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publication December 21, 2018

Development Digest: Looking Beyond Averages

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The fifth edition of the Development Digest begins with an article on why it’s important to look beyond averages when it comes to the country’s development, followed by a look at the region’s success in the face of global uncertainty. The Digest also touches on how inclusiveness can come about in a new Malaysia, the role of the digital economy as a new driver of development, and the future of work with automation on the horizon.

  1. Foreword
  2. Why It’s Important to Look Beyond Averages When It Comes to Malaysia’s Development
    Malaysia is a remarkable country by many metrics, having been highlighted by the Growth Commission as one of the world’s fastest growing economies. It has transformed itself from a low-income, agriculture-oriented economy, to a modern, trade-oriented one that is on the cusp of reaching high-income status within the next few years.
    Richard Record
  3. Deepening East Asia and Pacific Success in the Midst of Uncertainty
    The East Asia and Pacific (EAP) region has developed to become an engine of growth for the global economy, accounting for more than a third of global GDP growth in 2017. While growthprospects for the region’s continued development remain favorable, countries in the region will have to navigate heightened global uncertainty and headwinds that have emerged in recent months.
    Victoria Kwakwa
  4. Inclusiveness in the New Malaysia
    Malaysia has made significant progress in reducing extreme poverty and as a result, less than 1% of Malaysians live below the national poverty line today. As Malaysia moves up the income ladder, common perception about what a minimally acceptable standard of living should look like will change as well. The current public discourse about cost of living issues, the quality of public services, and other related topics, make it clear that Malaysians are aiming higher and setting their sights on a better quality of life. Malaysia’s journey toward becoming a high-income nation will become more meaningful if all Malaysians are given the opportunity to share in the benefits of prosperity
    Kenneth Simler
  5. Malaysia’s Digital Economy: A New Driver of Development
    Can digital technologies transform Malaysia the way microelectronics revolutionized the country fifty years ago? The founding of the Penang Free Trade Zone in 1969, the auspicious visit of Intel CEO Andy Grove, and the subsequent establishment of Intel Malaysia in 1972, are credited with transforming a plantation economy into a global manufacturing hub in the electrical and electronics (E&E) industry. In 2018, E&E accounts for some 38% of Malaysia’s exports and provides close to 800,000 jobs.
    Richard Record, Bradley Larson, Shakira Teh Sharifuddin, and Yew Keat Chong
  6. The Future of Work: Race with – Not Against – the Machine 
    History and evidence suggests that in the long term, fears of technology leading to job losses and reduced wages are actually misplaced. However, in the short and medium term, the dislocation can be severe for certain types of work, places, and populations. It is during the transition period that policies are needed to facilitate labor market flexibility and mobility, introduce and strengthen safety nets and social protection, and improve education and training.
    Lay Lian Chuah, Norman V. Loayza, and Achim D. Schmillen
  7. Advancing Digital Financial Inclusion in ASEAN: Policy and Regulatory Enablers 
    ASEAN nations show different levels of progress in the digital financial services (DFS) policy and regulatory arena. This mirrors the different levels of financial system development. Throughout ASEAN, some common factors contribute to the development of DFS; namely, enabling frameworks for the provision of payments; e-money; and the use of agents by banks and non-banks due to a more flexible approach to innovation by financial authorities and broader policies. Addressing challenges to DFS requires financial and other government authorities to approach these needs and goals in a comprehensive and coordinated fashion.
    Veronica Trujillo, Djauhari Sitorus, and Ana Maria Aviles
  8. Financial Integration in EAP: Regional and Interregional Linkages
    During the last two decades, economies in East Asia and the Pacific have been integrating internationally in terms of trade and finance. However, while most of the trade integration has been within the region, most of the financial integration has been with countries outside the region. A closer examination indicates that the relative lack of regional financial connectivity occurs primarily in arm’s length type of investments, like equity, bonds, and bank syndicated loans. The region is much more connected through foreign direct investment (FDI), comprising both mergers & acquisitions (M&A) and greenfield investments. As EAP continues to develop financially, though, regional investments should gain a greater share of arm’s-length investments.
    Ruth Llovet Montanes and Sergio L. Schmukler
  9. Harnessing Islamic Finance for a Green Future
    In recent years, climate change has risen to the top of the development agenda, with 195 countries signing the Paris Agreement to fight climate change. Given the scale of the financial resources required to support climate mitigation and adaptation initiatives, coupled with the strain on government budgets, the mobilization of financing through innovative instruments becomes imperative. This is where Islamic finance comes in – to support green investments and climate-friendly projects through financial instruments such as the green sukuk. Countries like Malaysia have become innovators in Islamic finance in using new instruments to catalyze the growth of green developments.
    Radu Tatucu
  10. Resource Misallocation and Productivity Gaps in Malaysia  
    Promoting sound and inclusive financial institutions that serve the people and the private sector; in particular, micro, small and medium enterprises, is crucial to achieving our twin goals of reducing poverty and promoting shared prosperity. For decades, the World Bank Group has worked with DFIs in many countries, and has provided lines of credit, guarantees, and technical assistance programs.
    Mara K. Warwick
  11. The Future of Development Financial Institutions
    The reallocation of resources from low- to high-productivity firms can generate large aggregate productivity gains. A recent analysis was conducted using data from Malaysian manufacturing censuses. The country’s hypothetical productivity gains, when moving toward the level of within-sector allocative efficiency in the United States, was measured to be between 13% and 36%.
    Lay Lian Chuah, Norman V. Loayza, and Ha Nguyen
  12. Budgeting for Performance in Malaysia
    Performance-based budgeting (PBB) has been a popular reform among ministries of finance globally to make national budgeting processes more aligned with medium-term strategic plans. In Malaysia, Outcome Based Budgeting (OBB) represents an evolutionary step in its PBB journey, and is a good example of how a country can successfully link high-level national strategies to specific budget programs and activities using a common results framework. Change management, staff training, and stakeholder outreach were all key components of the Ministry of Finance (MOF)’s OBB strategy.
    Bernard Myers
  13. Fighting HIV Effectively, Efficiently in Malaysia
    Harm reduction programs for people who inject drugs (PWID), one of the key populations with high HIV prevalence in Malaysia, have proven to not only be effective in preventing relapses but also cost-effective and cost-saving. Evidence-based initiatives like these could serve as an important learning point for countries in the same region that face similar HIV epidemics. It is an important move towards ensuring fight HIV and help PWID around the world.
    Sutayut Osornprasop, Adeeba Kamarulzaman, and Anita Suleiman
  14. Empowering the Youth to Embrace the Digital Economy in Malaysia
    As agents of change and progress, the recent celebration of this year’s International Youth Day commemorates the spirit of young people as a force to be reckoned with. In this spirit, participants of the Harvard Project for Asian and International Relations (HPAIR) were put to the task of shaping policy for Malaysia.
    Min Hui Lee