PETALING JAYA: Economists are optimistic for Malaysia’s economy to stage a solid rebound next year after the Covid-19 pandemic shattered the country’s economy in 2020, with wishes ranging from structural economic reforms, technology-focused initiatives to political stability to strengthen the economy.
World Bank Group lead economist for Malaysia Richard Record said 2020 has clearly been a challenging year with a global recession unlike anything seen in decades. Malaysia has not been spared and saw a deep economic contraction over the year and much hardship.
“I’m optimistic for a rebound in growth in 2021, but clearly the risks remain high and there are many uncertainties. While Malaysia has many attributes of economic resilience, the crisis has exposed fault lines in the structure of the economy. So, my wishlist would be for Malaysia to double down on the necessary reforms that would not just make a recovery in 2021 more likely, but would sustain equitable growth beyond that,” he told SunBiz.
First, Record said, it is time to push ahead with structural reforms that would boost competition across the economy. The sectors that have proved most resilient during the crisis are those which were already exposed to intense competitive forces. A deeper commitment to lifting barriers to entry, to fuller international integration and the promotion of high-quality investments would help support a resilient recovery.
Second, the shock of Covid-19 has shown across the world just how important human capital is, especially digital and socio-emotional skills, for an adaptive workforce. Malaysia needs to invest more and smarter in its human capital, and to unlock the barriers that prevent every one, especially women, from taking part in the economy, in order to ensure an equitable recovery.
Finally, Malaysia will exit this crisis with a substantially heavier debt burden than before. So, while it may not be popular, it will be important to look at how government can collect more and spend better in the years ahead. That means seeing how more resources can be raised from existing tax instruments, and whether new sources of revenue (for example on carbon) might need to be brought in.
“It will also be key to reconsider the efficiency of government spending commitments, particularly on blanket subsidies such as for fuel, and where there is duplication across government programmes. This will be essential to ensure a sustainable recovery,” said Record.
Development financial institution Bank Pembangunan Malaysia Bhd (BPMB) said 2021 will be the year of recovery.
“We hope that the economy climbs out of the downturn ready to embrace the new normal and also ready to ride on the opportunities brought about by the pandemic-led structural changes. In that way, even if Malaysia gets the first batch of the vaccines only much later into next year, we are already on our way to a more sustainable path of recovery going forward.”
BPMB believes that the government will be coming out with many timely plans to transform the economy in the 12th Malaysia Plan (12MP) to be announced early next year.
“Our wishlist includes more focus on high technology, further push for advance manufacturing to boost the development of local supply chains and a framework for the future workforce.”
It said the government has introduced a well-balanced budget for next year to enable the country to recover from the downturn and ensure inclusivity while at the same time march forward with a development agenda that focuses on acceleration of technology and preservation of the environment.
“There are many measures with significant allocations to pursue green economy initiatives in the Budget 2021 and the implementation very much involves state governments along with the related agencies. We would like to see minimal obstacles to getting the initiatives rolled out well before the year ends.”
Monash University Malaysia Professor of Public Policy Engagement and Econometrics Prof Mahendhiran Nair wished for first, a more focused and impactful investments in Malaysia’s science, technology, innovation and economic (STIE) development initiatives so that the country is better prepared for future pandemics and global uncertainties.
“More importantly with a stronger STIE ecosystem, the country will be in a better position to create new opportunities for improving the quality of life and the economy, as the global economy improves in the coming years.”
Second, he wished for political stability, which is to stop the political bickering and get back to strengthening the economy, and perhaps a unity government.
“If we don’t fix our political system, we will lose investor confidence and competitiveness to other regional economies.”
Third, he wished for an end to Covid-19 with the quick introduction of vaccine, as there is a need to get people back to work and children back to school.
“What we do now, will determine whether we as a nation become a developed country by 2030. The country did not meet all the Vision 2020 objectives – we are still caught in the ‘middle-income country trap’. We need to work harder to make it a reality by 2030,” said Mahendhiran.
PublicInvest Research said Malaysia is on course to register a strong economic turnaround in 2021, driven by massive fiscal and monetary measures, a low base effect and a rebound in global growth. ringgit and capital markets will also recover, consistent with renewed investor sentiment towards the emerging markets. All these are possible thanks to receding headwinds from Covid-19 which is expected to be contained favourably in 2021.
“Investor sentiment is likely to get a boost by the prospect of more than one vaccine approved for Covid-19, further increasing the global coverage for the pandemic and therefore, the global growth momentum. Malaysia is also entering a significant junction in 2021 especially with the impending release of 12MP in Q1’21 and the possibility of a general election being called toward the later part of the year.”
Risks to growth may come from several sources, chiefly a renewed and large-scale infection of Covid-19, prolonged and acute political uncertainty, and a sharp rise in capital outflows. External risks may come from unexpected normalisation in advanced economies’ policy rates, a change in US foreign and business policies, a less-than-favourable second US-China trade deal and a spark of geopolitical risks that may increase the risk premium on oil.
To recap, Malaysia’s gross domestic product (GDP) contraction improved sharply in Q3’20 to 2.7%, from a record low GDP decline of 17.1% in Q2’20. In Q1’20, GDP grew 0.7%. Bank Negara Malaysia has projected the country’s GDP to contract between 3.5% to 5.5% in 2020, and for GDP to grow within the range of 6.5% to 7.5% in 2021.
Source: The Sun Daily
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