FIRST OECD ECONOMIC ASSESSMENT OF MALAYSIA 2016 Fostering inclusive productivity Putrajaya, 11 November 2016
http://www.oecd.org/eco/surveys/economic-survey-malaysia.htm
@OECDeconomy @OECD
Growth has been resilient GDP growth
Note: ASEAN-5 is the weighted average growth rate of Indonesia, Malaysia, Philippines, Thailand and Singapore.
Source: OECD Economic Outlook database and national statistical offices. 2
Incomes are rising GDP per capita (percent of OECD average)
% 100
Malaysia
90
Korea
Thailand
Philippines
ASEAN
% 100 90
80
80
70
70
60
60
50
50
40
40
30
30
20
20
10
10
0
1970
1975
1980
1985
1990
1995
2000
2005
2010
0
Note: GDP per capita is computed in real USD PPP terms; ASEAN excludes Myanmar; 1970-2011 data are from the Penn World Tables, 2012-14 data from the World Development Indicator database.
Source: World Bank, World Development Indicators; Penn World Tables 8.1 database and Economic Planning Unit, Malaysia.
3
Income inequality has declined
Source: Department of Statistics, Malaysia. 4
Well-being can still be raised Better-life index, main dimensions Malaysia
Higher-income OECD Income 9 8 7 6 5 4 3 2 1 0
Work-life balance
Safety
Lower-income OECD
Jobs
Community
Life satisfaction
Education
Health
Environment
1. Indicators are normalised to range between 10 (best) and 0 (worst) . 2. OECD higher/lower income countries are countries belonging to the top/bottom 30% of the OECD member countries.
Source: OECD calculations based on data provided by OECD, Better Life Index, national sources and UNESCO, UIS.stat (database).
5
Boosting productivity growth is key Annual labour productivity growth % 12
% 12 2011-2015
2006-2010
2001-2005 10
10
8
8
6
6
4
4
2
2
0
China
Indonesia
Thailand
Korea
Malaysia
Singapore
Turkey
OECD
0
Source: OECD calculations based on data provided by national statistical offices and OECD, Productivity Statistics.
6
The bond market is relatively developed Size of domestic bond markets (as of December 31, 2015)
% of GDP 250
Corporate
% of GDP 250
Government
200
200
150
150
100
100
50
50
0
0
Indonesia
Philippines
China
Thailand
Source: Bank Negara Malaysia; Asian Bond online database.
Singapore
Malaysia
Korea
Japan
7
Household debt is relatively high Household debt
Note: Data reflects gross debt as a share of GDP at June 2015, except for Malaysia (2015 average) and China (as at December 2015).
Source: Bank Negara Malaysia Annual Report 2015; Standard Chartered Bank (2016), Asia Leverage: After the Boom.
8
Tax revenues are low and declining % of GDP
% of GDP 40
40 OECD average
Malaysia
35
35
30
30
25
25
20
20
15
15
10
10
5
5
0
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
0
Source: OECD (2015), Revenue Statistics in Asian Countries 2015: Trends in Indonesia, Malaysia and the Philippines (for the years 1990-2013); MOF (2015), Economic Report 2015 -2016 (for the years 2014-16). 9
Boosting productivity
10
Student performance can be improved Percentage of low performers in mathematics by socio-economic quartile % 90 80 70
% 90 Bottom quarter
80
Top quarter
70
60
60
50
50
40
40
30
30
20
20
10
10
0
Korea
Singapore
Viet Nam
Indonesia
OECD average
Thailand
Turkey
Malaysia
0
Source: OECD (2016), Low-Performing Students: Why They Fall Behind and How to Help Them Succeed.
➢ Follow through with the revised school curricula based on international benchmarking and improvements to teacher evaluation, training and upskilling. ➢ Monitor the impact of basic education reform implementation on student access and equality. 11
New business entry is low Number of new limited liability corporations per 1,000 people aged 15-64 11
11 Malaysia
10
OECD
Indonesia
Korea
Thailand
Singapore
10
9
9
8
8
7
7
6
6
5
5
4
4
3
3
2
2
1
1
0
2006
2007
2008
2009
2010
2011
2012
2013
2014
0
Source: World Bank, World Development Indicators.
➢ Streamline firm registration and introduce zero licensing procedures in services and industry.
12
The insolvency regime is inadequate Gaps to the frontier Starting a business 100
Resolving insolvency
80
Dealing with construction permits
60 40
Enforcing contracts
Getting electricity
20 0
Trading across borders
Registering property
Paying taxes
Getting credit
Protecting minority investors Note: The gap to frontier is the difference between Malaysia’s score and the score of the best performing country (=100). Source: World Bank, Doing Business.
➢ Amend insolvency laws to facilitate the rescue of viable firms. 13
Services trade is still overly restricted The OECD Services Trade Restrictiveness Index (STRI) for Malaysia 0.7
0.7
Malaysia
Average of countries covered by the STRI
0.6
0.6
0.5
0.5
0.4
0.4
0.3
0.3
0.2
0.2
0.1
0.1
0
0
Note: The STRI indices take values between 0 and 1
Source: OECD, Services Trade Restrictiveness Index.
➢ Pursue further trade and investment liberalisation to boost services sector growth and competition.
