Country Economic Work for Malaysia - Islamic Development Bank

More documents

Recommendations

Info

EXECUTIVE SUMMARY The main objective of this Country Economic Work (CEW) is to provide analytical basis for designing IDB Group Member Country Partnership Strategy (MCPS) for Malaysia. This CEW is prepared by the IDB Group MCPS Team based on available information and data from reliable national and international sources; two background studies prepared by the local Consultants; bilateral meetings with the key stakeholders; and outcome of two Consultative Workshops (attended by the public sector, private sector, academia, civil society etc.) held in Malaysia. The growth story that has transformed Malaysia to be an upper-middle income country can be divided into two main phases: First phase, high economic growth during 1967-1997 when Malaysia (as one of 13 countries in the world) sustained growth of more than 7% per annum. The main driver of economic growth was surging domestic private investment rate at 26.9% of GDP accompanied by supportive public investment rate of 12.4% of GDP during 1990-1997 1 . Second phase: (post-Asian financial crisis) relatively slow economic growth during 2000-2011 of average 5% per annum was mainly due to perceptible drop in domestic private investment rate at 10.5% of GDP per annum while public investment performed countercyclical role to partly offset the slowdown in private investment. In terms of sectoral performance, the services sector remained the main source of economic growth. In 2009, the manufacturing sector was hit hard with negative growth of 9.3% on account of global recession but recovered remarkably with a positive growth of 11.4% in 2010. Compared to other key sectors, growth in the agriculture sector remained relatively slow. During 2000s, the agriculture sector grew by 3.2% per annum. Other macroeconomic indicators also showed sound performance of the economy. For example, the average current account surplus remained 12.8% of GDP and trade surplus 16.9% of GDP per annum during 2000-2011, significantly high compared to other competitive countries in the Asian region. Inflation remained at the modest level (average 2.2% per annum during 2000-2011). Banking sector is built on solid foundations, with strong capital adequacy and a considerable amount of excess liquidity (surplus liquidity of MYR255 billion or $82.6 billion in 2011). However, federal budget deficit remained average 5% of GDP during 2000-2011 but currently fiscal consolidation is underway. In addition to the remarkable progress in macroeconomic indicators, Malaysia has steadily improved its human development indicators and has been considered as a high human development country (HDI ranking 61 out of 169 countries in 2011). The country has also made remarkable achievement in reducing poverty (from 49.3% in 1970 to 3.8% in 2009), and the economy remains almost at full employment level (i.e. unemployment rate 3.1% in 2011). Using a comprehensive Growth Diagnostic Framework, which was developed by the MCPS Team (an extended version of Growth Diagnostic Framework of Hausmann, Rodrik, and Velasco 1 Malaysian National Accounts and the World Bank, World Development Indicators do not provide data on private investment prior to 1990. 1
(2005)), key insights emerged in two areas; namely, Private Sector Development and Reverse Linkages Opportunities (also main pillars chosen for the MCPS for Malaysia for 2012-2015). The diagnostic analysis identifies the following binding constraints to economic growth in Malaysia: (i) (ii) Low Level of Private Investment: Prior to the Asian financial crisis, private investment was at the maximum level of 32% of GDP in 1997, which considerably declined to 10.3% of GDP in 2010 and FDI declined from 6.3% of GDP during 1990s to 2.9% of GDP during 2000s. Current total investment rate (both public and private investment) in Malaysia (i.e. 20.3% of GDP) is less than the benchmark investment rate of 25% of GDP for achieving high and sustainable real GDP growth, according to World Bank Commission’s Report on Growth and Development (2008). The local and foreign private investments have been constrained mainly due to low level of returns on investments, and some bureaucratic issues. In