PETALING JAYA: Malaysia is likely to make the transition from an upper middle-income economy to a high-income economy within the next five years despite setbacks from the Covid-19-induced recession, says a new World Bank report.
However, according to the “Aiming High: Navigating the next stage of Malaysia’s development” report, Malaysia is growing slower than many countries that have achieved high-income status in the past.
“And compared to countries in the OECD (Organisation for Economic Co-operation and Development), Malaysia collects less in taxes, spends less on social protection and performs relatively poorly in terms of measures related to environmental management and the control of corruption, ” it said, adding that many of these fault lines were exposed during the pandemic.
Malaysia, it said, had been severely affected by Covid-19, adding that it would take “several years before the scars of the pandemic are fully erased”.
The 196-page report is expected to be launched today by Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz in a virtual event that will also see Minister in the Prime Minister’s Department Datuk Seri Mustapa Mohamad delivering his special address on Malaysia’s next development plan.
The report said policies that had enabled Malaysia to successfully transition from low to middle-income would need to be adapted to meet future challenges, adding that these policies and institutions which had worked in the past might no longer be appropriate.
Malaysia’s transition, it said, was also subject to a number of significant downside risks, especially the high level of uncertainty over what would be the “new normal” after Covid-19 and how this would impact the country.
“The Asian Tigers that achieved high-income status in past decades did so in a more benign international environment.
“Malaysia faces not only a global pandemic and a worldwide recession but also a looming international debt crisis, a heightened risk of a resurgence in trade disputes, the potential unravelling of global value chains, and the impact of disruptive technologies that will change the nature of comparative advantage, ” it said.
Domestically, Malaysia also faced ongoing political uncertainty and a significant increase in government debt from financing the economic measures to help the rakyat during the Covid-19.
While it was normal for Malaysia to experience decelerating growth before Covid-19 as it achieved a higher level of development, it appeared to have slowed down more than it should have relative to its potential.
“The country must adopt a new course for greater knowledge-intensive and productivity-driven growth. In this context, the Covid-19 crisis might usefully provide an opportunity to undertake much-needed reforms, ” it said.
The report also noted that as Malaysia positioned itself for the next phase of development and beyond the pandemic, many of the issues related to this transformation were being addressed and discussed, including through the 12th Malaysia Plan and the Shared Prosperity Vision 2030.
“With the impact of the Covid-19 pandemic and its potential to depress growth into the future, issues related to Malaysia’s readiness for the future have become even more significant, ” it added.