Malaysia has focused on civil service reforms to improve the efficiency of public service delivery. This Research and Policy Brief argues that this method needs to be supplemented with an approach that makes officials more directly accountable to citizens.
... See More + Improving governance by engaging citizens and strengthening local institutions is a policy implication that has lessons not only for Malaysia, but also for other countries around the world.
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Brief 138279 JUN 01, 2019
Abdul Kader,Shahridan Faiez Bin Mohideen; Rao,VijayendraDisclosed
Growth moderated in Q1 2019, owing to weaker investment growth and inventory drawdowns.Domestically, an easing of export growth, together with a decline in investment, has resulted in Malaysia's economic growth becoming more dependent on consumption.
... See More + In 2019, Malaysia's economy is expected to expand at a relatively moderate rate, with risks tilted towards the downside. The GDP growth rate is projected to reach 4.6 percent in 2019, 0.1 percentage points lower than in the previous forecast, reflecting weaker-than-expected investment and export activity observed in Q1 2019. Potential risks to growth include those related to escalating trade tensions, a sharper than-expected slowdown in major economies, as well as volatility in financial and commodity markets. Relatively high levels of private and public debt also pose risks to growth. In the short term, policies should focus on boosting resilience and protecting the vulnerable. In an environment of growing uncertainty, it is particularly important to rebuild fiscal policy buffers, to facilitate private investment, and to ensure adequate social protection for low-income and vulnerable households. In the medium term, bold reforms will be needed to boost human capital and to raise productivity. As Malaysia proceeds on its transition to a high-income and developed economy, incremental growth in incomes will be increasingly dependent on improvements in human capital and productivity. In turn, this will require a multi-year reform agenda to improve the quality of workforce skills and learning outcomes from the education system. The Malaysia Economic Monitor (MEM) consists of two parts. Part 1 presents a review of recent economic developments and a macroeconomic outlook. Part 2 focuses on a selected special topic that is key to Malaysia's medium-term development prospects and the achievement of shared prosperity. In this edition, the focus of the special topic is on re-energizing the public service to better enable it to facilitate Malaysia's future development.
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Economic Updates and Modeling 138390 JUN 01, 2019
Record,Richard James Lowden; Chong,Yew Keat; Teh Sharifuddin,Shakira Binti; Bajpai,Rajni; Govindasamy,JeevakumarDisclosed
Waqf is a potent tool for mobilizing resources to meet societal needs by the self-sustaining contributions of private donors rather than by governmental borrowing or spending of tax money.
... See More + Despite their social and economic importance, the potential of waqf remains largely unrealized because of the critical challenges of liquidity management and the shortage of viable investment opportunities. This report, which is jointly produced by the World Bank Group, International Centre of Education in Islamic Finance (INCEIF) and International Shari’ah Research Academy for Islamic Finance (ISRA), highlights the importance of waqf in mobilizing and maximizing resources to meet societal needs. The report also emphasizes the legal and regulatory frameworks that enable the implementation of waqf in selected countries. The report is expected to raise awareness on the importance of waqf and its huge potential for public good.
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Malaysia has experienced a rise in foreign labor inflows in response to steady economic expansion and demographic changes. The foreign workforce has been hovering around 15 percent of the total labor force in recent years according to labor force surveys by the Department of Statistics Malaysia (DOSM).
... See More + Foreign labor is concentrated in low-skilled occupations, and in Malaysia the term foreign worker specifically implies a foreigner doing low-skilled work. Foreign labor makes important contributions to the labor market and economic growth. Yet, concerns over irregular foreign workers have been growing. Heated discussions have taken place on the number of irregular foreign workers in Malaysia as there is no definitive estimate of the number of irregular foreign workers. To illustrate the magnitude, the Ministry of Home Affairs (MOHA) reported that four out of ten foreign workers are irregular, based on its enforcement and amnesty program operations, suggesting the number of irregular foreign workers be about 1.2 million in 2017 and the total foreign worker population of about 3 million. This report attempts to estimate the number of irregular foreign workers in Malaysia. Its contributions to this field are the following: first, it develops a conceptual framework that lays out potential entry points of irregular foreign workers. Second, it identifies alternative administrative data sources that can help estimate the magnitude of irregular foreign workers at each entry point. Third, it identifies methods that can be employed to measure irregular foreign workers with the current data availability and outlines what can be carried out further in the future using immigration department’s microdata.
