Aiming High : Navigating the Next Stage of Malaysia’s Development
Malaysia is likely to make the transition from an upper-middle-income economy to a high-income economy within the next five years, despite thesetback of the COVID-19-induced recession in 2020. This transition represents an important milestone in Ma...
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| Format: | Report |
| Language: | English |
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World Bank, Washington, DC
2021
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| Online Access: | http://documents.worldbank.org/curated/en/837251612287781933/Aiming-High-Navigating-the-Next-Stage-of-Malaysia-s-Development http://hdl.handle.net/10986/35095 |
| Summary: | Malaysia is likely to make the
transition from an upper-middle-income economy to a
high-income economy within the next five years, despite
thesetback of the COVID-19-induced recession in 2020. This
transition represents an important milestone in Malaysia’s
development, having transformed living standards in less
than a generation, slashing the extreme poverty rate to less
than one percent of the population, and ending the country’s
long tenure in the “middle-income trap”. However, Malaysia
has been severely affected by COVID-19 and it will take
several years beforethe scars of the pandemic are fully
erased. The country experienced a “triple shock”: the direct
health impact of the virus; the economic impact of movement
restrictions; and the growth impact of a global recession.
With Malaysia on the verge of achieving this transition, it
is an opportune time to address a number of questions
regarding the speed of Malaysia’s growth, its quality, and
its sustainability. Malaysia is growing slower thanmany
countries that achieved high-income status in recent
decades. In addition, compared to many other countries that
have graduated from middle-income status, it has a lower
share of employment at high skill levels and higher levels
of inequality. And, compared to countries in the OECD,
Malaysia collects less in taxes, spends less on social
protection, and performs relatively poorly in terms of
measures related to environmentalmanagement and the control
of corruption. Many of these fault lines have become exposed
during the pandemic. Most significantly, there is a growing
sense that despite economic growth, the aspirations of
Malaysia’s middle-class are not being met and that the
economy hasn’t produced enough well-paying, high-quality
jobs. There is a widespread sense that the proceeds of
growth have not been equitably shared and that increases in
the cost-of-living are outstripping incomes, especially in
urban areas, where three-fourths of Malaysians reside.
Policies and institutions that have worked in the past may
no longer be appropriate for the next stage of Malaysia’s
development, with a different set of policies and
institutions required at higher levels of income and
development. The policies that enabled Malaysia to
successfully make the transition from low- to middle-income
need to be adapted to meet the challenges it will face in
the future. At an earlier stage of its development, factor
accumulation was a key driver of Malaysia’s growth. As it
makes the transition, it will increasingly need to depend
upon more knowledge-intensive and productivity-driven
growth, closer to the technological frontier and with a
greater emphasis on achieving inclusive and sustainable
development. As Malaysia positions itself for the next phase
of its development and beyond the pandemic, many of the
issues related to this transformation are 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. The analysis in
this report suggests that for Malaysia to fulfil its
potential, to transition successfully to high-income and
developed country status, and to sustain equitable growth
beyond that point, reforms are needed in six broad and
inter-linked areas: (i) revitalizing long-term growth; (ii)
boosting competitiveness; (iii) creating jobs; (iv)
modernizing institutions; (v) promoting inclusion; and (vi)
financing shared prosperity. |
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