Kuala Lumpur, 19 October 2018 – Yesterday, the government tabled its Mid Term Review of the 11th Malaysia Plan – the first time the five year plan has been taken on by a new administration. Launched in 2015, the 11th Malaysia Plan (11MP) 2016-2020 has reached the middle of its lifespan and the mid-term review presented to Parliament contained a range of new political reforms and revealed a mixed picture of economic progress highlighted by a number of emerging challenges. Over the last two years, the performance of the Malaysian economy has been stable, driven by the strong growth in domestic consumption, which is expected to grow to contribute 56.9% of GDP by 2020. Growth rate targets set out in 11MP have been achieved in private consumption and almost reached for private investments, denoting strong domestic demand and investment. Malaysian exports have continued to grow, underpinned by the strong performance of electronics, but there has also been growth in commodities exports which raises questions over the country’s position in the global value chain.
The mid-term review identified key challenges to the economy such as slow productivity growth, low real public investment, unequal distribution of growth, and the necessity to bolster the fiscal position, including as a result of the decision to revert to SST. Laurence Todd, Director of Research and Development at the Institute for Democracy and Economic Affairs (IDEAS), commented that: “The Mid Term review contains a number of welcome political reforms, to improve governance, increase transparency and strengthen key areas such as public procurement. The economic picture is more mixed, the review identifies many of the right challenges including improving human capital and addressing income disparities and the government is pursuing constructive reforms on these issues. But in other areas, including on the fiscal side, there are indications that the government is moving in potentially the wrong direction.”
To increase revenue, the government discussed the imposition of new digital taxes on online transactions as well as raising indirect taxes and non-tax revenue such as licenses, permits, fees, and rentals. In response, Laurence Todd commented that: “The government needs to clarify the form of this new digital tax, given the potential impact on this important sector of the Malaysian economy. Overall, its disappointing that the government seems to be focussing more on tax and increasing costs to business, rather than reducing operational spending which has been persistently high in Malaysia.”
As an effort to strengthen the medium-term fiscal position, the government has promised to decrease development expenditure by 15%, or RM40 billion. The government also remains committed to the role of Government-Linked-Corporations in supporting the economy but has decided that further reforms and oversight is needed. Laurence Todd commented that: “Further reforms to strengthen the oversight and performance of GLCs are of course welcome, but it is disappointing that the government does not seem to be proposing more radical reforms, including significantly reducing its holding of assets and equities, which could raise revenue and stimulate private sector growth. At the same time, the government is proposing to reduce development expenditure – we would recommend that the government focus on improving its balance sheet in a way that raises revenue and maintains the overall level of public investment.”