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Report AUS0000681 MAR 28, 2019
Yi,Soonhwa; Tan Wei,Kershia; Loh,Wei San; Simler,KennethDisclosed
This paper sheds light on key innovation patterns and constraints within a selected set of developing East Asian countries (Cambodia, China, Indonesia, the Lao People’s Democratic Republic, Malaysia, Myanmar, the Philippines, Thailand, and Vietnam).
... See More + It follows a comprehensive approach about national innovation systems while highlighting the supply and demand dimensions of innovation as well as the markets where firms make accumulation decisions for different forms of capital (knowledge capital, human capital. and physical capital). The paper presents a set of empirical exercises drawing from various data sets. The results corroborate the idea of the importance of adopting a broad view of innovation policy and investing in missing complementary factors. Although investment in research and development is key to boost innovation, it is also crucial to have business and regulatory environments that are conducive to overall firm performance and capital accumulation (not only knowledge capital), as they are expected to improve innovation returns. In addition, the results suggest that other innovation inputs aside from research and development matter for innovation activities, such as training for innovative activities, acquisition/licensing of technology, and managerial practices.
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Policy Research Working Paper WPS8706 JAN 17, 2019
Firm-level survey data on registered private firms reveal that firms in Malaysia have much lower labor productivity than their counterparts in 43 upper-middle-income and 14 high-income countries.
... See More + It will be difficult for Malaysia to achieve the high-income status without a significant improvement in labor productivity of the private sector firms. The lower productivity of Malaysian firms is pervasive and holds across sectors and firm-sizes. Drivers of productivity such as outward orientation of the firms, innovation, training of workers and top manager’s experience are all lagging in Malaysia compared to the high-income and upper-middle-income groups. Malaysia does outperform in terms of low regulatory burden on the firms and better quality of power supply. However, corruption and crime are worse in Malaysia than in the high-income and even upper-middle-income countries.
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Growing risks weigh on the economic outlook. On the external front, a slowing global economy, rising concerns regarding the impact of US-China trade tensions and increased volatility in financial and commodity markets all weigh on the prospects for Malaysia’s economy.
... See More + On the domestic side, increased reliance on oil-related revenue amid heightened uncertainty around the commodity price forecasts and relatively high levels of private and public debt pose risks to growth. Efforts to sustain growth in the near term have to be carefully balanced with the need to restore fiscal buffers. In the short term, fiscal consolidation efforts are expected to be driven primarily by measures to reduce expenditure. However, efforts to broaden the tax base, to diversify revenues away from unstable oil and gas revenues, and to introduce greater progressivity, will require a multi-year reform agenda. Restoring fiscal buffers will be necessary to ensure that Malaysia is better prepared to respond to future macroeconomic shocks. The Mid-term Review of the 11th Malaysia Plan and the 2019 budget outline the Pakatan Harapan government’s new priorities, with an emphasis on strengthening governance and improving accountability. The government has also expressed a commitment to reform the role of the state in business to level the playing field and to unlock future productivity growth. Reforms to increase the effectiveness of pro-inclusion expenditure programs have the potential to achieve greater impact with lesser public resources. The Malaysia Economic Monitor consists of two parts. In this edition, the focus of the special topic is on realizing human potential. Accelerating human capital development will be critical for enabling Malaysia’s successful transition to a high-income and developed nation. With the advent of digital and other disruptive technologies, there has been a significant changein the nature of jobs, with an increasing premium on higher-order cognitive skills, such as complex problem solving, socio-behavioral skills, reasoning and self-efficacy. Building these skills requires a transformation in the way that Malaysia nurtures, invests and protectsits human capital. According to the World Bank’s new Human Capital Index, Malaysia ranks 55th out of 157 countries. While Malaysia performs well in some components of the index, it does less well in others. To fully realize its human potential, Malaysia will need to make further advances in education, health and nutrition, and social protection outcomes. Key priority areas include enhancing the quality of schooling to improve learning outcomes, rethinking nutritional interventions to reduce childhood stunting, and providing adequate social welfare systems to enable households to invest in human capital formation.
