KUALA LUMPUR: Malaysia is well on its way to achieving high-income status as the economy, which came in above potential, last year continues to perform strongly, according to the International Monetary Fund (IMF).
IMF mission chief for Malaysia Nada Choueiri said efforts have been made by the government to boost productivity with the establishment of the 11th Malaysia Plan in charting a path toward advanced economy status and greater inclusion.
“Increasing productivity and encouraging more innovation are core objectives of the plan, which has six strategic pillars that touch on a range of development issues,” in his interview with IMF Country Focus.
The development issues include equity, inclusiveness, environmental sustainability, human capital development, and infrastructure, he added.
Nada said the plan, covering the years from 2016 to 2020, also puts significant emphasis on improving labour market outcomes and targets increases in labour market's share of income, female labour force participation, and skilled labour employment, as well as improvements in education quality and matching skills to industry needs.
For Malaysia to 'pass the finish line', the authorities will have to increase the country’s revenue and step up reforms to further boost productivity and raise living standards for its 32 million citizens, Nada said.
“Looking ahead, our advice to the authorities is to maintain gradual fiscal consolidation but, at the same time, also continue to increase revenue to protect social and development spending,” he said.
Over the past three years, Nada noted that the federal government deficit was reduced from 3.4 per cent of gross domestic product (GDP) in 2014 to three per cent of GDP in 2017, which helped bring down debt.
“Deficit reduction was achieved mainly through expenditure cuts, although the introduction of the Goods and Services Tax (GST) in 2015 also helped,” he added.
Nada said the economy always benefits when production increases.
“Economic activity picks up when you put more inputs to work, particularly more on labour. And an important and direct way to raise labour input is by encouraging more women to work.
“We saw that in Malaysia in recent years: between 2010 and 2016, female employment grew at an annual rate of about 4.5 per cent, more than tripling women’s contribution to real GDP growth, relative to 2001-08,” he said.
Looking at it from another angle, Nada said if the female labour force participation rate had not changed since 2012, real GDP would have been about one per cent lower in 2016 compared with what it actually was that year.
Despite the progress, he said female labour force participation remains low, at just above 54 per cent, both in absolute and relative terms (the male participation rate is about 80 percent).
“So more needs to be done to make sure it keeps increasing and contributes positively to the economy.”
On IMF’s annual assessment of Malaysia’s economy, Nada said the economy is showing resilience and continues to grow at a sustained pace despite external shocks.
“Growth is running above potential, driven by strong global demand for electronics and improved terms of trade for commodities, such as oil and gas,” he said.
On the domestic front, Malaysia’s strong employment is boosting private consumption, and investment is also helping to drive growth.
Malaysia’s economy registered higher than anticipated growth at 5.8 per cent last year, and has a projected growth of 5.3 per cent for 2018.