14
Public-sector employment is high Share of employment in the public sector (2014)
% 18
% 18
16
16
14
14
12
12
10
10
8
8
6
6
4
4
2
2
0
Korea
Philippines
Japan
Thailand
Viet Nam
Mexico
Turkey
Chile
Malaysia
OECD
0
Source: ILO (2016), ILOSTAT database.
➢ Commission an independent review of public sector productivity. ➢ Regularly evaluate strategic plans and programmes through independent audits and regulatory impact assessments. ➢ Expand performance benchmarks to a larger number of officials, with clear links to rewards, penalties and career progression.
15
Fostering inclusive growth
16
Labour participation rates are relatively low Labour force participation as a percent of people at 15-64
% 90
% 90
80
80
70
70
60
60
50
50
40
40
30
30
20
20
10
10
0
Thailand
China
Singapore
OECD
Indonesia
Malaysia
Philippines
Korea
0
Source: ILO, ILOStat Database; OECD, Labour Force Statistics.
➢ Promote flexible work arrangements and invest more in early childhood care, lifelong learning and reskilling.
➢ Align tertiary and vocational education and training to labour market needs to continue to reduce skills mismatches.
17
Spending for social protection is low Social protection spending as a share of GDP
% 25
OECD social expenditure
%
Malaysia social expenditure
25
20
20
15
15
10
10
5
5
0
1997
2002
2007
2012
0
Source: OECD, Social Spending Indicator; ADB, Statistical Database System.
➢ Develop a comprehensive social protection system, including by implementing an employment insurance scheme. ➢ Improve social policy consistency, programme targeting and the overall impact on reducing disadvantage. 18
The consumption tax rate is low VAT/GST tax rate
Source: OECD Tax Database; KPMG (2015), 2015 Asia Pacific Indirect Tax Guide.
➢ Undertake an independent review of expenditure and revenue needs.
➢ Over the medium term, consider gradually reducing exemptions and then raising the rate of the goods and services tax, and increasing the progressivity of income tax. 19
Pension replacement rates are low % 120
Net replacement rate
% 120 100
80
80
60
60
40
40
20
20
0
0
South Africa Indonesia Mexico United Kingdom Chile Japan Malaysia Ireland New Zealand United States Korea Switzerland Canada Germany Poland Sweden Slovenia Australia Estonia Norway Belgium OECD Finland Czech Republic Saudi Arabia Denmark France Israel EU28 Greece Brazil Iceland Italy China Slovakia Russia Argentina Luxembourg Portugal Spain Hungary Austria Netherlands Turkey India
100
Note: The data are for 2012 for Malaysia and for 2014 for OECD countries. The source publications assume investment returns of 3.5% per annum for Malaysia, whereas a 3% per annum return was assumed for OECD countries.
Source: OECD (2013), Pensions at a Glance Asia-Pacific 2013; OECD (2015), Pensions at a Glance 2015.
➢ Increase pension access ages in line with improvements in healthy life expectancy and reduce exemptions for early withdrawal. ➢ Enrol future public employees in the defined contribution scheme covering private sector employees.
20
Regional inequality is still high
Source: Department of Statistics, Malaysia.
➢ Improve social services, transport, and broadband connectivity in remote areas. 21
Key recommendations
22
Resilient growth
➢ Continue fiscal consolidation to provide a buffer should conditions deteriorate
➢ Undertake an independent review of expenditure and revenue needs
➢ Over the medium term, consider: i) Gradually reducing exemptions and then raising GST ii) Increasing the progressivity of income tax ➢ Increase the use of market mechanisms and stricter environmental standards to strengthen green growth strategies
23
Boosting productivity ➢ Follow through with the revised school curricula based on international benchmarking and improvements to teacher evaluation, training and upskilling ➢ Increase the collaboration of tertiary institutions with industry to deliver job-ready graduates, with focus on vocational education and training ➢ Commission an independent review of public sector productivity
➢ Streamline innovation system governance through clear mandates for the National Science Council and Research Management Agency ➢ Enhance independence, staffing and financial resources of the competition regulator ➢ Expand merger control powers ➢ Amend insolvency laws to facilitate the rescue of viable firms and introduce out-of-court insolvency procedures
➢ Pursue further investment liberalisation to boost the services sector
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Fostering inclusive growth ➢ Develop a comprehensive social protection system, including by implementing an employment insurance scheme ➢ Promote flexible work arrangements and invest more in early childhood care, lifelong learning and reskilling
➢ Increase pension access ages in line with improvements in life expectancy and reduce exemptions for early withdrawal ➢ Enrol future public employees in the defined contribution scheme covering private sector employees
➢ Improve social services, transport and broadband connectivity in remote rural areas 25
For more information
http://www.oecd.org/eco/surveys/economic-survey-malaysia.htm @OECDEconomy
@OECD
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Appendix
27
OECD projections for 2016-17 2015
2016
2017
Real GDP growth
5.0
4.2
4.2
CPI
2.1
2.3
2.5
Headline budget balance (% of GDP)
-3.2
-3.1
-3.0
52.4
43.5
45.0
2.5
2.1
3.2
Memorandum items Oil price (Brent, USD per barrel) World trade growth (Volume change)
Source: Ministry of Finance, Malaysia and OECD Economic Outlook database.
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