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Oecd Economic Surveys: Malaysia 2019 © Oecd 2019 OECD Economic Surveys Malaysia July 2019 OVERVIEW www.oecd.org/eco/surveys/economic-survey-malaysia.htm This Overview is extracted from the 2019 Economic Survey of Malaysia. The Survey was discussed at a meeting of the Economic and Development Review Committee on 24 April 2019 and is published on the responsibility of the Secretary-General of the OECD. This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. OECD Economic Surveys: Malaysia© OECD 2019 You can copy, download or print OECD content for your own use, and you can include excerpts from OECD publications, databases and multimedia products in your own documents, presentations, blogs, websites and teaching materials, provided that suitable acknowledgment of OECD as source and copyright owner is given. All requests for public or commercial use and translation rights should be submitted to [email protected]. Requests for permission to photocopy portions of this material for public or commercial use shall be addressed directly to the Copyright Clearance Center (CCC) at [email protected] or the Centre français d’exploitation du droit de copie (CFC) at [email protected]. TABLE OF CONTENTS │ 3 Table of contents Executive summary ............................................................................................................................... 7 Key Policy Insights .............................................................................................................................. 13 Malaysia’s economic performance has been very successful, but social and governance challenges remain .............................................................................................................................. 13 Renewed priorities of structural reform ......................................................................................... 14 Malaysia’s current state of well-being ........................................................................................... 18 Ensuring resilience to maintain growth momentum .......................................................................... 21 Monetary and financial market policies underpin resilience .......................................................... 24 Low-income households are relatively vulnerable to rising cost of living .................................... 27 Ensuring fiscal sustainability is prioritised ........................................................................................ 29 Building a larger and consistent revenue base to foster inclusiveness ........................................... 31 Consolidating expenditure for strengthening social protection ...................................................... 34 Improving public procurement as a basis for maximising expenditure efficiency ......................... 37 Improving budget process transparency ......................................................................................... 38 Risk management of contingent liabilities needs to be strengthened ............................................. 38 Policy framework of public-private partnership needs to be more transparent .............................. 40 Strengthening public debt management as key to fiscal sustainability .......................................... 42 Ensuring integrity is key to efficient fiscal system ........................................................................ 44 Fostering growth and productivity ..................................................................................................... 46 Accelerating liberalisation facilitates productivity gains ............................................................... 48 Promoting services liberalisation contributes to overall productivity ............................................ 48 Strengthening the policy framework for environmental sustainability and green growth ................. 51 References .......................................................................................................................................... 55 Annex 1.A. Key recommendations in the first OECD Economic Assessment of Malaysia (November 2016) ............................................................................................................................... 58 Tables Table 1. Selected target indicators ......................................................................................................... 16 Table 2. Macroeconomic indicators and projections ............................................................................. 22 Table 3. Possible shocks to the Malaysian economy............................................................................. 24 Table 4. Past OECD recommendations on fiscal policy ....................................................................... 31 Table 5. Past OECD recommendations on promoting inclusive growth ............................................... 37 Table 6. More could be done to improve budgetary transparency ........................................................ 38 Table 7. Estimated fiscal impact of selected key recommendations ..................................................... 45 Table 8. Past OECD recommendations on boosting productivity ......................................................... 51 Table 9. Past OECD recommendation on green growth ....................................................................... 53 Figures Figure 1. Per capita GDP has converged but its pace needs to be accelerated ...................................... 13 Figure 2. Life is good in Malaysia, though improvement is still needed in several areas ..................... 19 OECD ECONOMIC SURVEYS: MALAYSIA 2019 © OECD 2019 4 TABLE OF CONTENTS Figure 3. Well-being improvements have weakened ............................................................................ 20 Figure 4. Recent macroeconomic developments ................................................................................... 23 Figure 5. Malaysia’s growth is highly reliant on trade .......................................................................... 24 Figure 6. Monetary and financial developments have been stable overall ............................................ 26 Figure 7. Inflation has a different impact according to income groups ................................................. 27 Figure 8. Decreasing contribution of paid employment and self-employment to household income ... 28 Figure 9. Malaysia’s inequality has declined but its tax-and-transfer system has little effect on income distribution ........................................................................................................................ 28 Figure 10. The fiscal deficit has increased ............................................................................................ 30 Figure 11. Malaysia’s tax revenue collection is low ............................................................................. 31 Figure 12. The share of non-tax revenue is projected to widen, and the ratio of total revenue to GDP has been falling ..................................................................................................................... 33 Figure 13. Malaysia’s tax mix relies on direct taxes ............................................................................. 34 Figure 14. Public social spending has much room to increase .............................................................. 35 Figure 15. Malaysians can expect a lengthy retirement ........................................................................ 35 Figure 16. Healthcare expenditure is rising fast .................................................................................... 36 Figure 17. Government’s debt guarantee has risen ............................................................................... 39 Figure 18. Malaysia’s capital stock of PPP projects is high .................................................................. 41 Figure 19. Malaysia can improve the preparation, procurement and management of PPPs ................. 42 Figure 20. Federal government debt remains below the ceiling ............................................................ 43 Figure 21. Federal government debt scenarios ...................................................................................... 43 Figure 22. Malaysia needs to fully implement anti-corruption plans .................................................... 44 Figure 23. Contribution of labour quality to economic growth is low .................................................. 46 Figure 24. Labour productivity level still lags behind advanced countries ........................................... 47 Figure 25. There is room to further liberalise services regulations in Malaysia ................................... 49 Figure 26. Restrictions to movement of people in STRI, by professional services ............................... 50 Figure 27. Economic development path needs to be less carbon-intensive .......................................... 54 Boxes Box 1. Malaysia’s socio-economic development .................................................................................. 14 Box 2. The government’s structural reform priorities ........................................................................... 15 Box 3. Malaysia’s drive to promote greater governance,
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