She said despite the economic success over the past 20 years, Malaysia's productivity did not grow as much as the country had hoped.
"Malaysia can meet this challenge with creativity and enhance its recipe for success. To get there, you will need the right mix of ingredients to create an inclusive and sustainable long-term growth,” she said during a special engagement session entitled "Ingredients for Good Governance and Economic Prosperity" at Universiti Malaya, on Monday.
She outlined three key ingredients that Malaysia should pay attention to in order to improve productivity, namely Improving Governance and Tackling Corruption; Investing in High-Quality Education, and Boosting Labour Force Participation of Women.
Lauding the efforts that had been taken by the Malaysian government in combating corruption to date, Lagarde said when corruption became institutionalised, it poisoned the ability of a nation to attract investors and create jobs.
"Corruption is the root cause of so much of the injustice people feel in their daily lives. That is why the IMF is focusing on this issue and will be including improving governance in more of our work with members going forward. I know it is a focus for the Malaysian government as laid out in their election manifesto.
"This is excellent progress. As always, the key will be following through by enshrining these changes in law and implementing each step of the reform agenda," she said, adding that the IMF was eager to work with Malaysia to fight corruption.
On the second ingredient. she said while the resources invested in education have dramatically improved over the past twenty years in the country, the results had not yet been fully realised.
Regional and socio-economic disparities persisted across the country and for certain groups, especially lower-skilled adults, automation was threatening their jobs, she said.
"Investments in a high-quality education can reduce skill mismatches, raise wages, and help all Malaysians harness the potential of new technologies," she said.
The last ingredient would be empowering women and currently, Malaysian women tend to have less access to the labour market and fewer career opportunities compared with their peers in neighbouring countries, she said adding that Malaysia women earned about one-third less than men on average and the data suggested this gap was largely due to discrimination in the workplace.
"Progress is being made. The share of women opening bank accounts in Malaysia now outpaces the gains in other ASEAN countries. Since the global financial crisis, female employment has grown at a faster pace than male employment," said Lagarde.
She pointed out that the new government had paved the right path to empower women by appointed five female ministers, four female deputy ministers, and the first female deputy prime minister in the country’s history.
Lagarde said a recent survey showed that 80 per cent of women were interested in flexible work arrangements, but only 20 per cent had ever used them.
"Another survey showed nearly 60 per cent of working mothers are unable to perform their jobs from home.
"(However) The government is listening. New laws have been implemented to protect women’s jobs while they are on maternity leave and remove gender discrimination in the workplace.
"The government’s recent budget includes measures to increase paid family leave and mandate that any government-linked company have at least 30 per cent female representation on its board. Frankly, I think it should be 50 per cent, but this is a good start," she said.
The IMF, she said believed that taken together, these efforts could raise female labour force participation rates to over 56 per cent by 2020.- Bernama