IN continuation of the Vision 2020’s aspiration to achieve a high-income nation by 2025, the 12th Malaysia Plan (12MP) covering three development dimensions – economic empowerment, environmental sustainability and social re-engineering – will further crystalise the implementation of the Shared Prosperity Vision 2030 (SPV 2030).
The 12MP has outlined initiatives, transformational programmes, economic and institutional reforms (four enablers and 14 game changers) to reset the Covid-19 pandemic’s battered economy; accelerate economic and industrial transformation, achieve inclusive growth and strengthen competitiveness, while also create the foundations for higher long-term sustainable growth.
> GDP growth target of 4.5%-5.5% per annum for 2021-2025 (versus an average growth of 2.7% per annum in 2016-2020) appears to be on the high side. The deep economic scarring effects from the pandemic could take some time to fully recover, especially for micro and small and medium enterprises (MSMEs), tourism, retail and transportation sectors.
Boosting growth
Malaysia’s potential output growth has slowed in recent years, from an average annual growth of 4.9% per annum in 2011-2019 to 3.3% in 2020 and 3%-4% in 2021. Hence, a substantial improvement in productivity, technology and capital efficiency is needed to boost the country’s economic growth potential.
> Economic prosperity and dividends for citizens. The plan seeks to raise:
(i) National income per capita by 6.4% per annum to RM57,882 in 2025 (2020: RM42,503);
(ii) Compensation of employees to 40% of GDP in 2025 (37.2% of GDP in 2020); and
(iii) Average monthly household income by 7% per annum to RM10,065 in 2025 from RM7,160 in 2020.
The pandemic has caused a signification deterioration in the living standards of poor, lower and middle-income households due to a combination of falling income as well as the loss of employment amid rising expenditure.
With many households having relatively low savings and earnings amid high debt, and having drawn on the Employees Provident Fund’s retirement savings and on loan moratorium programme, the disrupted employment as well as sudden and severe income shock amid rising living costs have pushed them into poverty and at the lower bound of household income trajectory.
The percentage of Malaysians living below poverty line income (RM2,208 per month) had increased to 8.4% (640,000 poor households) in 2020 from 5.6% (405,000 households in 2019); while 580,000 M40 households (20% of the middle-income group) have been pushed down to the B40 category.
Besides the financial assistance through job retention scheme and self-employment income support schemes, the government needs to set conducive conditions for sustainable economic growth, investment and employment opportunities, which can help grow incomes for all.
The government can map out an income enhancement programme covering education, reskilling and upskilling, commerce and entrepreneurship development as well as employability to help improve their income level. There must be a major shift in people’s attitude towards self-improvement, creativity, innovation and mastering of new technology and knowledge for self-development.
Temporary relief
The cash handouts only provide a temporary relief but it is not fiscally sustainable over the long term. It is through upskilling and reskilling as well as empowerment programmes that will help increase marketability and productivity of the targeted income group while equipping them with the skill set to enhance their employment capacity.
The government should provide an efficient eco-system and infrastructure (such as commerce and entrepreneurship development programmes, high-end and better value creation industries, digitalised-technology and Internet connections) to increase their income level.
> Enhance better investment climate through regulatory reforms: One of the game changes of the 12MP is aimed at enhancing the contribution of the strategic and high-impact industries and activities (namely electrical and electronics (E&E), global services, aerospace, creative, tourism, halal, smart farming and biomass) to the economy by leveraging on advanced technologies, digitalisation and niche capabilities.
There is also a game changer to accelerate MSMEs development and capabilities through technology and digital adoption in embracing new norms in business activities. Focus will be given to shift MSMEs from a domestic to the global market.
Removing barriers
In boosting competitiveness, quality investment and exports, the government should focus on removing barriers to business growth and investment; and ensure transparency, consistent and clear rules/regulations that limit administrative discretion to minimise unproductive rent seeking and corruption. We must persistently push for zero tolerance towards corruption, which adds to hidden costs.
The authorities and agencies at all levels (federal, state and local) need to demonstrate leadership to actively facilitate investment through ease of doing business; build better government-business relationship to ease business pain points as well as maintain public-private sectors engagement so as to have proper business impact analysis before introducing new policies or regulations.
With the support of fast-evolving technology, digitalisation and innovation as well as enhanced facilitation measures, Malaysia can champion homegrown competitive leading players in education, tourism and high value-added plantation, oil and gas, transport equipment (smart and electric cars) as well as smart agriculture and food production through the deployment of deep-technology (such as sensors, devices, machines and information technology).
The lack of technical knowledge and low physical and ICT adoption prevents SMEs from operating efficiently and accessing international markets at competitive costs. Hence, increased use of digitalisation, better access to global markets and knowledge networks can strengthen SMEs’ contributions.
> Advancing sustainability focuses on advancing green growth, enhancing energy sustainability and transforming the water sector will be given a priority in the 12MP. Malaysia will fulfill its commitment to reduce its green house gas by up to 45% by 2030.
Economic instruments such as carbon pricing and carbon tax will be introduced during the plan. Private sector investments, particularly with environmental, social and governance (ESG) elements, will be encouraged to support the green economy agenda.
Green investment
The government needs to show a leading role in green investment by developing policies to support, motivate and encourage green investment for businesses in addition to investment priorities and spending of government in areas that stimulate the greening of economic sectors.
Taxes and market-based instruments are effective ways to stimulate private investment in the green economy. Focus should be given to:
(i) Preferential access to capital as well as specific incentives for green investment given the large capital, long-term nature of investment and long payback period.
(ii) The capital market, green development orientations of the market, development of new market instruments such as carbon finance, microfinance and green stimulus funds to support the transition to the green economy on a global scale.
> RM400bil Development Expenditure (DE) allocation in 2021-2025: It is a challenge to have adequate and sustainable fiscal resources to finance the historic high allocation of DE. This calls for the implementation and strengthening of revenue strategies – managing revenue leakages via plugging losses from smuggling and counterfeiting; strategies to increase tax revenue through increased tax compliance; and tax incentive review.
Much of the economic dividends and outcomes can be achieved through good planning and strong implementation capacity as well as better coordination inter-ministries and among governmental agencies.
The government can consider embedding an annual monitoring and evaluation report for public disclosure so as to enable quicker revision of targets and key performance indicators as well as implement intermittent policy responses and adjustments.
Lee Heng Guie is Socio-Economic Research Centre director. The views expressed here are the writer’s own.
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