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Economic Updates and Modeling 132903 DEC 13, 2018
Record,Richard James Lowden; Chong,Yew Keat; Teh Sharifuddin,Shakira Binti; Aturupane,Harsha; Teo,Hui Sin; Schmillen,Achim Daniel; Moroz,Harry EdmundDisclosed
Effective fiscal policy depends on the amount of budget resources available to raise spending or lower taxes without jeopardizing fiscal sustainability.
... See More + This resource availability is often called fiscal space. Since the global financial crisis, fiscal space in emerging market and developingeconomies has narrowed. This makes these economies more vulnerable to sudden spikes in financing costs and limits their ability to counteract adverse shocks.
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Sixteenth in a series of annual reports comparing business regulation in 190 economies, Doing Business 2019 covers 11 areas of business regulation.
... See More + Ten of these areas - starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency - are included in the ease of doing business score and ease of doing business ranking. Doing Business also measures features of labor market regulation, which is not included in these two measures. Doing Business provides objective measures of business regulations and their enforcement across 190 economies and selected cities at the subnational and regional level. This economy profile presents indicators for Malaysia; for 2019 Malaysia ranks 15
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This paper documents the best practices and practical lessons learned from Malaysia’s largest mandatory public provident fund, the Employees Provident Fund (EPF).
... See More + The objective of this paper is to increase the knowledge base of efficient pension funds for developing countries, drawing from Malaysia’s experiences. Findings include key critical factors that contributed to the successof the EPF, from a small pension fund set up in 1949, to become one of the largest pension fund among developing countries and the 15th largest in the world. This paper summarizes the EPF’s key strategies in corporate governance, investment, and operational strategies, as well as policies deployed by the EPF in managing its assets. The lessons from the EPF come from three main factors. Firstly, the EPF has developed a strong governance structure which discourages external politicalmeddling and encourages transparency and accountability. Secondly, the EPF’s investments strategy, guided by its Strategic Asset Allocation, including diversifying to foreign markets and new asset classes, has enabled the Fund to produce enhanced returns. Thirdly, the EPF’s operational effectiveness which is driven by the professionalism of their employees and their continuous improvement for members’ benefit. Nonetheless, several challenges remain in the present and in the future. The first challenge involves demographic changes as Malaysia is ageing more rapidlythan other countries and even now a sizable number of workers do not have the recommended minimum savings level needed for retirement. A revamp of the current model is needed to ensure that members will be financially independent post-retirement. The second challenge is lack of coverage: only half of those in the labour force are contributing to the EPF, which leaves the other half without oldage pension coverage. A reform agenda needs to expand coverage particularly for the self-employed. The final challenges are maintaining public trust and staying relevant, especially in the age of the fourth industrial revolution and the emerging gig economy that has different needs and demands. This case study will hopefully be of benefit to both policy makers andpractitioners, particularly in the developing world. It could help play an important part in designing a successful provident fund to contribute to a comprehensive social safety net for citizens.
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Working Paper 131289 OCT 01, 2018
Price,William Joseph; Khalif,Muhammed Abdul; De Luna-Martinez,Jose; Zhang,Wei; Arshad,Ashraf BinDisclosed
This report is an inaugural issue in a new series that aims to offer a fresh look at how developing countries are overcoming persistent problems in public sector management.
... See More + Significant improvements in public sector performance are being evidenced across the developing world today, as government officials and political leaders find new and innovative ways to tackle long-standing challenges. Part I of this report demonstrates that public sector performance is being pursued diligently and successfully across a variety of country contexts, including in low-income environments. Through surveying its governance specialists from around the globe, the World Bank has assembled a collection of 15 cases that showcase how lessons from global experience are being adapted and applied in practice. The report also explores common success drivers that appear in each of the cases. Part II focuses on a special, cross-cutting topic that is critical to public sector performance -- policy and inter-agency coordination. As the responsibilities of government have grown in volume and complexity, policy and program coordination has become ever more challenging, and the stakes have never been higher. Enhancing coordination will depend not only on the adopted formal institutional mechanisms, but also on their interplay with the broader institutional environment and with other processes that influence coordination.
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This report is an inaugural issue in a new series that aims to offer a fresh look at how developing countries are overcoming persistent problems in public sector management.
