KUALA LUMPUR – Malaysia’s revenue to gross domestic product lags behind its upper-middle-income peers and is only half of that of developed nations, said World Bank country manager Firas Raad.
He said it will require tremendous effort by the government if the country is to raise enough revenue to become an advanced economy in 10 years.
“How will Malaysia finance the transition? They need to raise more revenue and spend it more effectively. Reforms are needed to increase tax revenue and strengthen the social safety net.
“In 2019, government revenue was only 17.4% of GDP. That’s about 25% lower than in 2012.
“This figure is well below (that of) other upper-middle-income countries, which is around 28%, and advanced economies, at around 36%.
“Malaysia will have a challenge financing itself with such a low base of revenue, and this will be aggravated by its ageing population, which will have macro-fiscal implications.”
He was speaking at the Beyond Vision 2020: Growth with Equity in the New Decade webinar, co-organised by Sekhar Institute, The Vibes and Petra Group, on Thursday.
He pointed out that the financing of the country’s transition into an advanced economy is among the five key areas that Malaysia needs to focus on in order to elevate itself.
The four other main drivers are promoting inclusivity, boosting competitiveness, creating well-paying and high-quality jobs, and modernising institutions, said Raad.
On the promotion of inclusivity, he noted that growth in the nation has become less inclusive in recent years.
This has led to deepening disparities and encouraged the perception that the country’s economic growth has not benefited every Malaysian equitably.
“A lot of work needs to be done in this area. The social protection system is indeed very broad, but shallow in terms of the benefits it provides, and does not ensure sufficient access to services and opportunities for those at risk of being left behind.
“These include health, education, employment, and most importantly, housing.”
He added that Malaysia must also improve its overall competitiveness, saying despite its relatively high ranking, there are many gaps that need filling, including removing distortions, encouraging innovation, strengthening competitions and improving the investment climate.
“In the area of jobs, creating well-paying and high-quality employment is becoming more challenging as Malaysia moves towards high-income states. Certain gaps have emerged in the skills framework, and some activities are threatened by automation.
“In our view, reforms will be needed to strengthen basic health services, facilitate lifelong learning and digital literacy, and attract and retain talent.”
As for modernising institutions, he said Malaysia lacks institutional qualities relative to its regional peers.
Reforms are needed to enhance government effectiveness, strengthen inclusion, accountability and oversight in operations and policymaking, and improve competition in the state’s business nexus.
“Having a very effective civil service and institution is a tremendous enabling factor that will help in transitioning Malaysia into becoming a developed nation.” – The Vibes, November 16, 2020
Follow The Vibes to read our series of in-depth articles based on discourses held during the Beyond Vision 2020: Growth with Equity in the New Decade webinar, from Thursday till today
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