Resilient domestic and external demand will push Malaysia's economy to grow by 5.1 per cent in 2013 and 2014 but the country needs to speed structural reforms to ensure a diversified and dynamic economy, the World Bank said last night.
The World Bank's Malaysia Economic Monitor noted Malaysia’s trade was now dominated by commodities such as crude oil, natural gas, rubber and palm oil rather than manufacturing which propelled it as an "Asian Tiger" in the 1990s.
But with prospects for demand in commodities dampened by weak growth in key export markets such as China and Europe, and an abundance of supply globally, the bank said Malaysia needed to accelerate structural reforms to ensure that its economy remains diversified and dynamic.
"Malaysia has done remarkably well over the last two decades. However, the coming onstream of new sources of global energy is likely to put downward pressure on several commodity prices," Kaushik Basu, chief economist at the World Bank, said in a World Bank statement released in Kuala Lumpur last night.
"This will no doubt put restraints on growth on a commodity-exporting country like Malaysia. I hope Malaysia will show the nimbleness it has shown in the past," he added.
Local research house CIMB Economics Research had also revised downwards its growth forecast for the Malaysian economy to 5.1 per cent for 2013 from 5.5 per cent previously after the weaker-than-expected 4.1 per cent growth in the first quarter ended March 31, 2013.
Bank Negara Malaysia said last month that the first quarter 2013 Gross Domestic Product (GDP) grew at a slower pace of 4.1 per cent from 6.5 per cent in Q4, 2012 on sluggish exports.
But the World Bank report said with he global recovery gathering speed in 2014, Malaysia's external sector will increase its contribution to growth, offsetting the impact of tighter fiscal policies on the domestic economy.
The statement said sound policy choices ensured Malaysia's revenues from resource extraction were reinvested in the economy in the form of machines, buildings and education.
This supported high rates of growth that was shared among the population, raising the average incomes of the bottom 40 per cent of rural households by 7.1 per cent a year over three decades, while poverty rates plummeted, it added.
"Malaysia is a good example of a country that has successfully used natural resources to invest in other areas of the economy,” said Annette Dixon, World Bank country director for Malaysia.
“This has allowed the country to promote diversification, create jobs and improve living standards for its people," she said.
But the report said important challenges had emerged due to the global boom in commodity prices in the 2000s and Malaysia's economy had seen high-tech manufacturing declining and commodities increasing as a share of exports.
"To reach its goal of becoming a high-income nation, Malaysia will need to continue managing natural resources sustainably.
"Some adjustments are needed to spend less of the resource revenues on consumption and more on building skills and institutions that will support further diversification," said Frederico Gil Sander, World Bank'ss senior economist for Malaysia.
The report suggested Putrajaya policy makers should look into increasing the role of Malaysia's formal oil wealth fund, reforming fuel subsidies and reviewing gas pricing.
They should also diversify the economy towards higher productive investments in non-commodity sectors through improvements in human capital and better public investment management systems and adapting agricultural commodity production to the effects of climate change, it said. - June 25, 2013