KUALA LUMPUR: Malaysia's economy is expected to bounce back sharply next year with a 6.9 per cent expansion, the World Bank said.
But before that, the economy will likely have to deal with a painful 3.1 per cent contraction this year due to a sharp slowdown in economic activity caused by
Covid-19 and measures to contain its spread.
In the latest edition of the World Bank's Malaysia Economic Monitor titled 'Surviving the Storm" released today, Malaysia's near-term outlook is expected to be "unusually uncertain".
"The pandemic coupled with a changing world of work also raises the need for a more enhanced social protection system in Malaysia," the World Bank said in a statement.
The bank said the government had responded to the economic impact of the pandemic with two rounds of the Prihatin Rakyat Economic Stimulus Package in February and March, and more recently the Penjana Short-term Economic Recovery Plan.
Higher public spending coupled with declines in fiscal revenues, however, has led to a narrowing of fiscal space.
Therefore, the World Bank recommended reallocating expenditures towards priority areas, identifying new sources of non-tax revenue and amending statutory limits on borrowings to help expand fiscal space in the short-term.
Minister in the Prime Minister's Department in charge of the economy Datuk Seri Mustapa Mohamed said Prihatin and Penjana stimulus had softened the impact of Covid-19 and paved a path towards economic recovery.
"We welcome the findings and recommendations of the newly-released World Bank Malaysia Economic Monitor. It provides a cogent analysis of the current economic challenges and will help inform our efforts to accelerate the post-Covid-19 economic recovery process," Mustapa said in the statement.
Firas Raad, World Bank Group representative to Malaysia and country manager, said important social protection measures were needed to help vulnerable Malaysians survive the current economic storm and thrive in a new post-pandemic reality.
"Protecting livelihoods is important so that those who have lost their jobs and businesses are able to get back on their feet and contribute to Malaysia's economic recovery," Firas added.
Meanwhile, World Bank macroeconomics, trade and investment lead economist Richard Record said the short-term recommendations would be required for the government to restore its fiscal buffer, while preparing for the second wave of the pandemic.
Record said the government must also preserve its economic structure and make some changes to prime legislation in creating more fiscal space and headroom as the country transitions into the recovery phase.
The fall in oil prices, he said, had put additional pressure to the government's revenue.
He expects the country's fiscal deficit to reach as much as 7.0 per cent of gross domestic product (GDP), if steps were not taken to reduce non-core spending or raise additional non-tax revenue.
Record said demand for Malaysia's export was expected to remain weak for some time as advanced economies were still facing a severe contraction.
"A second wave of infection in Malaysia could necessitate the reintroduction of movement restriction," he warned.