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Malaysia 2016 OECD Economic Survey fostering inclusive productivity

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Malaysia 2016 OECD Economic Survey fostering inclusive productivity

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Malaysia 2016 OECD Economic Survey fostering inclusive productivity

  1. 1. FIRST OECD ECONOMIC ASSESSMENT OF MALAYSIA 2016 Fostering inclusive productivity Putrajaya, 11 November 2016 @OECD @OECDeconomy http://www.oecd.org/eco/surveys/economic-survey-malaysia.htm
  2. 2. 2 Growth has been resilient Source: OECD Economic Outlook database and national statistical offices. Note: ASEAN-5 is the weighted average growth rate of Indonesia, Malaysia, Philippines, Thailand and Singapore. GDP growth
  3. 3. Incomes are rising 3 Note: GDP per capita is computed in real USD PPP terms; ASEAN excludes Myanmar; 1970-2011 data are from the Penn World Tables, 2012-14 data from the World Development Indicator database. Source: World Bank, World Development Indicators; Penn World Tables 8.1 database and Economic Planning Unit, Malaysia. 0 10 20 30 40 50 60 70 80 90 100 0 10 20 30 40 50 60 70 80 90 100 1970 1975 1980 1985 1990 1995 2000 2005 2010 %% GDP per capita (percent of OECD average) Malaysia Korea Thailand Philippines ASEAN
  4. 4. 4 Income inequality has declined Source: Department of Statistics, Malaysia.
  5. 5. 5 Well-being can still be raised Source: OECD calculations based on data provided by OECD, Better Life Index, national sources and UNESCO, UIS.stat (database). 1. Indicators are normalised to range between 10 (best) and 0 (worst) . 2. OECD higher/lower income countries are countries belonging to the top/bottom 30% of the OECD member countries. 0 1 2 3 4 5 6 7 8 9 Income Jobs Community Education EnvironmentHealth Life satisfaction Safety Work-life balance Better-life index, main dimensions Malaysia Higher-income OECD Lower-income OECD
  6. 6. 6 Boosting productivity growth is key Source: OECD calculations based on data provided by national statistical offices and OECD, Productivity Statistics. Annual labour productivity growth 0 2 4 6 8 10 12 0 2 4 6 8 10 12 China Indonesia Thailand Korea Malaysia Singapore Turkey OECD %% 2001-2005 2006-2010 2011-2015
  7. 7. 7 The bond market is relatively developed Source: Bank Negara Malaysia; Asian Bond online database. 0 50 100 150 200 250 0 50 100 150 200 250 Indonesia Philippines China Thailand Singapore Malaysia Korea Japan %ofGDP%ofGDP Sizeofdomesticbondmarkets(asofDecember31, 2015) Corporate Government
  8. 8. 8 Household debt is relatively high Note: Data reflects gross debt as a share of GDP at June 2015, except for Malaysia (2015 average) and China (as at December 2015). Household debt Source: Bank Negara Malaysia Annual Report 2015; Standard Chartered Bank (2016), Asia Leverage: After the Boom.
  9. 9. 9 Tax revenues are low and declining Source: OECD (2015), Revenue Statistics in Asian Countries 2015: Trends in Indonesia, Malaysia and the Philippines (for the years 1990-2013); MOF (2015), Economic Report 2015 -2016 (for the years 2014-16). 0 5 10 15 20 25 30 35 40 0 5 10 15 20 25 30 35 40 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 % of GDP% of GDP OECD average Malaysia
  10. 10. Boosting productivity 10
  11. 11. Student performance can be improved 11  Follow through with the revised school curricula based on international benchmarking and improvements to teacher evaluation, training and upskilling.  Monitor the impact of basic education reform implementation on student access and equality. Percentage of low performers in mathematics by socio-economic quartile Source: OECD (2016), Low-Performing Students: Why They Fall Behind and How to Help Them Succeed. 0 10 20 30 40 50 60 70 80 90 0 10 20 30 40 50 60 70 80 90 Korea Singapore Viet Nam Indonesia OECD average Thailand Turkey Malaysia %% Bottom quarter Top quarter
  12. 12. New business entry is low 12 Source: World Bank, World Development Indicators.  Streamline firm registration and introduce zero licensing procedures in services and industry. Number of new limited liability corporations per 1,000 people aged 15-64 0 1 2 3 4 5 6 7 8 9 10 11 0 1 2 3 4 5 6 7 8 9 10 11 2006 2007 2008 2009 2010 2011 2012 2013 2014 Malaysia OECD Indonesia Korea Thailand Singapore
  13. 13. 13  Amend insolvency laws to facilitate the rescue of viable firms. The insolvency regime is inadequate Note: The gap to frontier is the difference between Malaysia’s score and the score of the best performing country (=100). Source: World Bank, Doing Business. Gaps to the frontier 0 20 40 60 80 100 Starting a business Dealing with construction permits Getting electricity Registering property Getting credit Protecting minority investors Paying taxes Trading across borders Enforcing contracts Resolving insolvency
  14. 14. Services trade is still overly restricted 14 Note: The STRI indices take values between 0 and 1 Source: OECD, Services Trade Restrictiveness Index. The OECD Services Trade Restrictiveness Index (STRI) for Malaysia  Pursue further trade and investment liberalisation to boost services sector growth and competition. 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 Malaysia Average of countries covered by the STRI
