It Is Time For Malaysia To Aim High

By World Bank Group’s Lead Economist, Richard Record and External Affairs Officer, Joshua Foong.

The past few weeks have shown what Malaysia can do when it aims high. The maiden win of national shuttler Lee Zhi Jia who emerged victorious in the All-England Open Badminton Championships, the world’s oldest and most prestigious badminton tournament, is a great metaphor for this kind of spirit – and it should be replicated in the sphere of economic development. On March 16, 2021, the World Bank in Malaysia released a new Flagship Report Aiming High – Navigating the Next Stage of Malaysia’s Development which looks at the next frontier of the country’s development as the reality of being a high-income economy becomes all the more apparent. Over the next few years, Malaysia will pass the high-income threshold, calculated in GNI per capita, putting the country on the same bar as the world leading economies.

This hope will set a higher bar of expectations amongst Malaysians as they begin to draw comparisons with other high-income countries. We can also draw lessons from the world of sports. Like the young shuttler Lee, he will now be branded as a world champion, setting him apart from other aspiring competitors. Naturally, greater expectations are now placed on his shoulders to keep on winning as a champion; and he will realize that the path forward demands nothing else but a constant high-level of performance. Similarly, economic planners will feel the great weight of societal expectations once the high-income thresholds are crossed. When we started working on this report, everyone in the team had the same fundamental question: what will it take for Malaysia to truly converge towards becoming a high-income and developed nation?

In our report, we look beyond the Covid-19 outbreak to chart out the development pathway for Malaysia in the years ahead, looking at how economic performance could be improved. Malaysia has long aspired to become a high-income and developed economy. How realistic is that prospect? We find that Malaysia is close to achieving that goal and will likely be reclassified as high-income within the next five years.

However, we also looked at how Malaysia compares to the 19 other countries that made the leap from middle- to high-income in the last 30 years. And here the gaps start to show. Business as usual is not an option for Malaysia. Malaysia’s rate of growth, even before Covid-19, was slowing considerably and there is a growing sense that the economy is not creating enough high-quality jobs. Reforms are needed to accelerate growth—the gap in terms of human capital and in female labour force participation is particularly large; to improve the effectiveness of public sector institutions; and to build a more meritocratic society that allows growth to benefit everyone.

Clearly some of these reforms will not be easy, especially when it comes to reforming Malaysia’s tax and expenditure system to collect more and spend better or modernizing the country’s public service in line with the heightened expectations of an increasingly middle-class society. But the costs of inaction are high, and the returns on reform are significant. For example, we estimate that a strong set of reforms to boost the quality of human capital and to raise the rate of female labour force participation to the top 75 percentile of high-income economies, would almost double Malaysia’s GDP growth rate.

It is not that Malaysia is doing badly (it is not), it is just that the country could (and should) do better. As with the mounting pressures on Malaysia’s new badminton champion Lee, expectations of Malaysians for their country will remain high, and rightly so. The country has an impressive track record and strong foundations to make the leap into the exclusive club of high-income and developed economies. So, anything less than a top performance will be in disappointment. Fortunately, with the right reforms there is every likelihood that Malaysia will not just aim higher, but achieve, the country’s higher promise. It is truly time for Malaysia to aim high.

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