OECD: Boosting Productivity Key to Fostering Malaysia’s Inclusive Growth

Malaysia’s economy has proven resilient to global headwinds, but more can be done to boost innovation, raise productivity and shift to a more sustainable growth path that will boost living standards for all, according to two new reports from the OECD.

The first-ever OECD Economic Assessment of Malaysia recognizes that growth is moderating, but it remains cushioned by domestic demand and should be above 4% in both 2016 and 2017.

The Assessment underlines the need to continue fiscal consolidation, to provide a buffer should conditions deteriorate, and lays out a series of reform recommendations for maintaining economic resilience, raising productivity and fostering inclusiveness.

A new Review of Innovation Policy of Malaysia shows that Malaysia has expanded its science, technology and innovation ambitions, raising R&D spending to nearly 1.3% of GDP in 2014, from 0.2% in 1996, and investing strongly in education and skills.

To progress further, and raise the chances of innovation-led productivity gains, Malaysia should modernize its public research institutes, enhance their links with universities and provide more public support to firms to boost the private sector’s potential to innovate. Better coordination between and streamlining of the myriad of public bodies involved in science, technology and innovation policy making would also be helpful.

The two reports were presented in Putrajaya by OECD Deputy Secretary-General Rintaro Tamaki and Tan Sri Dr Ali Hamsa, Chief Secretary to the Government of Malaysia.

High-income country by 2020

“Malaysia's economic performance stands out, both for its profound transformation into a diversified economy as well as for the striking reduction in poverty levels,” Tamaki said. “Malaysia is on the path to becoming a high-income country around 2020, but achieving this goal will be challenging. While the economy remains resilient, productivity growth has slowed in recent years and Malaysian firms are facing new competition from their East Asian peers. The two reports launched today identify policy responses to these challenges.”

The Economic Assessment highlights the importance of promoting innovation, as recommended by the Review of Innovation Policy of Malaysia report; enhancing the quality of education and training; of increasing the availability of a high-skilled workforce and of improving Malaysia’s attractiveness for investment in high value-added activities.

Other key measures to lift productivity include an independent review of public sector productivity; enhancing the independence, staffing and resources of the competition regulator; expanding merger control powers; amending insolvency laws and introducing out-of-court insolvency procedures; and further liberalisation of the services sector.

To foster more inclusive growth, Malaysia should develop a more comprehensive social protection system, including implementation of an employment insurance scheme; promote flexible work arrangements and invest more in early childhood care, lifelong learning and re-skilling; increase pension access ages, in line with improvements in life expectancy, while reducing exemptions for early withdrawal; enrol future public employees in the defined contribution pension scheme covering private sector employees; and improve social services, transport and broadband connectivity in remote rural areas.


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