  15. 15. Public-sector employment is high 15  Commission an independent review of public sector productivity.  Regularly evaluate strategic plans and programmes through independent audits and regulatory impact assessments.  Expand performance benchmarks to a larger number of officials, with clear links to rewards, penalties and career progression. Source: ILO (2016), ILOSTAT database. 0 2 4 6 8 10 12 14 16 18 0 2 4 6 8 10 12 14 16 18 Korea Philippines Japan Thailand Viet Nam Mexico Turkey Chile Malaysia OECD %% Share of employment in the public sector (2014)
  16. 16. Fostering inclusive growth 16
  17. 17. 17 Labour participation rates are relatively low Source: ILO, ILOStat Database; OECD, Labour Force Statistics.  Promote flexible work arrangements and invest more in early childhood care, lifelong learning and reskilling.  Align tertiary and vocational education and training to labour market needs to continue to reduce skills mismatches. 0 10 20 30 40 50 60 70 80 90 0 10 20 30 40 50 60 70 80 90 Thailand China Singapore OECD Indonesia Malaysia Philippines Korea %% Labour force participation as a percent of people at 15-64
  18. 18. 18 Spending for social protection is low Source: OECD, Social Spending Indicator; ADB, Statistical Database System.  Develop a comprehensive social protection system, including by implementing an employment insurance scheme.  Improve social policy consistency, programme targeting and the overall impact on reducing disadvantage. Social protection spending as a share of GDP 0 5 10 15 20 25 0 5 10 15 20 25 1997 2002 2007 2012 %% OECD social expenditure Malaysia social expenditure
  19. 19. 19 The consumption tax rate is low Source: OECD Tax Database; KPMG (2015), 2015 Asia Pacific Indirect Tax Guide.  Undertake an independent review of expenditure and revenue needs.  Over the medium term, consider gradually reducing exemptions and then raising the rate of the goods and services tax, and increasing the progressivity of income tax. VAT/GST tax rate
  20. 20. 20 Pension replacement rates are low Note: The data are for 2012 for Malaysia and for 2014 for OECD countries. The source publications assume investment returns of 3.5% per annum for Malaysia, whereas a 3% per annum return was assumed for OECD countries. Source: OECD (2013), Pensions at a Glance Asia-Pacific 2013; OECD (2015), Pensions at a Glance 2015.  Increase pension access ages in line with improvements in healthy life expectancy and reduce exemptions for early withdrawal.  Enrol future public employees in the defined contribution scheme covering private sector employees. 0 20 40 60 80 100 120 0 20 40 60 80 100 120 SouthAfrica Indonesia Mexico UnitedKingdom Chile Japan Malaysia Ireland NewZealand UnitedStates Korea Switzerland Canada Germany Poland Sweden Slovenia Australia Estonia Norway Belgium OECD Finland CzechRepublic SaudiArabia Denmark France Israel EU28 Greece Brazil Iceland Italy China Slovakia Russia Argentina Luxembourg Portugal Spain Hungary Austria Netherlands Turkey India %% Net replacement rate
  21. 21. 21 Regional inequality is still high Source: Department of Statistics, Malaysia.  Improve social services, transport, and broadband connectivity in remote areas.
  22. 22. 22 Key recommendations
  23. 23. 23 Resilient growth  Continue fiscal consolidation to provide a buffer should conditions deteriorate  Undertake an independent review of expenditure and revenue needs  Over the medium term, consider: i) Gradually reducing exemptions and then raising GST ii) Increasing the progressivity of income tax  Increase the use of market mechanisms and stricter environmental standards to strengthen green growth strategies
  24. 24. 24 Boosting productivity  Follow through with the revised school curricula based on international benchmarking and improvements to teacher evaluation, training and upskilling  Increase the collaboration of tertiary institutions with industry to deliver job-ready graduates, with focus on vocational education and training  Commission an independent review of public sector productivity  Streamline innovation system governance through clear mandates for the National Science Council and Research Management Agency  Enhance independence, staffing and financial resources of the competition regulator  Amend insolvency laws to facilitate the rescue of viable firms and introduce out-of-court insolvency procedures  Expand merger control powers  Pursue further investment liberalisation to boost the services sector
  25. 25. 25 Fostering inclusive growth  Develop a comprehensive social protection system, including by implementing an employment insurance scheme  Promote flexible work arrangements and invest more in early childhood care, lifelong learning and reskilling  Increase pension access ages in line with improvements in life expectancy and reduce exemptions for early withdrawal  Improve social services, transport and broadband connectivity in remote rural areas  Enrol future public employees in the defined contribution scheme covering private sector employees
  26. 26. http://www.oecd.org/eco/surveys/economic-survey-malaysia.htm For more information 26 @OECDEconomy @OECD
  27. 27. 27 Appendix Disclaimers: The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law. This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.
  28. 28. OECD projections for 2016-17 28 2015 2016 2017 Real GDP growth 5.0 4.2 4.2 CPI 2.1 2.3 2.5 Headline budget balance (% of GDP) -3.2 -3.1 -3.0 Memorandum items Oil price (Brent, USD per barrel) 52.4 43.5 45.0 World trade growth (Volume change) 2.5 2.1 3.2 Source: Ministry of Finance, Malaysia and OECD Economic Outlook database.

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