With strong recovery, accelerated reforms needed for skill-intensive growth, says World Bank Malaysia Economic Monitor

April 28, 2011

KUALA LUMPUR, 28 April, 2011 – Malaysia’s economy staged a strong recovery in 2010, with near-term growth expected to develop favorably at 5.3 percent for 2011 and 5.5 percent in 2012, says the April 2011 edition of the Malaysia Economic Monitor released today. To succeed in becoming a high income country, however, the report stresses that Malaysia must accelerate structural reforms, and promote skill-intensive growth by developing, attracting and retaining talent.

On recent trends, the report notes that it has been driven mainly by the domestic private sector, supported by buoyant commodity exports. In line with domestic demand, growth in the services sector was sustained.

“Malaysia’s positive growth performance was accompanied by a build-up in inflationary pressure and a surge in capital inflows,” says Annette Dixon, the World Bank’s Country Director for Malaysia. “While still benign at present, higher inflation would risk undermining consumer spending. The strength of the global recovery and pace of fiscal consolidation pose further risks.”

To generate lasting growth, the Monitor cautioned that Malaysia needs faster implementation of structural reforms. It emphasized that concrete progress has been made in public service delivery and project-based investment, but added that further efforts are needed to address the cross-cutting structural bottlenecks in the economy with comprehensive policies.

“The urgency to whole-heartedly tackle the deep-rooted bottlenecks is real,” says Philip Schellekens, the World Bank’s Senior Economist for Malaysia and lead author of the report. “Regional competition for talent, trade and FDI has intensified. Other countries are forging ahead with policy reforms similar to Malaysia’s New Economic Model, so progress will be measured in relative terms.”

Malaysia’s journey to high income will also depend on how it handles brain drain—the emigration of high-skill human capital. The report estimates the Malaysian diaspora in 2010 at 1 million, with brain drain at a third of this. By boosting productivity and strengthening inclusiveness, Malaysia can address the brain drain comprehensively, says the Monitor. It recommends a revamp of the education system, an overhaul of the innovation eco-system, and a reorientation of inclusiveness policies towards merit and need—policy thrusts that are well reflected in Malaysia’s transformation programmes.

Policy approaches that target the flow of talent across borders directly can complement these comprehensive approaches, but cannot substitute for them, the report said. Once the enabling factors of productivity and inclusiveness are addressed, Malaysia will need to proactively participate in the global competition for talent. Recent initiatives by the Talent Corporation, such as the Residence Pass and the Returning Experts Programme, are welcome in this respect. Malaysia can also engage more deeply with the diaspora. One immediate example is to seek the diaspora’s input on how to deal with brain drain.

The Malaysia Economic Monitor series provides an analytical perspective on the policy challenges facing Malaysia as it grows into a high-income economy. The series also represents an effort to reach out to a broad audience, including policymakers, private sector leaders, market participants, civil society and academia.

Media Contacts
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