Shift focus of economic policy for new growth: World Bank

KUALA LUMPUR (NSTP): Malaysia should steer its economic policy to enable new growth in the post-Covid-19 pandemic environment as health risks diminish and the economy recovers, said the World Bank Group.

Its lead economist (macroeconomics, trade and investment lead) Dr Richard Record said the government’s policy would need to shift its focus towards facilitating necessary economic adjustments to enable new growth.

He said Malaysia has both challenges and opportunities including skills development and digital transformation.

“In many ways, Malaysia is well-placed. The underlying skills of the population are very strong when we compare with regional comparators but we also know this is an area under pressure.

“Private sector investors consistently raised concerns of the gap between the types of skills they are looking for and the availability of those skills,” Record said at the virtual “2021 Malaysia Economic and Strategic Outlook Forum” organised by KSI Strategic Institute for Asia Pacific today.

Record said there was a transition in the workforce that meet today’s requirements namely numeracy literacy to requirements of tomorrow around digital literacy, social, emotional and problem-solving skills.

He said the government’s fiscal policy should refocus on rebuilding buffers as the local economic conditions improve.

These include increasing the progressivity of the personal income tax framework, removing exemptions from consumption taxes on non-essential items, expanding the current capital gains tax as well as other progressive taxation.

“Containing the Covid-19 outbreak and protecting the most vulnerable remain the government’s utmost priorities over the near-term.

“Sustain efforts to ensure smart containment through appropriate mitigation and control measures are crucial to ensure a safe resumption of economic activity,” he said.

In terms of spending, Record said the government should contain the rising costs of public wage bill and pensions, better target and increase the depth of social spending, gradual phase-out of generalised subsidies and strengthen public investment project selection and management.

He said the other challenge and opportunity for Malaysia would be about digital technology as the country would have an advantage with one of the most digitally-connected population in the world that was fuelling the digital economy.

However, he said many Malaysian businesses were relatively slow to adopt digital technology.

Record also said the dispersion in productivity in Malaysia between top-and low-performing firms was much wider than any comparative economies.

After a 5.8 per cent contraction in 2020, the World Bank expects Malaysia’s economy to grow 6.7 per cent this year, reflecting a broad-based rebound in consumption, investment and exports.

The low-case economic growth for Malaysia is at 5.6 per cent.

Record said Malaysia’s growth outlook would be subjected to considerable downside risks such as unexpected delay in vaccine rollout, ineffective containment and domestic political uncertainty.

Statistics Department chief statistician Datuk Seri Dr. Mohd Uzir Mahidin said Malaysia’s external trade was likely to grow by 3.9 per cent this year with exports of goods expected to increase 2.7 per cent due to the recovery in global trade and supply chains.

Uzir said the country’s imports could increase 5.3 per cent on the back of improvement in all types of imports.

“However, inflation might make a comeback in 2021 after a deflationary trend this year as the Covid-19 pandemic suppresses demand for goods and services.

“This is thanks to the early roll-out of a safe and effective Covid-19 vaccine and unleashing of pent-up demand in conjunction with supply shortages, which could result in an inflation comeback,” he said.

Juwai IQI chief economist Shan Saeed said the government continued to focus on maintaining macroeconomic stability.

“Amalgamation of fiscal and monetary policy levers hold the key for economic growth and Bank Negara Malaysia has lot of room to manoeuvre in the monetary landscape,” he said.

Shan Bank said Bank Negara could use tactical and strategic moves to maintain structural stability in the local currency.

He said the Brent crude oil was likely to trade between US$50 and US$70 per barrel, which might support the ringgit trading at 3.67-4.10 per US dollar.- SOURCE: NSTP

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