12MP: A tall order for the Malaysian Government to deliver expectations

IN continuation with the Vision 2020’s aspiration to achieve a high-income nation in 2025, the 12th Malaysian Plan (12MP) which encompasses three development dimensions – economic empowerment, environmental sustainability and social re-engineering – will further crystalise the implementation of the Shared Prosperity Vision 2030 (SPV 2030).

The 12MP has outlined initiatives, transformational programmes, economic and institutional reforms (four enablers and 14 game changers) to reset the COVID-19 pandemic’s battered economy, accelerate economic and industrial transformation, achieve inclusive growth and strengthen competitiveness, while also create the foundations for higher long-term sustainable growth.

At the outset, the gross domestic product (GDP) growth target of 4.5%-5.5% per annum for 2021-2025 (vs. an average growth of 2.7% pa in 2016-2020) appears to be on the high side.

The deep economic scarring effects from the pandemic’s impact could take some time to fully recover, especially for the micro and small-and medium-sized enterprises (MSMEs), tourism, retail, and transportation sectors.

Malaysia’s potential output growth has slowed in recent years – from an average annual growth of 4.9% pa in 2011-2019 to 3.3% in 2020 and 3%-4% in 2021. Hence, a substantial improvement in productivity, technology advancement and increase capital efficiency is needed to boost the country’s economic growth potential.

Economic prosperity

The economic prosperity and dividend plan seeks to raise (i) national income per capita by 6.4% pa to RM57,882 in 2025 (2020: RM42,503); (ii) compensation of employees to 40% of GDP in 2025 (37.2% of GDP in 2020); and (iii) average monthly household income by 7% pa to RM10,065 in 2025 from RM7,160 in 2020.

The pandemic has caused a signification deterioration in the living standards of poor, lower and middle-income households due to a combination of falling income as well as the loss of employment amid rising expenditure.

Many households have been pushed into poverty and found themselves at the lower bound of household income trajectory given their relatively low savings and earnings amid high debt, heavy withdrawal of their Employees Provident Fund’s (EPF) retirement savings, disruption of their employment and severe income shock amid continued rise in living costs.

The percentage of Malaysians live below poverty line income (RM2,208 per month) had increased to 8.4% (640,000 poor households) in 2020 from 5.6% (405,000 households in 2019) while 80,000 M40 households (20% of the middle-income group) have been pushed down to the B40 category.

Besides the financial assistance support through job retention scheme and self-employment income support schemes, the Government needs to set conducive conditions for sustainable economic growth, investment and employment opportunities which can support growing incomes for all.

The Government can map out an income enhancement programme covering education, reskilling and upskilling, commerce and entrepreneurship development as well as employability to help improve their income level growing a faster rate.

There must be a major shift in people’s attitudes towards self-improvement, creativity, innovative and mastering new technology and knowledge for self-development.

The cash handouts only provide a temporary relief but it is not fiscally sustainable over the long-term. It is through upskilling and reskilling as well as empowerment programmes that the Government is able to increase marketability and productivity of the targeted income group or to enhance their employment capacity.

Better investment climate

Among the game changers of the 12MP is to enhance the contribution of strategic and high impact industries and activities, namely electrical and electronics (E&E), global services (GS), aerospace, creative, tourism, halal, smart farming and biomass to the economy by leveraging on advanced technologies, digitalisation and niche capabilities.

There is also a game changer to accelerate the development and capabilities of MSMEs through technology and digital adoption by embracing new norms in business activities. Focus will be given to shift MSMEs from a domestic to the global market.

In boosting competitiveness, quality investment and exports, the Government should focus on removing barriers to business growth and investment by ensuring transparency, consistent and clear rules/regulations that limit administrative discretion to minimise unproductive rent seeking and corruption.

We must persistently push zero tolerance for corruption which adds to hidden costs.

The authorities and agencies at all levels (Federal, state and local authority) need to demonstrate leadership to actively facilitate investment through ease of doing business; build better government-business relationship to ease business pain points as well as maintain public-private sectors engagement so as to have proper business impact analysis before introducing new policies or regulations.

With the support of fast evolving technology, digitalisation and innovation as well as enhanced facilitation measures, Malaysia can champion home-grown competitive leading players in education, tourism and high value-added plantation, oil and gas (O&G), transport equipment (smart and electric cars) as well as smart agriculture and food production through the deployment of deep-technology (such as sensors, devices, machines and information technology).

The lack of technical knowledge, low physical and information communications technology (ICT) adoption prevents SMEs from operating efficiently and accessing international markets at competitive costs. Hence, the increased use of digitalisation, better access to global markets and knowledge networks can strengthen SMEs’ contributions.

Advancing sustainability

Focus on advancing green growth, enhancing energy sustainability, and transforming the water sector will be given an important priority under the 12MP. Malaysia will fulfill its commitment to reduce its greenhouse gas (GHG) by up to 45% by 2030.

Economic instruments such as carbon pricing and carbon tax will be introduced during the plan. Private sector investments particularly with environmental, social and governance (ESG) elements will be encouraged to support the green economy agenda.

In this regard, the Government needs to show a leading role in green investment by developing policies to support, motivate and encourage green investment for businesses in addition to investment priorities and spending of Government in areas that stimulate greening of economic sectors.

Taxes and market-based instruments are effective ways to stimulate private investment in the green economy. These include referential access to capital as well as specific incentives for green investment given the large capital, long term nature of investment and long payback period.

Development expenditure

It is a challenge to have adequate and sustainable fiscal resources to finance the historic high allocation of the RM400 bil development expenditure (DE) allocation for 2021-2025.

This calls for the implementation and strengthening of revenue strategies: managing revenue leakages via plugging revenue loss from smuggling and counterfeiting; strategies to increase tax revenue through increased tax compliance; and tax incentives review.

Much of the economic dividends and outcomes can be achieved through good planning and strong implementation capacity as well as better coordination among inter-ministries and governmental agencies.

The Government can consider to embed an annual monitoring and evaluation report for public disclosure so as to enable quicker revision of targets and key performance indicators, and implement intermittent policy responses and adjustments. – Sept 29, 2021

By : Lee Heng Guie (Executive director of the think-tank, Socio-Economic Research Centre (SERC) -FOCUS MALAYSIA

The views expressed are solely of the author and do not necessarily reflect those of Focus Malaysia.

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