Despite the numerous challenges brought by the COVID-19 pandemic, Malaysia is riding out the severe economic downturn comparatively better than many economies, said the World Bank.
Country director for Brunei, Malaysia, the Philippines, Thailand, East Asia and Pacific, Ndiamé Diop said Malaysia’s economy rests on strong fundamentals.
The country’s diversified economic structure, sound financial system, effective public health response and proactive macroeconomic policy support have all helped to soften the pandemic’s blow, he said in a statement today.
“While we expect the economy to see a sharp contraction this year with gross domestic product shrinking by 3.1 per cent and a particularly pronounced contraction in the second quarter, there is light at the end of the tunnel,” he said.
The World Bank estimates that 90 per cent of the world’s economies would see a contraction this year.
“The impact from the pandemic is expected to lead to the first increase in global extreme poverty since 1998, effectively wiping out the progress made since 2017,” he said.
Diop noted that the Malaysian government has deployed a six-stage strategy to build resolve, resilience and to restart the economy, adding that the country is currently on the recovery stage; building the foundation for the later stages, namely revitalising and reforming the economy.
“This means the government is set on not just getting out of this crisis, it is also trying to get into a better shape than it was before, so it is more able to withstand the next one,” he said.
Diop said while significant policy support has been put in place, the government might need to do more to protect those who need it most, especially vulnerable households and businesses.
While some economic activities would rebound post-Movement Control Order, it would take some time for incomes and jobs to recover as some economic sectors, such as manufacturing, would see a faster return to growth than others, like tourism.
“This may mean providing further rounds of financial assistance to the vulnerable, especially the Bottom 40 who lack the savings and support networks to withstand a prolonged hit to their earnings,” he said.
He said the crisis underscored the need for Malaysia to put in place a stronger social protection system that is more cost-effective and less fragmented to improve individuals’ and households’ welfare, both during the recovery period and in the future.
Diop said COVID-19 caught Malaysia somewhat off-guard with limited budgetary space to respond with direct fiscal injections; noting that as the economy recovers, reforms would need to be taken to boost tax revenues, including finding new sources of revenue that are more progressive.
A key focus also must be on upskilling and retraining the workforce for a new economy, as well as accelerating the digital agenda and bridging the digital divide, he said.
“Even before the crisis, there was a growing realisation that Malaysia needs to shift its competitive approach towards attracting higher-quality investments; a challenge which is even more critical to address now.