KONVENSYEN PENDIDIKAN DAN MAJLIS MAKAN MALAM (YAYASAN PELAJARAN MARA)

MALAYSIA'S NEAR TERM OUTLOOK

From : The World Bank

PRESS RELEASE

Malaysia’s Near-Term Outlook still Favorable; Smart Natural Resource Management Ensures Smooth Path to High Income Economy

June 24, 2013

KUALA LUMPUR, JUNE 24, 2013--- Resilient domestic demand will allow the Malaysian economy to recover from a slow first quarter in 2013, says a new World Bank report. GDP is expected to grow by 5.1% for both 2013 and 2014, driven by higher consumer and business spending. As the global recovery gathers speed in 2014, the Bank report states, Malaysia's external sector will increase its contribution to growth, offsetting the impact of tighter fiscal policies on the domestic economy.

Released today, the World Bank’s Malaysia Economic Monitor: Harnessing Natural Resources, notes that Malaysia’s trade has become more dominated by commodities such as crude oil, natural gas, rubber and palm oil. 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, Malaysia needs to accelerate structural reforms to ensure that its economy remains diversified and dynamic.

"Malaysia has done remarkably well over the last two decades," says Kaushik Basu, Chief Economist at the World Bank. "However, the coming onstream of new sources of global energy is likely to put downward pressure on several commodity prices. 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."

Malaysia is one of a few developing countries that has successfully converted an abundance of natural resources into long-term sustainable growth. As noted in the report, sound policy choices ensured 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 percent of rural households by 7.1 percent a year over three decades, while poverty rates

plummeted.

"Malaysia is a good example of a country that has successfully used natural resources to invest in other areas of the economy,” says 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."

While Malaysia can be seen in many ways as a blueprint for other resource-rich, developing economies to follow, important challenges have emerged as a consequence of the global boom in commodity prices in the 2000s. In recent years, the economy has become less diversified, with high-tech manufacturing declining and commodities increasing as a share of exports. As highlighted in this report, reversing this trend, as well as saving a higher share of revenues from oil and gas, will enhance the resilience of

Malaysia’s economy.

"To reach its goal of becoming a high-income nation, Malaysia will need to continue managing natural resources sustainably," says Frederico Gil Sander, World Bank Senior Economist for Malaysia. He added, "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."

The report suggests that policy makers in Malaysia consider measures to enhance structural reform and management of natural resource revenues going forward, including:

* Improving sustainable consumption of natural resources by increasing the role of Malaysia's formal oil wealth fund, reforming fuel subsidies and reviewing gas pricing.

* Diversifying the economy towards higher productive investments in non-commodity sectors through improvements in human capital and better public investment management systems.

* Adapting agricultural commodity production to the effects of climate change.

The Malaysia Economic Monitor series provides an analytical perspective on the policy challenges facing Malaysia as it grows into a high-income economy. The series also represents an effort to reach out to a broad audience, including policymakers, private sector leaders, market participants, civil society and academia.

The financial sector is part of Malaysia's success

OPINION

Axel Van Trotsenburg

New Straits Times

June 4, 2013

STABILITY: The nation's banks are well capitalised and governance applies equally to all financial institutions

MALAYSIA'S dynamic economy and its rise to middle-income nation status offer lessons for many countries seeking to reduce poverty and build shared prosperity.

The country's economy shows continued strong momentum with real gross domestic product (GDP) growth estimated at five per cent for this year. Malaysia's highly open economy has displayed remarkable resilience in the face of a weak global environment as domestic demand remains robust.

Malaysians now enjoy an annual gross national income (GNI) per capita of almost US$10,000 (RM30,000) and the country is working towards becoming a high-income economy.

Macroeconomic management has been strong and the business environment robust.

The latest figures on household income show that the bottom 40 per cent of people have benefited from economic growth and extreme poverty has been nearly eradicated. The economic and social progress is impressive considering that five decades ago, the GNI per capita was only US$300.

The country's transformation provides many examples of how Malaysia improved living standards for its people.

One area that stands out as a major contributor to Malaysia's success is its innovative and inclusive financial sector.

Malaysia has developed a full range of financial services from microfinance to special loans for farmers tied to growing seasons and financing for small- and medium-scale enterprises.

Malaysia has one of the highest levels of financial inclusion in the world at 92 per cent and the country has taken advantage of mobile phones and online banking to expand access.

Development of an inclusive financial sector is key to building shared prosperity, as access to finance is critical to the ability of small entrepreneurs to grow their businesses and their incomes and to create jobs.

This has contributed to the growth of small- and medium-scale enterprises that now employ close to 40 per cent of the country's workforce.

Malaysia's innovative and sound financial services sector was partly born out of the lessons the country learned from going through the pain and loss of the Asian financial crisis of the late 1990s.

Today's financial sector is underpinned by modern rules, regulations and governance, and solid institutions to ensure stability of the system.

Having learned from the crisis, Malaysia is now sharing its experience with other developing countries so they develop regulatory policies and institutions to help mitigate the risk against a potential crisis.

Fundamental to the stability of Malaysia's financial system is its adoption of compliance with global standards for supervision and regulation of banking and insurance.

At the same time, Malaysia's banks are well capitalised and governance and regulations apply equally to all financial institutions across the country.

In addition, the court system and alternative mechanisms including arbitration facilitate resolution of disputes.

Malaysia has also become a global leader in Islamic finance or participant banking.

During the last decade, the country has boosted financial inclusion partly by developing an Islamic finance agenda to promote stability and stronger ties between finance and the real sector.

Islamic finance traditionally served as an alternative channel for banking and financial transactions in accordance with Islamic practices.

The quality of service and sound practices adopted by Malaysian financial institutions has proven its viability.

The World Bank is looking forward to working with Malaysia to continue sharing lessons from its financial sector success with developing countries where improved financial services could be part of the solution to lift millions of people out of extreme poverty.