. “Reforms in six broad areas, including raising female labour force participation; improving human capital; boosting competitiveness; creating well-paying, high quality jobs; modernising institutions; and promoting inclusion are vital for Malaysia to transition successfully to high-income status and to sustain equitable growth beyond the transition,” it said.
To determine a country’s status, the World Bank categorises countries according to their gross national income (GNI) per capita or GNI per person. The World Bank’s current definition for high-income countries are those with a GNI per capita of US$12,376 (RM52,944) or more, while upper middle-income economies have a GNI per capita between US$3,996 and US$12,375, lower middle-income economies (between US$1,026 and US$3,995), low-income economies (US$1,025 or less). For South-east Asian nations, Malaysia and Thailand are in the upper middle-income category, while Brunei and Singapore are in the high-income economies category, with the rest in the lower middle-income category (Cambodia, Indonesia, Laos, Myanmar, Philippines, Vietnam). In the latest data available, the World Bank’s online database shows Malaysia as having a GNI per capita of US$10,590 in 2018, based on the World Bank Atlas method used to calculate figures for the classification of countries’ income bracket.
Earlier today, Fitch Solutions Country Risk and Industry Research published a report that said Malaysia has already exhausted its potential for growth via low-level industrialisation and must urgently upgrade its economy to escape the so-called “middle-income trap”, but also highlighted that such efforts could be hampered by matters such as ongoing political uncertainty in the country.
In a new report dated June 24, it projects Malaysia’s average real GDP growth at 3.4% in the next 10 years, almost half of the 6.4% growth from a decade ago. It noted Malaysia has ushered in a period of extended political uncertainty as the country likely transitions away from one-party rule. “With both politicians and electorate alike adjusting to the new reality, we expect power to change hands often, leading to questionable policy continuity and stalled reform momentum,” said Fitch Solutions.
And while a successful transition to a more stable multi-party or two-party system present in more mature democracies could eventually reap dividends for Malaysia, the uncertainty in the interim is likely to be a negative factor counted against it by potential investors, it cautioned. “Malaysia would essentially be starting on the back foot against regional competitors, especially Vietnam, in the race to attract foreign direct investment,” the firm said.
Meanwhile, Fitch Solutions pointed out that less favourable demographics and diminished fiscal space to cushion the economy in times of crisis also further weigh on long-term prospects. Low interest rates in recent years have also fuelled a household debt boom, which will act as a drag on growth and would pose risks to financial stability if interest rates need to be raised sharply. Against this backdrop, key reforms that could unlock further growth potential in Malaysia are likely to be put off, it said, citing affirmative action policies as an example which could result in a brain drain. “Talent is key to the country being able to move up the value chain and escape the middle-income trap and the brain drain, if left unaddressed, would impede any such drive to upgrade the economy. Similarly, the lack of an even playing field in government procurement has also undermined efficiency,” it said.