... See More + Significant improvements in public sector performance are being evidenced across the developing world today, as government officials and political leaders find new and innovative ways to tackle long-standing challenges. Part I of this report demonstrates that public sector performance is being pursued diligently and successfully across a variety of country contexts, including in low-income environments. Through surveying its governance specialists from around the globe, the World Bank has assembled a collection of 15 cases that showcase how lessons from global experience are being adapted and applied in practice. The report also explores common success drivers that appear in each of the cases. Part II focuses on a special, cross-cutting topic that is critical to public sector performance -- policy and inter-agency coordination. As the responsibilities of government have grown in volume and complexity, policy and program coordination has become ever more challenging, and the stakes have never been higher. Enhancing coordination will depend not only on the adopted formal institutional mechanisms, but also on their interplay with the broader institutional environment and with other processes that influence coordination.
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The fifth edition of the Development Digest begins with an article on why it’s important to look beyond averages when it comes to the country’s development, followed by a look at the region’s success in the face of global uncertainty.
... See More + The Digest also touches on how inclusiveness can come about in a new Malaysia, the role of the digital economy as a new driver of development, and the future of work with automation on the horizon. Other articles include the issue of financial integration in the region, the use of Islamic finance toward sustainability, development financial institutions, budgeting for performance in Malaysia, and fighting HIV through harm reduction programs in the country.
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Malaysia’s remarkable transition from low-income to upper middle-income status has occurred in parallel to the microelectronics revolution. Most of Malaysia’s citizens are connected to the internet, and there is more than one mobile cellular subscription for each individual.
... See More + Malaysia needs to create a dynamic ecosystem for its digital economy that embodies changes to its infrastructure, regulations, skills, and public finance. This report examines three interrelated issues of digital connectivity, digital entrepreneurship, and taxation of digital platforms that are closely aligned with Malaysia’s goal of becoming the e-commerce hub of the region. Following an overview of the report in Chapter 1, Chapter 2 details digital adoption in Malaysia, with an emphasis on how businesses are using but failing to fully exploit digital technologies to communicate with customers, market goods, and meet other core business functions. Chapter 3 discusses the information and communications technology (ICT) infrastructure on which the digital economy is built, including persistent challenges related to the affordability and quality of fixed internet access that arise from high prices, market concentration, and an underperforming regulatory regime. Chapter 4 looks at the promise and challenges of digital entrepreneurship in Malaysia, highlighting the central role of government initiatives to date and what is required to fully empower the private sector. Chapter 5 explores options for taxing Malaysia’s digital economy, including the impact of recent reforms to international standards. Finally, Chapter 6 presents a summary of key policy recommendations. The report covers an important, but by no means exhaustive, set of issues that Malaysia will need to address in order to maximize the opportunities provided by the advent of digital technologies and should be seen as the starting point in these endeavors.
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Working Paper 129777 SEP 01, 2018
Record,Richard James Lowden; Larson,Bradley Robert; Teh Sharifuddin,Shakira Binti; Chong,Yew KeatDisclosed
As Malaysia continues to strive toward high-income status, accelerating productivity growth has become the country’s central economic policy challenge.
... See More + Productivity growth has become increasingly important as the country’s traditional economic engines have slowed. Declining oil and gas output, coupled with the slowing growth of the Malaysian mining sector, has reduced the pace of capital accumulation, while demographic trends are slowing the growth of the labor force. Demographic trends underscore the vital importance of productivity growth to the continued development of the Malaysian economy. Malaysia’s demographic transition is inhibiting the expansion of the labor supply, and female labor-force participation is low by the standards of comparable countries. Weakening external demand and intensifying global competition in Malaysia’s key export industries confirm the necessity of increasing productivity levels. The report presents an empirical analysis of the role of productivity in the Malaysian economy. It evaluates the country’s institutional and policy framework, and identifies key constraints to productivity growth. Using time-series data and cross-country comparisons, the report examines the ways in which infrastructure and institutional quality, market efficiency, innovation, and workforce skills influence productivity in Malaysia. This analysis is designed to inform a productivity-focused economic agenda, and the report concludes by presenting a set of policy recommendations and institutional reforms designed to bolster long-run productivity growth.
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The historic outcome of Malaysia's recent elections provides an unprecedented opportunity for change. The country's 14th General Elections which took place on May 9, 2018, in the context of widespread citizen concern regarding the degree to which the proceeds of economic growth have been shared across the Malaysian society and a call for increased government accountability, have resulted in the nation's first change in government since its independence in 1957.