particular, investors’ major concerns are related to starting a business, obtaining construction/ business permits, registering property, and getting credit. Low Level of Public Investment: Public investment declined from the peak level of 15.4% of GDP in 2002 to 10% of GDP in 2010, which is attributed to budgetary limitations (average budget deficit 5% of GDP during 2000-2011). This is also attributed to the Government’s policies towards supporting and encouraging private sector investment, particularly the infrastructure. The 7% sustained real GDP growth in Malaysia achieved during 1967-1997 was not only due to high level of private investment but also attributed to strong public investment, which could not be sustained thereafter. (iii) Weak Software of Growth: Malaysian global competitiveness ranking slipped from 19 in 2006 to 26 in 2010 (out of 142 countries); however, it has improved to 21 in 2011. Comparing with other competing countries in the region, Malaysia’s international competitiveness is weak due to low quality of higher education, skills and training, weak technological readiness, low spending on R&D, slow innovation, and low labor productivity. These findings are consistent with the World Bank (2010) Composite Index of Constraint, which ranked Malaysia 2 for skill development and 3 for entrepreneurial development (0 for severe binding constraint and 10 for least severe binding constraint). (iv) Similar to private investment, relevant stakeholders in the country identified the following binding constraints for overall Private Sector Development: ‣ Inadequately educated workforce ‣ Difficulties in dealing with tax administration and getting business licenses and permits ‣ Difficulty to locate and recruit the needed skills ‣ In terms of higher education and training, and technological readiness, the challenges remain even more substantial ‣ Evidence suggests that weak innovation is hindering the private sector development in the country 2
Page 4: Acknowledgements Appreciation for s
Page 7 and 8: ISRA : International Shari’ah Res
Page 9: (v) Foreign Direct Investment……
Page 13 and 14: drain. Further, the Government need
Page 15 and 16: macroeconomic indicators are given
Page 17 and 18: SMEs are concentrated in the servic
Page 19 and 20: easy technology adoption, pro-busin
Page 21 and 22: Kelantan with the lowest per capita
Page 23 and 24: Figure 1.12. General Growth Diagnos
Page 25 and 26: that the Government’s Economic Tr
Page 27 and 28: (ii) Low Returns to Investments app
Page 29 and 30: Figure 1.22. Malaysia's Exports by
Page 31 and 32: 43. Malaysia’s private firms are
Page 33 and 34: over the medium-term. Several initi
Page 35 and 36: growth software compared to its maj
Page 37 and 38: esearchers and technicians in R&D p
Page 39 and 40: 59. Malaysia can further enhance it
Page 41 and 42: Annex Table 1.2. Malaysia: MDGs Ach
Page 43 and 44: 64. The Malaysian experience has al
Page 45 and 46: economic growth. The ETP is expecte
Page 47 and 48: 77. According to the Global Competi
Page 49 and 50: development of infrastructure throu
Page 51 and 52: a. Northern Corridor Economic Regio
Page 53 and 54: The challenge is for financial inst
Page 55 and 56: Original Equipment Manufacturing (O
Page 57 and 58: Intensify formalisation to promote
Page 59 and 60: Sukuk market has experienced unprec
Page 61 and 62:
For innovation to become an importa
Page 63 and 64:
y the United States (MYR2.3 billion
Page 65 and 66:
(vi) (vii) Sharing Eexperience and
Page 67 and 68:
institutions as well as Islamic pro
Page 69 and 70:
Liberal Foreign Exchange Administra
Page 71 and 72:
Issues/Challenges Facing the Islami
Page 73 and 74:
Funding from Government of Malaysia
Page 75 and 76:
programmes in the country. Initiati
Page 77 and 78:
labeling and branding of Halal prod
Page 79 and 80:
to over 200 industrial estates or p
Page 81 and 82:
member countries can be provided te
Page 83 and 84:
Figure 6.5: MATRADE Business Strate
Page 85 and 86:
offered by the 35 MTCP training ins
Page 87 and 88:
case of the economies in transition
Page 89 and 90:
Key Challenges Facing the MTCP
Page 91:
iii. Conclusion 185. Above diagnost
show all

Country Economic Work for Malaysia - Islamic Development Bank

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?