What’s Blocking Malaysia to Reach High-Income Status?

 

Malaysia’s GNI per capita was at US$11,230 in 2019. The World Bank has projected Malaysia to join the club of high-income nations, but at a slower pace than its predecessors. What’s blocking Malaysia to achieve a high-income nation?

·       Malaysia’s total factor productivity lags behind most of its transitional peers.

 

Total factor productivity over time (1960=1)

 

·      Malaysia’s human capital is in line with what per capita income predictions, but it lags in quality of education and child stunting.

 

·  Malaysia’s institutional quality lags not just its aspirational peers, but also the expectations of its increasingly middleclass population. Malaysia does poorly versus its aspirational peers on international rankings of voice and accountability and control of corruption.

 

Worldwide Governance Indicators, 2018

 

     Inequality and poverty have fallen, but Malaysia remains more unequal compared to most peers. Economic growth in Malaysia has become less inclusive than in the past, compounding persistent disparities and fuelling a strong sense among the population that growth has not benefitted everyone equitably.

Inequality and income (2010-2017)

·    Malaysia’s fiscal policy is much less redistributive than those in high-income OECD countries and other comparators. Limited fiscal space prevents fiscal policy from being an effective tool for promoting shared prosperity.

In short, we need an overhaul of the education system, integrity in government/ private sector, less race-centric policies, better distributional mechanisms and a higher productive workforce to be a more competitive economy. Is there political will for this?

Reference:

Aiming High: Navigating the next stage of Malaysia’s development, World Bank Group, 16 March 2021