... See More + The new government's emerging economic policy framework is strongly guided by its election manifesto Buku Harapan, which responds to these popular sentiments. Heightened uncertainty amid the political transition exacerbated the ongoing turbulence in the financial markets arising from external factors. In the period between the elections and end-May, Malaysia's 5- and 10-year sovereign spreads against US Treasuries increased by 24 and 27 basis points respectively, while the stock market fell by three percent. Meanwhile, RM19 billion of foreign capital was withdrawn from the domestic financial markets in May as post-election market turbulence coincided with heightened investor uncertainty about the emerging markets asset class. However, since then volatility in the financial markets has been largely driven by external factors amid increased global trade tensions, as the uncertainty surrounding the political transition has gradually reduced.
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Economic Updates and Modeling 127679 JUN 01, 2018
Record,Richard James Lowden; Chong,Yew Keat; Teh Sharifuddin,Shakira BintiDisclosed
The reallocation of resources from low- to high-productivity firms can generate large aggregate productivity gains. The paper uses data from the Malaysian manufacturing census to measure the country's hypothetical productivity gains when moving toward the level of within-sector allocative efficiency in the United States to be between 13 and 36 percent.
... See More + Across three census periods in 2000, 2005, and 2010 (the most recent available), the productivity gaps appear to have somewhat widened. This suggests that the "catching-up" process remains a challenge and a potential opportunity, particularly if total factor productivity is expected to be the dominant source of future economic growth. The simulations, based on different magnitudes of the realization of hypothetical productivity gains, show that Malaysia's gross domestic product growth can potentially increase by 0.4 to 1.3 percentage points per year over five years. The analysis accounts only for resource misallocation within sectors. There may be other, possibly large, resource misallocation across sectors. If so, closing those gaps could boost total factor productivity and gross domestic product growth even further.
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Policy Research Working Paper WPS8368 MAR 19, 2018
Performance based budgeting (PBB) has been a popular reform among ministries of finance across the world, accompanied by high expectations for its ability to transform national budget processes.
... See More + PBB offers the hope of a more evidence-based rationale for making budget decisions across an array of competing policy and program areas. It offers a framework for linking medium-term national strategies with the annual budget process, while the program logic structure gives a more transparent view of the activities being undertaken than a traditional line item budget does. Ultimately, PBB holds out the allure of providing incentives for improved public service delivery. Despite significant time and effort devoted to PBB implementation, the experience of many countries is rather mixed. This report explores some of Malaysia’s successes and challenges in implementing PBB in recent years, the rationale for undertaking the reform, and how Malaysia’s experience with PBB compares with that of other countries.
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The conference on public policy in a digital world was organized as part of the World Bank Group global knowledge and research hub in Malaysia’s ongoing engagement on the digital economy, in collaboration with the Malaysian Ministry of Finance (MOF).
... See More + This conference review covers five sessions as follows: 1) First session aims to provide an overview of the region’s digital economy adoption and understand broad policy challenges moving forward; 2) Second session examines the state of digital adoption in Malaysia, particularly in the business sector, and discusses obstacles that limit smaller businesses from riding the wave of the digital economy; 3)Third session explores options to raise revenue from the digital economy, outlining the key challenges while considering recent actions by the international community; 4) Fourth session provides an overview of the digital connectivity in Malaysia, and how this is impacted by the market structure and regulatory regime; and 5) Fifth session looks into Malaysia’s digital entrepreneurship ecosystem, the efforts by key players, and discusses primary challenges as it moves forward.
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This report is part of the World Bank’s Malaysia development experience series that strives to document the country’s approach to improving public sector performance.
... See More + The report builds on the previous installment in the same series that focused on Malaysia’s experience with driving performance from the center of government through the Prime Minister’s Management Delivery Unit (PEMANDU). The more drastic overhaul of the sector was envisioned to come from the application of the DU approach to transforming sector performance. This report describes how the DU method worked in both the design and implementation stages of literacy and numeracy screening (LINUS). This includes the interface between Ministry of Education (MOE) and PEMANDU, as well as PEMANDU and Education Performance and Delivery Unit (PADU). The core of the document focuses on implementation details: the institutions, leadership, and incentives that contributed to the program’s success. It also describes how the implementation agencies worked together to implement LINUS.
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