Malaysia is poised to reach high-income status by 2028, according to Apurva Sanghi, the World Bank's lead economist for Malaysia. Speaking at a press conference on 8 October to unveil the latest national economic update, Sanghi noted that the nation's economic trajectory has improved, citing stronger domestic and global conditions.
The World Bank has revised its economic growth forecast for Malaysia in 2024 to 4.9%, up from an earlier prediction of 4.3% made in April. This adjustment reflects the positive performance of the global economy over the past six months, which has contributed to a more favorable outlook for Malaysia.
Sanghi emphasized that Malaysia’s per capita output growth—a crucial indicator of national welfare—has outpaced other ASEAN countries and is now 12% higher than pre-pandemic levels. He attributed this robust recovery to both internal and external factors that have bolstered Malaysia's economic position.
“High-income status for Malaysia is within sight,” Sanghi explained, adding that if the US dollar-ringgit exchange rate remains at 4.54 and the country continues to achieve an average growth rate of 4.3%, Malaysia could attain this status by 2028. However, if the exchange rate holds steady at its current level of around 4.20, the country might reach this milestone as early as 2027.
The forecast highlights Malaysia's significant progress on its economic journey and underscores the importance of sustaining growth in key sectors to achieve its long-term goals. But is Malaysia ready for that leap?
While Malaysia is on track to achieve high-income status by 2028, the journey to this raises critical questions: Is the country truly ready for the leap? Achieving high-income status requires more than just hitting GDP targets or improving per capita income; it involves overcoming structural challenges and ensuring sustainable, inclusive growth. There are several potential risks and challenges that could hinder Malaysia's transition to a high-income economy.
Potential Barriers to Success
Global Economic Volatility: The global economy has been unpredictable, with factors such as geopolitical tensions, trade disruptions, and inflation concerns affecting countries worldwide. Malaysia's economy is significantly export-driven, so any slowdown in global demand for its goods, especially in key sectors like electronics, palm oil, and petroleum, could negatively impact growth.
Currency Fluctuations: While the current US dollar-ringgit exchange rate of 4.20 could accelerate Malaysia's attainment of high-income status, any huge depreciation of the ringgit could delay this milestone. Exchange rate volatility, driven by shifts in global financial markets or changes in US monetary policy, poses a risk.
Income Inequality: Malaysia's journey to becoming a high-income nation requires not only strong economic growth but also addressing income inequality. Wealth distribution remains a concern, with some rural and lower-income communities lagging behind urban areas. This could limit social and economic growth.
Structural Reforms: To sustain high growth, Malaysia needs to continue implementing structural reforms in areas such as education, healthcare, and infrastructure. Without improvements to productivity and innovation, the economy may struggle to compete in high-value industries.
Political Stability and Governance: Political uncertainty or ineffective governance could slow progress on economic policies necessary to support growth. Malaysia’s ability to manage fiscal policy, implement reforms, and create a stable investment climate is crucial for maintaining investor confidence and attracting foreign investments. This essentially something that we would be able to curate and control as a nation.
Technological Disruption and Labor Market: Malaysia’s labor market must adapt to technological changes and automation. While the country has made strides in tech, gaps in digital literacy and workforce readiness remain. If the labor force does not keep pace with the demands of a rapidly changing global economy, Malaysia risks lagging in productivity.
In summary, while Malaysia is making commendable progress toward high-income status, the next few years are critical in addressing these risks. Economic growth, Intelligent governance, and strategic changes will be key to ensuring that the leap to high-income status is not just achieved, but sustained for the long run.
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