Country Economic Work for Malaysia - Islamic Development Bank

(v)
(vi)
(vii)
(viii)
‣ Weak innovation and business sophistication are due to low budget for research
and development (R&D)
Binding Constraints Facing the PPPs: They include inadequate availability and
accessibility to long-term financing; and land acquisition issues/disputes settlement
particularly for road projects.
Critical Constraints Facing the SMEs: They include insufficient access to funding
sources; weak access to markets; poor ability to absorb and retain good talent in the
industry; and insufficient availability of skilled workforce.
Binding Constraints for Private Sector Resource Mobilization: They include limited
products offered by Islamic banking industry; narrow international base of Islamic capital
market; lack of innovation; and shortage of skilled and experienced professionals in
Islamic finance industry.
Malaysia is not Exploiting its Full Potential of ‘Reverse Linkages’ Opportunities:
Diagnostic analysis finds that Malaysia has huge potential of Reverse Linkages (RLs)
opportunities through which the country can transfer its knowledge and expertise to other
IDB member countries through win-win-win situation. In particular, IDB member
countries can benefit from Malaysia’s Islamic financial system strengths; collaborate with
Malaysia Science Academy; gain from SMEs development experiences; promote Halal
industry; replicate Tabung Haji; acquire benefits from EXIM expertise; and benefit
through Malaysian Technical Corporation Programme. Therefore, Reverse Linkages have
been chosen as one of the major engagement pillars in the MCPS exercise.
The Tenth Malaysia Plan, covering the period 2011-2015, targets an annual economic growth of
6% and to raise GNI per capita from its current level of $9,575 to $12,139 by 2015 and to over
$15,000 by 2020 through inclusive and sustainable growth. In order to achieve these objectives,
the New Economic Model is being implemented through an Economic Transformation Program,
which envisages an investment outlay of MYR1.4 trillion ($523 billion), of which 92% will be
sourced from the private sector. The Plan goals can be realized through vigorously pursuing an
inclusive and sustainable growth strategy which directly addresses regional disparities and
income inequality.
In conclusion, the remarkable story of socio-economic transformation of Malaysia resulted from
visionary and inclusive development policies of the Government. However, at this stage of
economic development, Malaysia appears to be facing the so-called “Middle Income Trap”. In
the postwar era, like many countries in similar circumstances, Malaysia had rapidly moved into
upper middle-income group by capitalizing on low-cost skilled labor, adoption of appropriate
technology, pro-business environment, openness to FDI and trade, and effective privatization
policies.
In the next phase of its socio-economic development, Malaysia needs to embark on more
inclusive development as well as build on new sources of growth, which can propel the economy
to reach high income status by 2020. Similarly, the Government also needs to tackle the growing
unemployment, particularly among the young graduates, as well as incentives to reverse brain
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