etp_handbook_chapter_1-4_economic_model

Second enhanced investments in human capital will be

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Unformatted text preview: e opportunities for investment. Second, enhanced investments in human capital will be made to support an economy based on high-skilled labour, knowledge and innovation. Malaysia cannot move to high-income status by retaining its reliance on ready access to a low-cost, low-skilled workforce. In addition, labour force growth is expected to be slower, meaning that there will need to be a renewed focus on productivity as a growth engine. This need to find new growth engines is reinforced by Malaysia’s declining domestic reserves of oil and gas. Malaysia will need to find new sources of income to compensate for reduced income from its natural resources. Economic Transformation Programme 63 A Roadmap For Malaysia Risk of Being Stuck in the Middle There are also signs that Malaysia is at risk of being stuck in the middle-income trap, as shown in Exhibit 1-5. Malaysia is no longer able to remain competitive with low-income countries as a high-volume, low-cost producer. At the same time it has not yet moved up the value chain and become competitive with highincome countries. Other countries are more competitive than Malaysia in both low-cost production and in high-value markets. This is not a sustainable position. Strategies that were successful in driving Malaysia’s transformation from a poor country, reliant on rubber and tin at Independence into a diversified middle-income economy, are not appropriate for the next stage of Malaysia’s developmental journey. Indeed, many other countries that grew rapidly through the 1970s and 1980s found it difficult to continue their growth once they reached middle-income status. Of the 13 countries to have sustained 7 percent growth for 25 years or more, just 6 have successfully transitioned to high-income status. It was only those countries that undertook a systematic programme to transform the underlying structure of their economies that were able to rise from middle-income status to become high-income countries. Exhibit 1-5 64 Chapter 1 New Economic Model of Malaysia An Unsustainable Fiscal Position Malaysia has run fiscal deficits every year since 1998, with a deficit of 7 percent of GDP recorded for 2009, as shown in Exhibit 1-6. Public debt levels are expected to reach over 60 percent of GDP by 2015. Moving back to fiscal sustainability and achieving the Government’s commitment of a deficit of 3 percent of GDP by 2015 will require a marked change in direction. This fiscal consolidation is imperative for Malaysia. Investor attitudes to sovereign debt have changed significantly over the past two years, and capital markets may be less inclined to finance sovereign debt on the terms they have extended in the past. There is also increasing evidence of fiscal policy competition between countries, with governments cutting corporate tax rates to obtain a competitive edge. In order for Malaysia to offer competitive personal and corporate tax rates, while at the same time invest in education, research and infrastructure, it will need to strengt...
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This note was uploaded on 02/24/2014 for the course ACCOUNTING financial taught by Professor Alan during the Spring '14 term at Howard.

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